Sustainably produced goods are increasingly gaining in importance in European Union (EU) markets, not least due to new consumer trends. Consumer awareness for socially and environmentally sustainable production is particularly strong in the textile, home textile and apparel (T&A) industry. Moreover, many multinational and EU companies, governments and organizations are adjusting their procurement strategies and regulations to reflect social and environmental objectives. In the EU, policies such as the European Green Deal and the Circular Economy Action Plan are furthermore promoting shifts towards environmentally sustainable products and value chains.1
The T&A industry is a classic example of a buyer-driven value chain. It is coordinated by lead firms that conduct value-adding activities, such as design or branding, in house, but outsource all or most of the manufacturing processes to a decentralized, globally dispersed network of suppliers23 . We can differentiate between two distinct supplier networks within the European T&A value chain: (i) a regional value chain within which apparel production is located in geographically close countries in Eastern Europe and the MENA region; and (ii) a global value chain characterized by suppliers located in Asian countries. While regional suppliers enjoyed a substantial market share in the 1980s and 1990s, certain developments in the industry over the last two decades – including the phasing out of the Multi Fibre Agreement (MFA) in 2005 and the resulting liberalization of trade in apparel – led to a growing share of Asian suppliers4. The current developments on the European market might, however, present a window of opportunity for suppliers from the MENA region, including Egypt. Even if the COVID-19 pandemic presently has a negative impact on Egypt’s T&A industry, it could benefit from intensified near-shoring trends in the post-COVID-19 era.
Egypt’s T&A industry and the challenges it faces
In recent years, the T&A industry has roughly contributed between 3 per cent to 4 per cent to Egypt’s gross domestic product (GDP) and employed over half a million people in 6,745 enterprises.5 Most exporting firms focus on cut-make-trim (CMT) or are original-equipment-manufacturing (OEM) firms that do not specialize in offering additional services. In 2019, exports from Egypt’s T&A industry (HS 50-63) amounted to almost USD 3.45 billion, representing roughly 11 per cent of the country’s total exports6. In 2020, exports dropped to USD 2.84 billion, the lowest level since 2009 (see figure below). The EU and the United States are by far Egypt’s most important export markets, accounting for 29 per cent and 52 per cent of total apparel exports (HS 61-62), respectively, in 20197.
Egypt’s T&A industry has a potentially advantageous position which, however, is currently not being fully exploited. Egypt is one of the few countries in the MENA region that produces cotton and has the potential of offering a fully vertically integrated T&A chain. In addition, Egypt has preferential access to EU and U.S. markets, is in close proximity to European countries, and has comparatively lower labour costs8. However, the T&A industry’s growth rates were modest even before the outbreak of the COVID-19 crisis. Recent trade data suggest that the industry is additionally experiencing the negative effects of the COVID-19 pandemic (see figure above).
The industry’s main economic challenges include (i) lack of vertical integration due to upstream bottlenecks and high import-dependency for textiles; (ii) decreasing production of cotton; (iii) lack of modernization and, in many cases, limited workers’ capabilities; (iv) limited capacities and capabilities of many small- and medium-sized enterprises (SMEs) to fulfil stringent buyer requirements; (v) Egypt’s partially negative reputation as a supplier country; and (vi) an eroding unique selling point for Egyptian cotton products due to lack of brand protection and increasing exports of raw cotton.
Several sustainability challenges affect the industry along the chain. Cotton production has a major ecological footprint as it depletes soil, requires agrochemicals, and is highly water-intensive. The existing water irrigation systems suffer from underinvestment, with many becoming outdated and ineffective. Cotton-growing in Egypt is largely done by smallholders and seasonal workers who earn low and unstable wages due to low margins and low yields, in addition to output and price volatility. Despite the fact that the Egyptian government has adopted the National Action Plan for Combating the Worst Forms of Child Labour and Supporting Families 2018-2025, the International Labor Organization reports that child labor is still prevalent in the cotton industry.
The T&A chain’s processing and manufacturing segments also face sustainability challenges. The excessive and unsustainable use of natural resources due to low energy efficiency and the partial lack of wastewater treatment leads to further ecological distortions in an already distressed environmental context. In addition, the industry is characterized by poor working conditions. Low wages (generally below 200 EUR/month), limited social services and labour rights (in particular, freedom of association), as well as health and safety issues are prevalent in the processing and manufacturing segments. Given that the great majority of workers in Egypt’s apparel industry are women, they are disproportionately affected by these problems.
Towards a sustainable development strategy for the T&A industry
To benefit from recent EU market trends, the Egyptian T&A industry should focus on moving towards sustainable production and galvanizing innovation capacities and capabilities. Restructuring the industry towards more sustainable production needs to be based on more efficient use of scarce water and land resources as well as the promotion of organic and sustainable cotton production, given the trend towards organic textiles in the EU and other consumer markets. Sustainability in textile production could be strengthened by improving wastewater management and dyeing practices. Such improvements should be accompanied by certifications that ensure high sustainability standards and enable product differentiation.
To pursue such a strategy, government policies and donor programmes can undertake a variety of measures and actions, including to support farmers in cultivating organic cotton, apparel firms in developing an organic product collection and marketing strategy, and textile firms in their efforts to increase resource efficiency in production and to acquire certification. Furthermore, innovation capacities and capabilities need to be improved. The same holds true for access to finance. Labour productivity can be increased through incentives for skill formation and learning, as well as technical and vocational education and training programmes. Such measures will strengthen the export competitiveness of Egypt’s T&A industry. To promote the industry’s vertical integration, the government and donors should incentivize and attract investments in bottlenecks of the T&A industry’s value chain, particularly in the production of man-made fiber, cotton-yarns, and woven and knitted fabrics, including the quality of dyeing, finishing and printing.
Despite the current negative effects of the COVID-19 pandemic, Egypt’s T&A industry could benefit from intensified near-shoring trends, potentially strengthening the country’s position as a supplier. For this to happen, industrial policy and donors will need to support measures for vertical integration of, and sustainable production in the T&A industry.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
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