ASSEaSMENT OF POTENTIAL FOR LIBERALIZATION AND PRIVATIZATION OF THE EGYPT COTTON TEXTILE SUBSECTOR Project No. 263-0233 Delivery Order No. 3 Contract No. PCE-0001-I-00-2051-00 Submitted to: TEXTILE INDUSTRIES HOLDING COMPANY AND MINISTRY OF PUBLIC ENTERPRISES GOVERNMENT OF EGYPT _______and ECONOMIC ANALYSIS DIRECTORATE liii AND AGRICULTURAL RESOURCES DIRECTORATE CHEMONICS USAID/CAIRO Submitted by: CHEMONICS INTERNATIONAL July 30, 1993 INTERNATIONAL CONSULTING DIVISION CHEMONICS July 30, 1993 Mr. Jeffrey Goode and Dr. Rollo Ehrich Eng. Mahmoud Ibrahim, Chairman Agency for International Development Textile Industries Holding Company Cairo, Egypt Cairo, Egypt Reference: Project No. 263-0233, Delivery Order No. 3, Contract PCE-0001-I-00-2051-00 Cotton Textile Subsector Assessment Subject: Cotton Textile Subsector Assessment Dear Sirs: Chemonics International is pleased to submit the final report on our assessment of the Egyptian cotton textile subsector. In doing so, I would like to thank you for your continuing encouragement and support throughout this project. It was a pleasure to work closely with both AID and the Textile Industries Holding Company, and our good working relationship con.ributed grealy to the success of this project. Sincereiy yours, Dr. Dean Ethridge Project Team Leader 2000 M Street, NW. Tel: (202 466-5340 or 293-11 6 Suite 200 Fax: (202) 331-8202 Washington, D.C. 20036 ITT Telex: 1440361 CHNC JT TABLE OF CONTENTS Pan ACKNOWLEDGEMENTS LIST OF ACRONYMS iii SUMMARY AND RECOMMENDATIONS v INTRODUCTION xv PART I SECTORAL ANALYSIS INTRODUCTION SECTION I INSTITUTIONAL FRAMEWORK AND STRUCTURE I-1 A. Role of the Textile Industry in Egypt's Economy I-1 B. Institutional Framework of the Textile Industry 1-2 C. Production and Investment 1-5 D. The Structure and Pattern of Exports 1-9 E. Employment, Wages, and Productivity 1-11 F. Linkages with Cotton Production and Trading 1-14 G. Conclusions 1-19 SECTION II ECONOMIC EVALUATION II-1 A. Institutional Imperatives II-1 B. Price System 11-3 C. Trade Restrictions 11-9 D. Supply and Demand Situation 11-13 E. Competitiveness 11-44 SECTION III FINANCIAL EVALUATION 1II-1 A. Introduction I1I-1 * B. Sector Financial Performance 111-2 C. Individual Company Financial Performance 111-4 D.- Conclusions 111-13 TABLE OF CONTENTS (continued) SECTION IV TECHNICAL ASSESSMENT IV-1 A. Introduction IV-1 B. Spinning IV-2 C. Weaving IV-6 D. Other Operations IV-9 E. Critical Technical Issues IV-9 F. Private Enterprise IV-12 G. General Technical Recommendations IV-12 H. Technical Recommendations for Specific Companies IV-13 PART II ACTION PROGRAM FOR LIBERALIZATION AND PRIVATIZATION INTRODUCTION SECTION V LIBERALIZATION AND PRIVATIZATION STRATEGY V-1 A. Objectives V-1 B. Phased Approach V-2 C. Liberalization Measures V-3 D. The Privatization Program V-6 E. Labor Redeployment V-6 F. Training Recommendations V-7 SECTION VI PROGRAMMATIC IMPLICATIONS VI-1 A. Benchmarks VI-1 B. Technical Assistance VI-2 C. Training VI-3 D. Roles and Responsibilities VI-3 F. Financing VI-4 ANNEX A TECHNICAL ANALYSIS A-1 Misr Helwan for Spinning and Weaving A-i The National Company for Spinning and Weaving A-15 TABLE OF CONTENTS (continued) Kafr EI-Dawar A-21 ESCO A-31 EI-Nasr for Spinning, Weaving, and Knitting (Chourbagi) A-37 Delta Company for Spinning and Weaving A-43 EI-Nasr Clothing and Textile Company A-49 Cairo Clothing and Hosiery Company (TRICONA) A-53 Cairo Dyeing Company A-59 ANNEX B FINANCIAL ANALYSIS B-1 ANNEX C ECONOMIC AND STRUCTURAL ANALYSIS C-1 ANNEX D INTERVIEW NOTES D-1 Alexandria Cotton Exporters D-1 Arab Company for Textiles D-3 BTM D-5 CATGO D-8 Cotton Textile Consolidated Fund D-1I Delta Spinning and Weaving Company D-15 Egypt Textile Manufacturing Federation D-17 Giza Spinning, Weaving, Dyeing, and Garments Company D-19 Holding Company for International Trading and Cotton D-23 El Nasr Clothing and Textiles Company, S.A.E. D-24 Misr Fine Spinning and Weaving Company D-26 Kafr EI-Dawar D-28 Agricultural Production Credit Project D-29 Mahalla D-31 El Messiri and Company D-34 National Spinning and Weaving Company D-36 ANNEX E QUALITY CONTROL AUDITING IN TEXTILE MILLS E-I ANNEX F MILL MAINTENANCE FOR HELWAN F-i ANNEX G TRAINING THE WORK FORCE G-1 ANNEX H PROJECT WORK PLAN AND SCOPE OF WORK H-1 ANNEX I INTERVIEWS AND SITE SURVEYS I-1 ANNEX J SELECTED BIBLIOGRAPHY J-1 ACKNOWLEDGMENTS The report would not have been possible without the generosity, support, and encouragement of key officials in the Egyptian government, especially Eng. Mahmoud Ibrahim, Chairman of the Holding Company for Textile Industries. Wt, would also like to thank Mr. Adel Habashi, Chairman, Holding Company for Cotton Affairs, and Eng. Ahmed Shoman, Chairman, Holding Company for International Trade and Cotton. Numerous other cotton textile industry officials were generous in providing time for interviews, arranging site visits of mill facilities, and providing needed documentation. These officials include: " Alexandria Cotton Exporters Association: Mr. A. Mohsen Abdedatif, President, and Mr. Aly M. Sherif, Executive Director • Arab Company for Textiles: Mr. Ilrahim M. Hassen, Chairman. " BTM: Mr. Louis Bishara. " Cairo Dyeing Company: Eng. Wafiq Gamiel, Chairman. " CATGO: Mr. Galal El Rifai, Chairman, and Mr. Ahmed M. Massekh, General Manager. " Chourbagi: Mr. Samier Hammed, Chairman. " Cotton Textile Consolidated Fund (CTCF): Mr. Tawfik Messiha, Director General, and Eng. Magdi EI-Areef, Chairman " Delta Spinning and Weaving Company: Eng. Mohsen El-Gillani, Chairman; and Eng. Abdel Megeed Asal, General Director. " Egypt Textile Manufacturing Federation: Mr. S. Semida, General Manager. " ESCO: Mr. Ahmed Saleem, Chairman. * Giza Spinning, Weaving, Dyeing and Garments Company: Mr. M.G. Marzouk. " Mahalla: Mr. Motaz B. Abdel Maksoud. " El-Messir" and Company: Mr. Mohamed Ihab E1-Messiri, Managing Partner. " Misr Fine Spinning and Weaving Company (Kafr EI-Dawar): Mr. Fathy Ahmed Aly, Chairman; Mr. Mohamed Shabaik, Ex-Chairman; Mr. Abdel-Aziz Helmy, Deputy Member; Eng. Moustafa L. Daoud, Commercial Sector; Eng. Mahmoud Ghamry, Spinning Sector; and Eng. Mohamed Salmine, Weaving Manager. " Misr Helwan: Eng. Abdel Aziz El-Isrigi, Chairman, and Mr. Mohamed Serag, Financial Sector. " El Nasr Clothing and Textiles Company, S.A.E. (Kabo): Mr. Hassan Abde! Kader Abdel Salam, Chairman. " National Spinning and Weaving Company, Alexandria: Eng. Ahmed El-Sersy, Chairman, and Eng. Kamal Eldin Badr Eldin, Chief Sector of Mills. " Samouly Company: Mr. Kamal EI-Samouly. " Sharkawi Weaving Company: Mr.Abdel Wahab EI-Sharkawi. " TRICONA: Eng. Abdel Khalik Yassin, Chairman. Throughout the project, the team worked closely with USAID/Cairo officials who facilitated the project through their liaison with GOE officials and their constant willingness to consult with the team on analytical and other issues. In particular, we acknowledge the help and support of the following: * Economic Analysis Directorate: Dr. Paul Mulligan, Director; Dr. Jeffrey Goode, Project Officer; Mr. Mark Gellerson, Project Officer; and Ms. Ingy Lotfy, Project Assistant. * Agricultural Affairs Directorate: Dr. Rollo Ehrich, Economist, and Mr. Ali Kamel, Project Officer. * Trade and Investment Office: Ms. Amal Amin, Cotton Assessment Committee Member. The local professionals and support staff on the project team also contributed greatly to the team's understanding and appreciation of the functioning of public sector companies in the textile subsector as well as the Egyptian economy as a whole. Their outstanding support deserves special mention. These team members include Eng. Magdy El Shimy, Liaison Specialist/Textile Specialist; Prof. Dr. Magdy El Messeiry, Textile Specialist; Prof. Dr. Moussa El-Hewaty, Financial Analyst; Prof. Dr. Farida Roushdy, Economist; Mr. Hassan El Samman, Data Analyst; and Ms. Raghda Fawzi, Senior Secretary. Many other individuals contributed as well to this project. That we are unable to list all of their names does not mean their efforts and contributions were not appreciated. The Chemonics expatriate team included the following members: Dr. Dean Ethridge, Chief of Party and Senior Economist; Mr. Pierre de Raet, Political Economist; Mr. David Woodward, Financial Analyst; Dr. Ali El Shiekh, Textile Specialist; Mr. Ross Burke, Project Supervisor. ii ACRONYMS AC Affiliated Company APCP Agricultural Production Credit Project (PBDAC) AUC American University in Cairo CAPMAS Central Agency for Public Mobilization and Statistics CATGO Cotton Arbitration and Testing General Organization CCG Corporation for Consumer Goods CIS Commonwealth of Independent States (former Soviet Union) CPI Consumer price index CTC Cotton Trade Corporation CTCF Cotton Textile Consolidation Fund EEC European Economic Community ELS Extra long staple cotton ERSAP Economic Reform and Structural Adjustment Program ETMF Egyptian Textile Manufacturing Federation GCOLCT General Committee for Organizing Local Cotton 'Trade GOE Government of Egypt GOFI General Organization For Industrialization HC Holding company HCCG Holding Company for Consumer Goods HCITC Holding Company for International Trade and Cotton HCTMT Holding Company for Textile Manufacturing and Trade HVI High volume instrumentation ITMF International Textile Manufacturers Federation LE Egyptian Pound LS Long staple cotton MALR Ministry of Agriculture and Land Reclamation MEFT Ministry of Economy and Foreign Trade MOI Ministry of Industry MPE Ministry of Public Enterprises PEO Public Enterprises Office PBDAC Principal Bank for the