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Egypt to sell valuable cotton land to bolster the textile industry

Egypt announced that it will sell 14 tracts of land where it stores its industrial cotton gins to compensate for the heavy losses suffered by the textile industry.
Cotton is seen in a field in Qaha, Al-Qalyubia Governorate, northeast of Cairo, Egypt September 28, 2018. REUTERS/Mohamed Abd El Ghany - RC1BE9EC1EF0

CAIRO — Egypt’s Minister of Public Business Hisham Tawfik said Sept. 17 that Egypt will sell 14 tracts of land where it stores its industrial cotton gins in a bid to overhaul and develop the textile manufacturing industry. The land is worth 27 billion Egyptian pounds ($1.51 billion). The industry suffered losses of 2.7 billion Egyptian pounds from 2016-2017.

Tawfik said the plan to bolster the Holding Company for Spinning and Weaving will be funded from the proceeds of selling the cotton gin lands. He added that the development project will cost an estimated 25 billion Egyptian pounds. Though there is no prospective buyer for the land, the government plans to change the land's purpose from industrial to real estate.

Egypt is home to a distinguished and diversified textile industry. The sector plays a major role in the Egyptian economy, starting from the cultivation of cotton all the way to the production of textiles. In 2011, the textile industry made up 3% of the gross domestic product, 30% of the industrial product and 13% of nonpetroleum exports, according to the Central Bank of Egypt.

The state-owned Holding Company for Cotton, Spinning and Weaving handles the textile industry in Egypt. It comprises 32 companies distributed across Egypt's governorates. The holding company is divided into different businesses dealing in cotton trades and the spinning and weaving industry. The holding company has suffered since late Egyptian President Anwar Sadat initiated a policy of economic openness. Egypt began to import more cotton instead of focusing on cultivating Egyptian cotton. Textile manufacturing equipment has aged since then, and economic policies have not been renewed.

The textile industry in Egypt continued its downhill trajectory following the decrease in the price of cotton, to the dismay of farmers. Cotton production has since waned, and the government has reduced customs on imported seeds, leading to poor government marketing plans for long-staple cotton. High energy prices have also prompted Egyptian companies and factories to import cotton. 

Cotton acreage decreased in early 1990. This decline was further exacerbated by the liberalization of Egypt’s cotton sector in 1994, which ended the state oversight of cotton cultivation and opened the door for the private sector. Cotton acreage fell dramatically, reaching 270,000 feddans (280,000 acres) in 2017, as opposed to the heyday of 1991, when Egypt cultivated up to 1 million feddans.

The Egyptian government seeks to increase cotton acreage in 2018. The Ministry of Agriculture announced earlier this year that it aims to cultivate 500,000 feddans of cotton this year, setting the price of 2,700 Egyptian pounds per quintar (approximately 143 kilograms or 315 pounds) of high-quality cotton.

Prior to the 1994 liberalization, which dealt a severe blow to the cotton industry, the price of one quintar stood at 100 pounds. After 1994, prices rose to 500 pounds per quintar, reaching 1,600 pounds in 2010, a year before the January 25 Revolution.

Following the outbreak of the revolution, the successive government cared little about the cultivation of cotton, until the government began setting policies to increase cotton acreage and encourage farmers, setting the price of one quintar at 2,700 pounds.

In 2009, Egypt exported cotton to more than 20 countries. That year, Qatar ranked first in terms of cotton imports from Egypt, with 38% of imports, China 16% and Turkey 15%. According to the 2009 Egypt cotton crop statement, Egypt made $37 million in cotton exports, amounting to 12 million quintars. In 2017, 86,000 quintars of cotton were exported for $139,000, according to the Central Agency for Public Mobilization and Statistics.

Yomn al-Hamaki, a professor of economics at Ain Shams University, told Al-Monitor via phone that private businesses' control over the textile industry, as well as the absence of a government vision and the lack of coordination between its institutions, have taken a heavy toll on the industry.

Hamaki said the sale of cotton gin land is part of a Ministry of Business strategy to overhaul the textile industry, whereby new cotton acreage will be determined in Upper Egypt to encourage farmers to cultivate short-staple cotton in a bid to meet the needs of local cotton factories. 

This is in addition to the development of the cotton gin manufacturers, which will be funded from the revenues from the sale of the high-priced cotton gin lands — a step that the government believes is the best option to overhaul this sector.

She believes that the state’s strategy to promote the textile industry is viable so long as there is close monitoring, administrative control over cotton sales, encouragement of competition among companies and support for small textile projects.

“The sale of the cotton gins is the best way to overhaul the sector. It is the only option in the absence of the necessary resources, especially since the government budget cannot be burdened and the weaving and textile companies are suffering great losses,” Hamaki said.

The Ministry of Business announced in 2018 its strategy to overhaul the textile industry. The strategy relies on the cultivation of small-staple cotton in Upper Egypt; changing the curricula in technical schools to meet the needs of factories; having the factories take on students’ scientific research costs; and setting up colleges to award advanced technology degrees.

Economist Rashad Abdo criticized the state’s plan to sell the cotton gins. “This brings to mind the popular saying that goes, sacrificing the mother so the child lives. It does not make sense to me to sell the land to promote the factories,” Abdo told Al-Monitor during a phone interview.

He believes the government's plan is a result of incompetence and confusion within the Ministry of Business. Abdo believes the government should take into consideration alternative plans, such as involving the private sector in the textile industry or using the holding company's land instead of selling it.

“The government said the sale deal is worth 25 billion pounds," he said. "Why don’t we keep the lands and opt for better alternatives?”

Raif Tamraz, undersecretary of parliament's agriculture and irrigation committee, concurred with Abdo. “This plan has made things worse. This decision is totally unacceptable. Had this government been able to properly run the textile industry, we would not have reached this point in the first place,” Tamraz told Al-Monitor via phone.

“I am all for the participation of the private sector and foreign investors and developers, even if through borrowing. Selling is a big no,” he added.

Tamraz believes these alternatives would ensure the continuous production of textiles and circumvent the failure of public sector companies. “The government did not address this plan with parliament," he said. Tamraz said that when parliament next convenes in October, he will issue a request to meet with Tawfik and the minister of agriculture.

Egyptians will not likely welcome the government's plan to sell state assets. According to economists, the best way to promote industry is through the participation of the private sector.

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