YNFX.com
Persistent economic difficulties in Europe are stemming exports of knitwear from North Africa and political uprisings have had a negative effect on foreign direct investment in the area. However, some countries have weathered the storm better than others.
Morocco, Tunisia and Egypt – respectively the sixth, seventh and sixteenth largest exporters of knitwear to the European Union’s 27 member states, as measured by sales value – have traditionally been competitive knitwear producers and exporters. Their strengths are proximity to Europe, relatively low labour costs and short lead times.
However, the Arab Spring paired with the European economic crisis have challenged their textile and apparel industries in general, including knitwear.
These industries’ main target has been to survive rather than grow, according to a leading international supplier to knitwear businesses. “Passing through this difficult period of time was the same for all our customers – they all wanted to continue producing with the utmost care and keep up with delivery dates and cost optimisation,” says Jean-Patrice Gros, director of the Middle East and North Africa region for Lectra, a multinational based in Paris, France and involved in integrated technology solutions for industries including textiles.
Morocco experienced some instability in 2011, but did not go through a revolution per se; so the direct effects of the Arab Spring on its knitwear industry were minimal. Still, textiles and apparel remain hard hit by international recession. Clothing export sales fell 10% in 2009, according to AMITH, the Moroccan Textile and Clothing Industries Association. It was the largest such fall in North Africa at the time. CETTEX (the Tunisian government’s Technical Textile Centre) commented that this was mainly because European knitwear retailers bought from Pakistan rather than Morocco.
Knitwear is the largest subsector of Morocco’s apparel industry. Of some 600 million Moroccan garments sold to the EU-27 annually, an average of 350 million (58%) are knit pieces, generating some Dh8bn ($926.5m) in 2011, according to AMITH.
Morocco’s primary knitwear customers in 2010 were France (46%), Spain (26%), Germany (11%) and UK (11%), according to the United Nations COMTRADE database.
As European economies worsened in late 2011, Morocco’s garment sales suffered again. AMITH estimated that textile and apparel sales increased 17.8% in the first half of 2011 compared with the same period in 2010, but then dropped heavily from August last year.
Important customers cut orders by up to 30% so, by the end of 2011, annualised growth subsided to only 4.1%. Experts expect this trend to continue, predicting demand for clothing will decline by 3% in Europe in 2012. There was no 2011 breakdown for knitwear, but given its importance to Morocco, the general decline may not bode well for knitwear.
Revolution weakened Tunisia’s garment industry, though knitwear fared better than other subsectors. During 2011, foreign direct investment (FDI) in the Tunisian textile and clothing industry was TND36m ($23m), 18.4% down on 2010 (TND44m/$28m).
“The revolution and the problems that have followed have made clients leave and prevented new markets from coming,” says Jelloul Bougila, general manager of Tunisia-based Demco Knitwear and representative of the National Chamber of Tunisian Garment Makers.
With the customer base for Tunisian garments being heavily concentrated on the EU-27, the latter’s shaky economy could continue to spell trouble.
“The European economic crisis has made orders fall in general,” says Mr Bougila. In 2011, Tunisia exported €2.7bn ($3.47bn) of clothes to the EU-27, which made up around 95% of Tunisia’s total garment exports. Still, Lectra’s Jean-Patrice Gros says that Tunisia – whose revolution ended in January last year after only a month – appears to have bounced back quickest among North African states that saw uprisings.
“Despite disruptions to Tunisia after the revolution, the textile and clothing industry exports have maintained their competitiveness and knitwear recorded a growth rate in 2011 of 1.5% in value compared to 2010,” says CETTEX.
Knitwear increased its share of garment exports over the past six years from 18% of the market’s value in 2005 to 23.4% in 2011, when Tunisia exported 124 million knitwear pieces, valued at €635m ($812m). Italy is its largest export customer, taking 54% of such exports by value, followed by France with 32%.
“The stability of knitwear export activity is explained by the industry’s ability to meet the needs of foreign customers in terms of quality, flexibility, responsiveness, respect for deadlines and adaptation to the demands of European contractors,” says CETTEX.
Egypt went through an extended revolution followed by continued political turbulence which has created instability for many industries including knitwear. Strikes by Egyptian textile workers were said to be the flame that ignited the first uprising in Cairo’s Tahrir Square last year, which ultimately led to the removal of the Egyptian president.
Egyptian textile workers at state-owned Misr Spinning and Weaving Company in Mahala staged more strikes this summer, heavily disrupting the industry. The action formally ended in late July but could resume this autumn.
While Misr is not a knitwear producer, companies fear that strikes create a general impression of instability in the textile industry, which could continue to make potential investors wary and may ignite unrest in other sub-sectors.
The Egyptian Ready Made Garments Export Council (RMGEC), a public private partnership, says: “Recent events in Egypt brought to light the country’s numerous challenges, a number of which are among the root causes of the uprising. The country’s new political leadership will need to address several competitive challenges, starting with a reform of the labour market.”
Despite this, Egypt’s textile and apparel industry has not been as heavily threatened by European economic instability as Tunisia and Morocco. Geographical diversification of its knitwear export markets has allowed Egypt to weather the economic crisis more easily, and free trade deals with the EU and USA helped keep the country’s knitwear exports competitive against other low cost producers.
Egypt exported $543m worth of knitwear apparel last year, 19.1% higher than the $456m recorded for 2010, the largest share going to the US (47%), followed by the UK (14%), Germany (9%), Spain, France and Turkey, according to the COMTRADE.
“For spring 2013, Egypt is expected to continue its robust export growth that occurred during 2011 despite the revolution and which has continued through 2012 to date,” says the RMGEC.
All told, while the knitwear industry in some parts of North Africa is growing and despite the challenges it has faced, one of the largest hurdles it must overcome is convincing future investors that it is worth the risk.
FDI has plummeted in the region in the last year and political violence, especially civil disturbance, rates as the largest concern for foreign investors according to the 2011 World Investment and Political Risk Report by the World Bank Group’s Multilateral Investment Guarantee Agency based in Washington DC, USA.
Source: WTIN .
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