Opening Remarks

Mr. Tom Walter, Vice President, American Chamber of Commerce in Egypt; and President, Exxon Mobil Egypt

Topic: “Improving Labor Productivity in Egypt’s Ready-Made Garments Sector”

Good morning. I would like to welcome you to today's conference on "Improving Labor Productivity in Egypt's Ready-Made Garments Sector," organized by TRAC at the American Chamber of Commerce in coordination with USAID/ TAPRII and the QIZ Unit at the Ministry of Trade and Industry.

I would like to give thanks to Rachid Benjelloun of TAPRII and Dr. Ali Awni of MTI for their devotion to the success of Egyptian exports through the QIZ program. They have each worked closely with TRAC and have been instrumental in initiating and coordinating the study that will be the topic of our conference; its aim being to determine solutions to maintain, promote, and increase Egyptian exports from the QIZs.

I would also like to thank Ms. Lynn Salinger and Ms. Jane O'Dell, experts in the garment industry, for their considerable contributions to the study. Finally, I would like to give special thanks to Mr. Gino Marello who could not be with us due to an unfortunate illness. His contributions were also invaluable and we wish him a speedy recovery. Today we will examine the outcomes of their work, focused on the readymade garments sector operating in the Qualified Industrial Zones (QIZs) in Egypt.

As many of you are aware, the QIZ program is an agreement through which Egyptian goods can enter the US duty-free. In 2005, the QIZ started operating in 7 designated industrial locations in Egypt. Starting with an initial 397 qualified companies in these locations, QIZ has rapidly expanded to encompass over 15 designated industrial zones, with nearly 700 qualified companies, amounting to more than 1 billion USD in annual revenues.

The largest category of goods exported under the QIZ is apparel and clothing, comprising over 90 percent of all QIZ exports. Through the implementation of the QIZ program, Egypt has experienced significant growth in its exports of garments to the US, which increased by 41% in 2006. Companies exporting under the QIZ have also enjoyed higher profits as a result of their unrestricted duty-free access. Moreover, the low-capital and high-labor intensity of the readymade garment industry has helped to absorb some of Egypt’s young and plentiful workforce. The expansion of the apparel industry through the QIZ program has not only resulted in increased exports to the US, but it has also sharpened Egypt's comparative advantage in the sector in general.

Still, despite all the success of the industry under the QIZ program thus far, we have witnessed export growth of garments to the US leveling off, achieving only 12% growth in 2007; a considerable 30% below the growth of the previous year. This decrease in export growth is disconcerting considering the golden opportunity that Egypt has through QIZs' provision of duty-free market access. It is even more disconcerting in the wake of the financial crisis, as it becomes an urgent matter for Egypt to increase its competitiveness and productivity to compensate for the expected losses resulting from global recession.

In order to ensure the full enjoyment of benefits under the QIZ, the productivity of the industry in general, and that Egypt capitalizes on every opportunity to maintain and expand its export capacity through these trying economic times, this study was commissioned to determine the root causes for the slow-down in the readymade garments sector.

While not the focus of today's conference, we must also consider the need to encourage diversification of the industries benefiting from the QIZ, as well as the re-negotiation of certain requirements of the agreement, which challenge the increased profitability derived from duty-free market access.

Given the contribution of the readymade garments sector to the growth and development of the Egyptian economy and to the reduction of unemployment, learning from the assessments of today's experts will be fundamental to maintaining and expanding the success of the industry through the QIZ program and beyond. Moreover, these lessons might also be applied outside the readymade garments sector to offer valuable tools to increase competitiveness and productivity in general.

I will now invite Dr. Ali Awni to introduce the study and to share with us its background and scope. Thank you.