See Also: National Cotton Company
 

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MEED Middle East Economic Digest, April 19, 1996 v40 n16 p35(2)

King cotton reclaims his throne. (Egyptian cotton industry)(MEED Special Report: Egypt)(Industry Overview) David Butter.

Full Text: COPYRIGHT EMAP Business Information Ltd. (UK) 1996

When Louis Alex Jumel, a French engineer, succeeded in cultivating long-staple cotton in his Cairo garden in 1820, Egypt's powerful Ottoman ruler, Mohamed Ali, was quick to grasp the implications. Peasants were induced to plant large areas with the new crop, which produces much better quality textiles than the more common short-staple cotton, and Egypt was soon profiting from a surge in demand from overseas.

In the century and a half since then, Egypt's cotton industry has had its ups and downs, cashing in royally on supply constraints during the American civil war and the two world wars, but suffering in the ensuing slumps. During the 1980s, Egyptian cotton production steadily declined, as farmers shifted to other crops which benefited from the government's deregulation of agricultural prices. Exports tumbled, to just $35 million in 1991/92, and Egypt lost its position on world markets.

Finally, in 1994 the government started to deregulate the cotton market. The results so far have been mixed, but prospects for the next few years are bright, at least in the view of some private business people involved in the industry's revival. They say Egypt's cotton exports could soon easily exceed $1,000 million a year.

Mahmoud Wahba is one of these optimists. A former academic, Wahba has put the business theories he once taught into profitable practice. In the early 1980s he turned his grasp of hedging techniques to good effect, gaining a foothold in the American heating fuel market.

Wahba has since spent more time in his native Egypt, and devoted much of his energy to building up an integrated cotton business. This entails buying raw cotton, ginning it to produce lint, crushing cottonseed to make cooking oil, exporting high quality cotton and importing short-staple cotton for local textile mills. His National Cotton Company - in which National Bank of Egypt (NBE) holds a 25 per cent stake - has also moved into the yam spinning business: NBE chairman Mahmoud Abdel-Aziz proudly shows off the company's first yam samples to visitors to his Nileside office.

However, Wahba and National Cotton have not had an easy ride. The 1994/95 crop was poor, and farmers, for the first time in living memory, found they could bid up prices by selling to hundreds of private traders, instead of to the state marketing board that previously bought the crop at fixed prices. The price for raw cotton reached some [pounds]E 550 a cantar(1), almost double the previous year's price.

Price crisis

The mainly state-owned textile mills grew alarmed at the prospect of these prices being passed on to them, via the ginning stations. Atef Obeid, the multi-portfolioed minister responsible for the well-being of the public sector, was pressurised to intervene, and he duly capped prices of ginned cotton and placed a ban on any cotton exports until local mills had received enough for their needs. Wahba found himself the target of accusations in the press that he was a hoarder and a monopolist, and one of his warehouses was raided by police.

Wahba has taken all these setbacks in his stride. "I understand the pressures the various people are exposed to, and I am in this business for the long term," he says.

On a practical level, Wahba has worked hard to persuade the government to take a series of measures which he sees as crucial for the industry's future. The first has been to allow the import of cotton from anywhere in the world. "The fundamental principle is: 'Do not use the world's best cotton for second rate cloth.'"

The government has believed for many years that indiscriminate imports of short-staple cotton would run the risk of infecting the domestic crop. It therefore only imported cotton from the US states of Arizona and California, where strict fumigation procedures are applied. Now the government has been persuaded to allow the free import of cotton, as long as it is fumigated and sterilised at Egyptian ports. Wahba says he reckons he could import cotton at $0.85 a pound (equivalent to roughly [pounds]E 315 a cantar) against exports of Egyptian long-staple cotton at $1.80 a pound ([pounds]E 670 a cantar).

Imports of cotton from Turkey or Syria or the Indian subcontinent, as well as the US, would ensure a steady supply of sufficient quality to meet the needs of Egyptian textile mills. It would also enable the bulk of Egypt's cotton harvest to be exported to countries where the finest cotton is in demand, in particular Japan, Switzerland and Italy.

Wahba says the farmers are getting the message that it is now well worth their while to invest the extra effort and attention needed to grow cotton. "Once we have ginned the cotton bought from the farmers, we would expect to keep most of the seed for our crushers to make oil," says Wahba. "This year, the farmers have been keeping most of the seed to replant, as they know they will get a good price for their cotton at the end of the season." He says the area planted with cotton will easily exceed 1 million feddans(2) this season, and he forecasts production of at least 7 million cantars, compared with only about 4.8 million cantars in 1995/96.

The connection of fair prices with good output was also recognised in Mohamed Ali's time: the French consul general in 1825 noted that farmers were taking good care of the cotton crop as the pashas were paying them up to 175 piastres a cantar.(3)

1 1 cantar = 50kg = 110 lbs

2 1 feddan = 0.42 hectares

3 The Middle East in the World Economy, 1800-1914, Roger Owen, Methuen.

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