{"id":609916,"date":"2023-11-12T00:00:00","date_gmt":"2023-11-12T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/inside_industry\/how-can-we-keep-the-egyptian-furniture-industry-flourishing\/"},"modified":"2023-11-12T00:00:00","modified_gmt":"2023-11-12T00:00:00","slug":"how-can-we-keep-the-egyptian-furniture-industry-flourishing","status":"publish","type":"inside_industry","link":"https:\/\/enterpriseam.com\/egypt\/inside_industry\/how-can-we-keep-the-egyptian-furniture-industry-flourishing\/","title":{"rendered":"How can we keep the Egyptian furniture industry flourishing?"},"content":{"rendered":"

Furniture manufacturing in Egypt is facing compounding issues that are challenging the <\/strong>centuries-old industry, <\/strong>according to industry players Enterprise spoke with. Despite falling export volumes on the back of high production costs and shortages in raw materials due to the ongoing FX crisis, stakeholders in the industry see a silver lining in the positive indicators slowly driving export rates and the government\u2019s support.<\/p>\n

The sector in numbers:<\/strong> Furniture manufacturers in Egypt amount to some 140k factories and workshops, with a total working manpower capacity of 900k direct and indirect workers, according to Tarek Habashy, undersecretary of the Federation of Egyptian Industries\u2019 (FEI) furniture manufacturing division and SAI Solutions Chairman. The number of registered workers in the furniture sector increased 13.5% y-o-y in 2022 to reach 69k workers, according to the Industrial Development Authority\u2019s (IDA) latest data in the Global and Local Furniture Manufacturing report<\/a>. The vast majority of the industry continues to operate in the informal economy, with only 20% registered and operating in the formal economy, according to sources who spoke to us.<\/p>\n

Furniture contributes a pretty penny to the national economy: <\/strong>For every EGP 1 that is spent on the furniture manufacturing industry, EGP 0.50 is added to the Egyptian economy, compared to EGP 0.30 on average from the entire industrial sector in Egypt, according to the FEI\u2019s report. The wood and furniture industry contributes up to 2.2% of Egypt\u2019s GDP, and with every EGP 1 mn invested in the furniture industry, 10 jobs are provided, compared to three job opportunities in other sectors.<\/p>\n

Our <\/strong>ex<\/strong>ports <\/strong>at a glance: <\/strong>Egypt\u2019s furniture exports fell 8% y-o-y during the first half of 2023 to record about USD 136 mn compared to USD 145 mn during the same period of 2022, Al Mal reports<\/a>. Saudi Arabia, the UAE, Iraq and the USA accounted for the majority of exports.<\/p>\n

Challenges en masse<\/strong>: Industry stakeholders are grappling with numerous challenges to keep their businesses and the overall sector afloat. Furniture manufacturers, akin to other industries, are struggling to secure FX, which in turn leads to shortages in materials, Egypt Forming<\/a> Vice President and member of the EFEC\u2019s BoD Islam Khalil told Enterprise. \u201cWe import 100% of our production materials; however, the industry achieves substantial added value from designs, labor force and high-quality final products,\u201d he added.<\/p>\n

Low or high: The double bind of pricing:<\/strong> Pricing furniture products has become challenging due to fluctuating raw material prices, particularly for products marketed to businesses and hotels. These price differences place an additional burden on manufacturers, leading to manufacturers incurring losses or setting uncompetitive pricing, Khalil and Habashy concurred. <\/p>\n

Sector-specific problems require tailored solutions: <\/strong>Furniture manufacturers are facing challenges distinct to the sector, and the government is falling behind in providing them with adequate support \u2014 so far, only a proposal for establishing another furniture city has been developed, according to sources who asked to remain unnamed. However, there are no mechanisms put forward to prop up the sector.<\/p>\n

Damietta Furniture City, one step forward, two steps backward: <\/strong>Initiatives start with promising beginnings; however, implementation always falls flat, one sector source told us. <\/p>\n

For example, the Damietta Furniture City<\/a>, which would have been the first industrial zone in the MENA region specializing in wood and furniture manufacturing, failed due to slow implementation, which resulted in problems for manufacturers who had booked workshops. Despite the government pouring investments amounting to EGP 3.6 bn to build the Damietta Furniture City, only 440 workshops were sold.<\/p>\n

Incentives: the best way to nail the hammer on the head: <\/strong>To develop the sector, what is needed are incentive packages that address providing raw materials and financial support, as well as boosting exports, Khalil said. Additionally, they should also include incentives for the participation of industry players in international exhibitions. Given that the wood and furniture sector is an old industry that comprises small and middle-sized businesses in need of support geared towards meeting the respective financial needs of each workshop and factory.<\/p>\n

How to cushion the blow?<\/strong> To push the industry forward, small-sized factories and workshops are in need of sector-oriented funding programs that help them acquire state-of-the-art production tech and grow their businesses, according to our sources. Tax exemptions are also another proposal to encourage informal players to go legit. As the majority of small businesses operating within the informal economy, they fail to participate in expos and the development of the sector. Consequently, these businesses, which make up 80% of the industry, fail to contribute to the sector\u2019s growth. <\/p>\n

Funding int\u2019l expo participation could be one of the answers: <\/strong>With the majority of Egyptian industry players unable to participate in international furniture exhibitions, other exporting countries are competing in the global market with low costs. European manufacturers, for example, are able to compete with a significant price difference from ours on the back of industrializing the furniture manufacturing sector and automating their factories, the sources said. <\/p>\n

Egyptian manufacturers still stand a chance<\/strong> of exporting high-quality handcrafted furniture distinctive to Egyptian furniture cities and factories. However, finding an export market for such products calls for the government to support and promote factories\u2019 participation in international exhibitions like it did in the past, Khalil said. There are opportunities for exporting Egyptian wood and wooden products, particularly in Africa, considering the incentives currently in place to bolster shipping products to the continent, he added. Such incentives include the African Continental Freetrade Agreement (AfCFTA<\/a>), which would introduce customs breaks<\/a> between African countries with an eye towards boosting intra-African trade. <\/p>\n

Incentives should take center stage to improve the sector\u2019s competitiveness: <\/strong>Providing private stakeholders with industrial land through usufruct frameworks could boost the wood and furniture industries, Habashy told us. Allocating plots of land to wood and furniture manufacturers is becoming a requisite for expanding the sector in the wake of soaring land prices, he added. In tandem with implementing mechanisms for providing manufacturers with raw materials, introducing wood alternatives could help drive the industry forward. <\/p>\n

Bringing unorthodox solutions to the table: <\/strong>Supporting factories that manufacture wood boards from recycled materials such as sorghum stalks and rice straws could be one of the ways to help ensure the availability of materials, according to Habashy. Moreover, upscaling sourcing materials and wood products locally through expanding tree planting using treated wastewater for irrigation would help achieve local wood demands, proposes Osama Zaitoun, managing director of Egypt-Kuwait Holdings-affiliated Nile Wood Company. This would help reduce manufacturers\u2019 reliance on raw material exports.<\/p>\n

An unlikely upside to the FX crunch:<\/strong> Recent decisions exempted importers and manufacturers from land fees for three months in addition to facilitating securing letters of credit (L\/Cs) from banks to help them import raw materials in exchange for depositing FX, regardless of the source of the hard currency. Following their implementation, these decisions should help provide manufacturers and importers with materials in the local market and revive the industry, according to Khalil. The Central Bank of Egypt\u2019s (CBE) decision to accept FX deposits will streamline the arrival of shipments of wood, aluminum and other materials, spurring the sector\u2019s growth rates over the next two months, he added. <\/p>\n

More can be done to boost the industry: <\/strong>With fierce competition, such as China-made products costing less than half of the Egyptian product. As a result, accelerating the government\u2019s measures and reforms regarding the soaring costs, which have impeded the industry\u2019s ability to compete on the global market, is becoming a pressing need. That, together with integrating the factories and workshops within the informal economy, will strengthen the sector, maintain skilled labor and help expand them into registered factories without hindering their growth with tax burdens, according to Zaitoun. <\/p>\n

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