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FURNITURE MAKERS POLISH UP IMAGE
BY AMENA BAKR
A record crowd at last month’s Furnex 2006 furniture exposition buoyed the spirits of some insiders hoping that the long stagnant furniture sector may finally be able to vie with industry heavyweights, such as China, and penetrate the world market. Others feel it is just a flash in the pan. They say obtuse customs regulations and low-quality end products will continue to impede export growth.
With cheap costs, close proximity to Europe and several new government-sponsored programs under way, many believe Egypt’s $2 billion furniture industry has potential to expand. It currently employs about one million people, but captures a tiny fraction – less than one percent – of global exports.
Over the last decade, the government has strongly backed the tourism, ICT and construction sectors, but that support has come at the expense of the furniture industry, critics argue. With unemployment officially near 10 percent, and unofficially much higher, the government has begun eyeing labor-intensive furniture manufacturing as a vehicle for generating jobs.
The government launched Furnex in 2004 in an effort to translate that potential into sales. This year’s exhibition featured 300 Egyptian companies showcasing their goods to potential buyers. It drew 50,000 people, including representatives of 450 different companies from over 60 countries. Exhibitors reportedly sealed $110 million in contracts, a 62-percent increase over last year’s event.
Ahmed Helmy, CEO of Meuble El Chark and a vice president of the Egyptian Furniture Export Council (EFEC), credits the success of this year’s exhibition to a recent government initiative that sent officials from more than 300 companies to international trade fairs in the UK, France, Germany, the UAE and Japan. Egyptian furniture executives had a clearer picture about their competition and a better understanding of what types of products international buyers expect, he says. “At this year’s Furnex, the
quality of products has changed dramatically, and the presentation and marketing skills have also changed a lot.”
Some participants, however, suggested Furnex’s success is only illusory. Companies make promises to buy that go unfulfilled, says Sayed Ewiss, commercial sector director of Taki furniture company, who likens the exhibition to a party. “In four or five days [foreign company officials] are gone, and we are drawn back to reality from the rosy world.”
Ewiss suggests a better approach would be holding small seminars in the US with potential buyers. “This will be better than Furnex as we will... attract more people who are genuinely interested in buying our products,” he explains.
Furnex aside, industry experts can agree on one thing: the future. Unless the country addresses deep, underlying problems, they say, Egypt’s furniture makers will never make a dent in international sales.
While this year’s Furnex comes on the tail end of a surge in exports, EFEC chairman Adham Nadim is quick to point out that even if exports rise five-fold to $1 billion in the next five years, as hoped, Egypt will still just be a bit player in the world market. “[Egypt] will not take any substantial market share away from anyone and we will not cause a threat to anybody,” he says.
China dominates the $220 billion world furniture industry, accounting for roughly 50 percent of all exports. Import duties have been a constant thorn in the side of Egyptian firms hoping to whittle away this lead. Producers must import nearly every material they use from wood and glue to veneer and paint. Although the government reduced the average tariff rate on wood from 12 to 5 percent and on glue and paints from 22 to 12 percent, producers want these duties reimbursed because the imported materials are consumed in end products. A drawbacks system already in place has proved ineffectual; exporters who attempted to get their money back through courts have failed.
According to Nadim, the EFEC expects to have the matter resolved within the next two months. He estimates that the average remission should be around 6 percent of the end value. “This is the value the council has deemed sufficient to ensure the profitability of exports.”
Earlier efforts to change the system, however, have foundered. Four years ago, the Chamber of Woodworking Industries and the Ministry of Foreign Trade calculated that the refund should be 21 percent of the value of furniture exports. They presented the figure to the Ministry of Industry, which rejected it on the grounds that the government by law could only reimburse the actual amount due, not an average.
The current system is time-consuming and overly bureaucratic, opponents argue. Customs officials must inspect and study every type of exported good before granting a refund. Because furniture makers often design hundreds of different models each year, the process can take weeks or months leading many to give up on a refund.
Bureaucracy also impedes factory expansion, according to Ewiss, because the government requires permits. “We want to expand but the long, tedious procedures that we have to go through just keep on delaying us,” he says.
Another concern is simply getting the word out about Egyptian furniture. “The bad thing is that we are not well known, but the good news is that we don’t have a good or bad reputation; it’s neutral,” says Ahmed El Shawy of Educational Project Company.
This anonymity is due in part because many Egyptian companies still lack professional-quality websites. “If you write the words ‘Italian furniture’ on any search engine, you will get thousands of websites,” says Ewiss. “Try doing the same for Egypt and you will be very disappointed.”
If Egypt is virtually unknown, then China would be the mirror opposite – a ubiquitous and powerful brand. As evidence, some Egyptian companies began labeling products “Made in China” in order to sell pieces faster.
Apart from name recognition, another difference is price. Chinese furniture is sold at rock-bottom prices, leaving many Egyptian producers unsure how they can compete. That quandary has led to calls for tighter regulations to prevent price gouging. Or, instead, for Egypt to focus on making small, custom-order designs, primarily for the US and Europe, which favor these customized pieces over China’s mass-produced furniture. “The Far East works on a large scale, so if a hotel wants to order 25 chairs Asian companies wouldn’t be interested,” explains Nadim.
And buyers have indicated that the workmanship of Egyptian products is superior to that of its Chinese counterparts, insists Helmy. He notes that 80 percent of his European buyers previously imported their furniture from China, but over the years they discovered they could get better quality products and save on shipping costs by purchasing Egyptian furniture.
Although it may be a competitor, Egypt can still draw lessons from China’s success, says Wagdy Marzouk of Mobica, one of the country’s largest furniture producers. “The Chinese government backed its private sector companies by giving them all the information and finances they needed and that’s what we need to be doing here,” he argues.
Last year, the Ministry of Trade and Industry pledged to finance technical support centers nationwide to help train the industry’s labor force. Under the ministry’s program, the Industrial Modernization Center (IMC) shoulders 80 percent of the cost, while the recipient company carries 20 percent, for programs to upgrade workers’ technical skills.
Yet it appears that effort has not trickled down as companies report difficulty filling jobs with skilled and semi-skilled workers. “Human resources is one of the pillars [of the furniture industry] and a lot of companies are willing to take the time to provide workers with the best training,” says Helmy. “The problem is we just can’t find them.”
Despite the challenges, a survey conducted by the IMC of 130 local companies at Furnex revealed that they plan to rev up production by building more factories. “This industry has a bright future,” asserts Helmy, “but the government has to continue supporting the private sector because it is like an orchestra. If someone stops playing, everything will fall apart.”
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