Photographer: Simon Dawson/Bloomberg

Armani's Egyptian Supplier Mulls U.S. Foray on Weaker Pound

Updated on
  • Expansion plans ground to halt after Mubarak’s 2011 ouster
  • Lifting of currency controls yielding dividends, more poverty

Arafa Holding, the Egyptian maker of clothes for global brands such as Giorgio Armani and Massimo Dutti, plans to expand sales to the U.S., helped by the drop in the pound’s value since currency restrictions were removed.

The U.S. market was out of reach for Egypt’s biggest exporter of ready-made garments before the pound was floated in November because the currency was overvalued, company Chairman Alaa Arafa said in an interview in his Cairo office. Now, the weaker pound is allowing the company to grow and resume expansion plans halted since the 2011 uprising against long-time leader Hosni Mubarak.

“Since the beginning of 2017, we have started rebuilding export markets lost in previous years,” Arafa said. “Before that we were thinking when will our business shut down; but now there is hope; now we can sit with clients and speak about the future.”

Arafa’s plans are the kind of response Egyptian officials hoped the economic reform measures taken last year would generate. By allowing the pound to weaken, cutting state spending and securing a $12 billion International Monetary Fund loan, authorities want to regain the confidence not only of foreign investors but also to spur local businessmen to expand and look for export opportunities.

Arafa, which operates more than 10 factories inside Egypt employing some 13,000 people, wants to raise production to 6,500 suits per day by the second half of 2017, from 5,800 now, the chairman said. The focus will be on exports, and the company could reach total sales of $300 million in the coming fiscal year that starts Feb. 1, with overseas sales growing to $150 million, he said. Other customers currently include Zara, U.K. department store Debenhams and Ben Sherman.

The company also intends to expand its Concrete brand beyond Egypt, with outlets in Arab Gulf countries in 2019, Arafa said. Inside Egypt, it will introduce one of the brands it owns in the U.K. as part of a plan to “aggressively” target the middle-income segments, he said.

The pound lost about half its value against the U.S. dollar since November, making exports more competitive, but causing inflation to surge more than 30 percent. The resulting drop in real incomes is taking a toll on economic growth. The central bank raised interest rates 200 basis points last week to curb price increases amid concerns the move would slow the economy.

Nonetheless, Arafa said Egypt stands a chance to recover as long as it taps the benefits of the weaker currency. “Exporting is the only way out of this economic crisis,” he said.

Arafa shares surged 6.7 percent to 16 cents per share at 11:59 a.m. in Cairo. Shares traded on nine times the three-month average.

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