Egypt's textiles salvage plan reveals backing for state sector

AL-MAHALLA AL-KUBRA, Egypt (Reuters) - Behind an unassuming, scruffy perimeter wall, Egypt's largest textiles factory has languished for decades, losing money and breeding discontent as the economy shifted away from socialist-style planning.

Far from letting go of Misr Spinning & Weaving Co in the Nile Delta city of Al-Mahalla al-Kubra, however, the government has placed it at the center of an ambitious plan to rescue loss-making national firms in the once-thriving textiles sector.

The plan shows how the government has reversed a trend under President Hosni Mubarak, who was ousted in 2011, of turning public enterprises over to the private sector, doubling down instead on its support of state firms.

It will also provide a crucial test of Egypt's ability to boost job-creating industry as it exits a three-year reform program backed by the International Monetary Fund.

Economists have praised the reforms for contributing to stability and growth, which was a robust 5.6% in the third quarter. But outside the energy sector, the economy has been shrinking.

The story of the Mahalla factory reflects a longer-term decline.