Sri Lanka is in the middle of worst economic crisis since its independence in 1948. The present Sri Lankan Government maintained a stance of not approaching IMF but has changed its stance in the last two months and sent a delegation to Washington, which was generally welcomed by the private sector and various chambers of commerce.
Assistance from IMF or any other friendly countries may give Sri Lanka breathing space and help in importing basic essentials like fuel, medicines and food for few months, however increasing exports and FDIs would be vital for long term sustainable growth of the economy. Textile and garment exports make around 50 per cent of total Sri Lanka’s merchandize export revenues, and helped Sri Lanka gain valuable foreign exchange for over four decades. Amongst these developments in the Sri Lankan economy, Ceylon Today spoke to Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawerence, who said that Sri Lanka needs to work on increasing Free Trade Agreements (FTAs) to widen its market access on concessionary basis. Excerpts of the interview:
Q: How have the current economic crises affected the apparel sector?
When the crisis first escalated, the sector’s day-to-day production took a hit. Extended power cuts and inconsistent adherence to power interruption schedules disrupted our production planning and manufacturing, most severely impacting small and medium enterprises (SMEs).
On a positive note, some of the immediate concerns of the export sector have been addressed by the Government in the last few weeks. Exporters are now allowed to purchase fuel directly from the Ceylon Petroleum Corporation (CEYPETCO) and Lanka IOC directly in US Dollars, helping exporters avoid undue disruptions from power cuts. Apparel exporters are also able to make payments to their foreign suppliers using their export earnings, with the Central Bank allowing exporters to retain foreign currency to do so.
Q: What are your suggestions to overcome the economic crisis?
The most immediate need for the industry as well as the country is macro-economic stability. We welcome the Government’s decision to enter negotiations with the IMF, as well as initiating the process of appointment for financial and legal advisers to assist in discussions with Sri Lanka’s creditors. We are all hopeful for a quick solution that will resolve the foreign exchange crisis. It is also imperative that the apparel industry keeps running at all costs, in order to maintain our reputation globally as a reliable, high-value apparel producer.
Q: Globally cotton prices are rising. How has it affected Sri Lankan apparel sector?
Yes, the cost of all raw materials has increased globally over the past couple of months. However, cotton is not a large part of the apparel industry’s raw material requirement, so an increase in global cotton prices will not have a huge impact on the sector.
Q: What would be your suggestion to make supply chain of Apparel industry more competitive?
Our position is that Sri Lanka needs to start negotiating for its own FTAs. We can see how exports from countries such as Bangladesh and Vietnam have grown exponentially due to the amount of market access they have on a concessionary basis. In this respect, we’ve identified China and India as two key opportunities we should be pursuing aggressively. We believe that certain discussions have commenced in relation to China. In addition, with India’s recent support towards Sri Lanka, we should be requesting that the quota of eight million pieces that Sri Lanka has under the Indo-Sri Lanka FTA (ISFTA) be significantly increased (if not removed), in order to recover from the current crises.
Currently under the ISFTA, India allows eight million pieces of imports from Sri Lanka with zero duty. The eight million quota is equally allocated into four quarters. The issue here is, even if an exporter gets an order from India, the exporter is not sure whether his order would fall under the quota as there is limit. In 2021, the full eight million quota was utilised by Sri Lankan exporters. This tells that Sri Lankan exporters would be able to export more volumes if the quota is fully removed or at least increased. Apart from India and China, we should also be pursuing an FTA with the UK, which is a significant trading partner for Sri Lanka.
Q:Global freight rates increased drastically in the last two years. How has it affected the apparel sector?
Most of our exports happen on FOB terms, where the buyer arranges the carriage of the goods and with their purchasing power, they tend to be able to negotiate rates competitively. Of course, on import cargo, these costs do affect our margins. That said however, the bigger impact on our profitability would be from increases in raw material prices.
It is also notable that the Colombo Port has continued to operate without delay or congestion during the past few months. The Port also has independent arrangements in place to ensure the availability of fuel for internal requirements.
Q: Is apparel sector suffering from labour shortages?
The apparel sector provides direct employment to 350,000 people and to another 700,000 indirectly. The industry as a whole is currently recruiting despite the economic situation in the country as our order books are quite full and we need to build capacity fully back to pre-Covid levels.
Q: Last year, Apparel sector achieved over USD 5 billion in exports. What is the target this year?
Even amidst multiple challenges, Sri Lankan apparel exports recorded their highest ever cumulative value for January and February in 2022. For this year, we have set a target of USD 6 billion. While certain unavoidable challenges will have to be faced, we are confident that the industry will be back on a growth trajectory, once macro-economic stability is obtained to some degree.
By Rajiesh Seetharam