Dire state of apparel
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Aldoris, the choon-paan karaya, came down the lane in his tuk-tuk and screeched to a halt outside the gate. The trio had gathered there with the topic of conversation being the long Avurudu holidays.“Aldoris, mae avurudde, aluth avurudda kohomada (Aldoris, how was Avurudu this year)?” asked Kussi Amma Sera.
“Hondai, hondai. Mae thama hondama avurudda, wasara thunakin (Good, good. It was the best Avurudu season in the past three years),” he said, while handing out ‘maalu paan’ and ‘kimbula bunis’ and receiving payment in return.
“Apitath suba aluth avuruddak thibba. Apey gamey godak weda satahan saha kreeda thibba (We too had a good New Year. The village had plenty of activity and games),” noted Serapina, who along with the other two had gone to their homes for Avurudu.
“Goda denek aluth andum aran thibba, egollanta athey wediya salli thibune nethi wunath (Many people had bought new clothes even though they didn’t have enough money to spare),” said Mabel Rasthiyadu.
The country’s economic crisis killed the spirit of Avurudu in recent years though many villages made a great effort to celebrate the event amidst the financial crisis.
At this point the home phone rang. It was my young economist friend, Ruwanputha, on the line.
Starting off by inquiring about Avurudu, he asked whether I had followed the recent developments in the garment sector which is facing a major crisis.
“Yes I have been following it closely,” I replied. “Well factories mostly of small and medium scale (SMEs) are either closing down, have reduced staff and are losing orders,” he said.
“This is a serious situation since garments is our biggest merchandise export,” I said. “Yes…..this is a worrying situation in a handicapped economy where Sri Lanka needs to up its game in exports,” he said.
“We need to broaden our export base which hasn’t been done for many years. That’s the only way forward to increase foreign currency earnings and meet commitments in imports,” I said.
For the record, earnings from the export of industrial goods declined in December 2022, compared to December 2021, mainly due to the lower exports of garments resulting from reduced spending capacity associated with high inflation and recessionary concerns in most of the major markets (the US, the EU and the UK), according to the Central Bank.
The situation was even dire in January and February this year. Export earnings from apparel and textiles decreased by 2.32 per cent year-on- year (y-o-y) to US$483.35 million in February 2023, compared to February 2022.
Export earnings from apparel and textiles decreased by 17.74 per cent y-o-y to $423.13 million in January 2022 with a poor performance in exports of apparel (-18.79 per cent) and textiles (-3.58 per cent). On a year-on-year basis, sub categories under apparel exports declined in January 2023 in comparison to January 2022.
According to reports published in the Business Times, at least 30 per cent of Board of Investment (BOI) companies are downsizing and many are unlikely to re-start operations after the New Year holidays this year. Some 40 per cent of these companies in the SME sector are also on the brink of downsizing and closure.
One report said that as a result of the global economic downturn, factories are facing closures owing to a lack of orders while the only orders that are available are mostly shifting to other regional states due to the pressure in Sri Lanka’s economic recovery.
BOI Manufacturers’ Association (MA) Chairman Dhammika Fernando told the Business Times that Sri Lanka is losing its competitive advantage due to the rising cost of production which means the country is about 25 per cent more expensive than other countries.
He also said that about 30,000 to 50,000 jobs are likely to be lost in the first half of this year, although some sections of the business community believe the conditions will improve in the second half.
Some of Sri Lanka’s biggest manufacturers told the Business Times that they were running at half capacity which is the case with all other businesses in the apparel sector as orders have dropped considerably. In this respect, the industry has dropped orders by 20-25 per cent. Despite the crisis, the industry continues to pay the staff full salary and continues with the COVID-19 allowance as well.
It was reported that the industry is also facing a crisis largely due to the fact that international buyers had opted to purchase more in 2022 under the notion that there would be more retail sales following the opening up of the economies post COVID-19, which is not seen so far.
It was also reported that some apparel plants are operating on a single shift. Some other plants have completely shut down and staff offered a voluntary retirement scheme to ensure that they will either receive compensation or move to jobs in other plants.
The plight of the garment sector is a wake-up call for the country’s policymakers as this is a sector that has carried the burden of Sri Lanka’s export sector for many years, emerging as a massive industrial sector from a one-time cottage industry in the 1960s. Companies like MAS Holdings, Brandix, Hirdaramani and Hela have transformed the sector, opening the doors to large-scale employment and foreign exchange earnings, opening factories in the villages and providing employment at the doorstep to Sri Lanka’s rural populace. Multiple plants have been opened across Sri Lanka and in many other countries by the industry’s big four groups and, as stated earlier, largely contributed to the country’s earnings in foreign exchange.
For decades, economists have urged the authorities to expand the export base to better manage the country’s foreign exchange equilibrium but apart from expansion of the garment sector (itself), no other export industry has emerged to go in tandem with garment sector advances. The only sectors that could make an impact is IT services (with a target of $5 billion worth of export services in coming years) and tourism ($4 billion in 2018 but dropping sharply thereafter due to the Easter Sunday bomb attacks, the pandemic and the economic crisis), while the biggest earner is remittances with a record $7 billion in 2018.
As I reflected on these issues, Kussi Amma Sera brought another mug of tea and some Avurudu sweetmeats saying, “The kokis is very tasty”. I nodded in reply, realising that this was the first Avurudu in three years to be celebrated to a reasonable extent.
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