Crisis in garments
View(s):
Garments. Once a thriving industry which led to the growth of the village economy with the emergence of 200 factories in 200 towns in the post-1980s era.Today that industry is facing serious challenges affecting not only economic growth in villages across the island but also critical foreign exchange earnings.
Export orders have been reduced, factories are running below capacity, some units have closed and fixed costs have gone up.
“This is the worst-ever situation for the industry,” declared one garment industrialist, adding that even during the COVID-19 pandemic the industry was doing much better than today.
Seeking another opinion on this issue, I called Arthika, my nonsensical economist friend also known as good-for-nothing Somey, on Thursday morning.
“Hi….have you been following the garment sector crisis?” I asked him.
“Interesting, in fact I read a newspaper story on factories closing down for a short period after December and the relocation overseas of some of the factories here,” he said.
“What did these reports say,” I asked.
“Well, they quoted an industry official as saying that around 20 per cent of the large-scale garment factories in Sri Lanka are closing down for a period of up to three months after December, while around 50 per cent of small and medium scale factories have already been closed,” he said.
“Yes, there is a widespread reduction in the order books by overseas buyers, causing distress to the industry. No improvement in the situation and no light at the end of the tunnel,” I said.
Companies are downsizing, with staff being offered VRS (Voluntary Retirement Scheme) packages. In some cases, workers have been asked to stay at home under basic wage conditions without overtime and other benefits which they depend on as monthly income.
What’s the main problem in the industry? A drastic reduction in orders in Sri Lanka’s main markets. Some 80 per cent of garment exports are to the US, Europe and UK.
A recession in these markets, reduced buying power and cut in consumer spending on new clothes are some of these reasons, while additionally wars in Palestine and Ukraine are also impacting the markets.
But the elephant in the room is the high cost of production with power costs being among the highest in the region along with high water costs and now an increase in VAT from January 2024 to 18 per cent from 15 per cent.
“The IMF says there is a need for cost reflective pricing and this applies to power tariffs but why can’t the CEB cut its costs and pass on that benefit to the industry and the consumer,” asked the industrialist, adding, “In today’s economy, sadly its survival of the fittest.”
Apparel is Sri Lanka’s largest export, overtaking tea in the 1980s and employs more than 300,000 people. It earned US$5.9 billion in 2022, a rise from $5.4 billion in 2021. The importance of this sector is measured by the fact that 45 per cent of total exports come from garments.
Total exports of garments and textiles during the 10-month period from January to October 2023 have decreased by 20.50 per cent over the corresponding period in 2022.
Month after month, orders have reduced. Export earnings for October 2023 fell by 20.09 per cent to $330.9.million from $414.15 million in the same 2022 month.
Earnings decreased by 24.6 per cent y-o-y to $361.82 million in September 2023, compared to September 2022 while earnings from this sector in August 2023 fell by 23.06 per cent to $434.98 million compared to August 2022.
As I reflected on these issues, I was drawn by the margosa tree conversation where the trio had gathered for their weekly chat. Ironically, it was on today’s topic – garments.
“Angalum karmanthaye weda karana magey yaluwanta prashna godak mae davas wala. Egollange geval kuli geva gannath bae. Anith viyadam dara gannath bae (My friends working in the garment sector are facing a lot of difficulties. They are struggling to pay their rent and other costs),” said Serapina.
“Ow, magey naede kenekge rassawa nethi wela. Eyath ekka weda karapu kattiyage padi kapala (Yes, one of my cousins lost her job while her colleagues are on reduced pay terms),” noted Kussi Amma Sera.
“Ukreneyey saha Palasthinaye yudde balapala thiyenawada apey angalum karmanthayata (Are the wars in Ukraine and Palestine having some impact on this sector),” asked Mabel Rasthiyadu.
“Mama hithanney apita godak pita rata order nethi wela kiyala (I think we have lost a lot of overseas orders),” added Serapina.
In the 10-month January to October 2023 period, overall exports of garments and textiles to the US decreased by 24.54 per cent while, exports to the EU (excluding exports to UK) also decreased by 18.84 per cent over the same period in 2022. At the same time, overall exports to the UK and to other countries also have decreased by 15.96 per cent and 16.45 per cent respectively over the same period in the year 2022, according to data furnished by the Joint Apparel Association Forum (JAAF).
JAAF says that it expects a decrease of around $1 billion in this year’s apparel and textile export earnings compared to last year.
While the garments sector is facing serious concerns, the good news this week was that the debt restructuring process is getting underway with encouraging signs from the Paris Club of creditor countries.
The Sri Lankan government announced on Wednesday that it has reached an agreement in principle with its Official Creditor Committee (OCC-Paris Club) on the financial terms of a debt treatment.
Issuing a statement, the Ministry of Finance, Economic Stabilization and National Policy stated that the agreement in principle covers approximately $5.9 billion of outstanding public debt and consists of a mix of long-term maturity extension and reduction in interest rates. “The Sri Lankan government has commended the support and cooperation of OCC members in reaching this agreement, which demonstrates a mutual commitment to restoring public debt sustainability in line with the International Monetary Fund (IMF) programme targets,” the statement said.
This good news, however, won’t have any positive impact on the garments industry and we are heading for a period of uncertainty in the sector starting in January 2024.
As I wound up the column on a topic that affects the average person including the likes of Kussi Amma Sera, Serapina and Mabel Rasthiyadu who have numerous friends and family members working in this industry, I believe there is a need to cuts costs starting off with power and energy. The industry along with the government needs to prepare a new game plan to tackle issues in this vital sector, otherwise it would lead to huge job losses next year.
Hitad.lk has you covered with quality used or brand new cars for sale that are budget friendly yet reliable! Now is the time to sell your old ride for something more attractive to today's modern automotive market demands. Browse through our selection of affordable options now on Hitad.lk before deciding on what will work best for you!