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by Major General (Dr.) Tilak Jayaweera

With the development of the garment industry, more and more women have taken to this trade and moved to urban areas.

Though there is evidence to prove the existence of the apparel industry even before the arrival of Prince Vijaya, the sadder times in the early seventies when marriage certificates were prerequisites for suit lengths and once worn garments known as 'bail' were popular even among the upper middle class, still linger fresh in our minds. The gradual development of this industry to peak levels with the turn of the century was due to the vision of the Premadasa Government where a large number of garment factories erupted all over the island like mushrooms.

The introduction of the quota system sparkling off from the Multi-Fibre Agreement and the timely intervention by the Sri Lanka government to obtain the quotas from USA and the European Union (EU) were the causative factors for this industrial boom. The freely available cheap labour and the conducive environment tempted locals and foreigners to invest in this industry.

This industry occupied a top berth in terms of export potential and employment in the early nineties with almost 100 per cent growth, but declined in the late nineties due to competition from China and Bangladesh. Today with the downward trend being accelerated, the survival and growth of this industry has to be considered seriously, as they are vital for the country's economy.

Socio-economic gains

The Government of Sri Lanka took every step to encourage the entrepreneur industrialist to venture into this industry by the provision of loan facilities and the reduction of procedural obstacles for the importing of the machinery for the factories.

The labour force required for the industry was readily available from the not-so-educated and the not-so-affluent young rural women who had no other alternative but to be domestic aids to the urban Sri Lankan society. These women resembled the slaves in early colonial days and had a very low social status.

With the development of the garment industry more and more women took to this trade and more and more moved to urban areas. This gradual and steady urbanisation resulted, not only in an improvement of their social status and the psychological outlook towards life, but also their marriage potential.

The exports increased, more foreign exchange was earned, stringent quality control measures improved the quality of the export product and injected large numbers of factory seconds to the local market at unbelievably low prices. These garments were good enough even for the rich and there was a rapid change in the outlook of the entire nation, as the basic priorities of life were food, shelter and clothing while the visual yardsticks of prosperity of a community and the personality of an individual was by the way men and women are dressed.

As long as the bulk of the textiles were imported and distributed on a quota basis among the garment manufacturers, the success of the industry depended solely on the human and the technical resources and not on nature as in other industries related to agricultural products.

Contributory factors and key players

Contributory factors

The market position in the USA

Expansion of up-market and non-quota items in EU

Timely delivery of the finished product

Production of latest fashions

Appreciation of several East Asian currencies making Sri Lankan apparels more competitive

Rapid improvement of information technology

Growing popularity of brand marketing

Cheap labour

Key players

The Government of Sri Lanka

Financial institutes

Foreign buyers

Buying offices

Garment manufacturers

The Government of Sri Lanka was instrumental in obtaining quotas from USA and EU and was responsible for the provision of facilities including financial aid for the setting up of factories and the distribution of the quotas among manufacturers through the Textile Quota Board (TQB) and the Industrial Ministry.

The foreign buyers placed their orders either through their parent companies with the manufacturer directly or through the buying offices. The buying offices took good care of every procedural aspect and the burden off the manufacturer, until the finished product reached its destination, thus leaving the manufacturer all the time to concentrate in improving his/her efficiency and productivity. The garment manufacturer had only to make optimum use of the available human and technical resources to meet the growing demands.

Buying offices and the role of the SLGBOA

The Sri Lanka Garment Buying Offices Association (SLGBOA) is the central body maintaining the activities of the buying offices in a professional manner. A buying office or liaison office in itself is a misnomer in the strict sense as its primary function is the offering of services to overseas buyers of readymade garments. The overseas buyers could use these offices to import and distribute their merchandise or have their own agents.

These offices select suitable factories to produce the foreign requirements, obtain competitive prices for the merchandise and play a significant role in the industry by obtaining foreign orders, maintaining constant quality control on the export product and taking care of procedural formalities until the product is delivered to the end user.

This becomes the most crucial of the processes in the industry as many a manufacturer may not have the facilities, capability, time, proficiency and the ideal communication skills to negotiate with foreign buyers. Buying office is a specialised body geared to act as a link between the buyer and the seller.

Statistics show that more than 80 per cent of the exports go through the registered buying offices. It is a government responsibility to revive the lost glory of this industry with minimum possible delay as not only the economy of the country, but also the future of the social status of a large percentage of our young rural females with inadequate educational qualifications is at stake.

The vision should be to regain the enviable position the Sri Lankan garments had in the world market both qualitatively and quantitatively and also aim to be the world's No. 1 garment manufacturing country.

Present scenario

Potential dangers of international origin for this industry are the proposed abolition of the quota system by 2005 under the phasing out of the multi-fibre system, the possibility of China becoming a fully-fledged World Trade Organisation (WTO) member and Mexico fully capitalising on the advantages of the geographical proximity to US.

Non-availability of labour, lack of training facilities, limited domestic market and subcontracting are the local factors that had resulted in the closing of a number of factories. Many a garment manufacturer is facing financial embarrassment at the risk of even loosing their personal assets, which were used as guarantees to secure financial aid for the establishment of the factories.

There are a similar number of young females joining the unemployed, being forced to look into other areas for survival, which might have questionable morality in their attempts to sustain the social status.

With a depleted foreign market for the Sri Lankan product, the under utilisation of the quotas even before the phasing out in 2004 will force drops in the production, precipitating an escalation of apparel prices even in the local market. If timely remedial actions are not taken by the government of Sri Lanka to take control of this sad plight, history is bound to repeat itself.

Facts and figures

(Source: Central Bank of Sri Lanka Annual Report 2000)

Output in the textiles, wearing apparel and leather products category grew by 15.9 per cent in 2000 in comparison to 7.3 per cent in 1999 and contributed 66 per cent to the growth of output in private sector industries in 2000.

The availability of quota for export of garments increased in 2000 by 11.3 per cent to US, 16.1 per cent to EU and 19.6 per cent to Canada. Sri Lanka exported about 56 per cent of its textiles and apparels to USA, accounting for 2.3 per cent of its total imports.

There has been an increase of 17.1 per cent from 1999 to 2000. Apparel exports to USA increased by 21.2 per cent in 2000 of which 71 per cent was under quota. Exports of quota items increased by 13.3 per cent while non-quota items increased by 46.4 per cent.

Exports of high value added non-quota items received relatively higher prices in the US market. Exports of other textile items to the US market registered an increase of 10.8 per cent and accounted over 95 per cent of non-quota category exports in 2000.

Industrial countries had the major share of 74 per cent of Sri Lanka's exports with developing countries accounting for 20 per cent and European countries for three per cent.

USA was the largest single buyer in 1999 and 2000. Textiles and garment exports accounted for 77 per cent of total exports to USA and grew by 26 per cent.

UK, the second largest buyer, recorded a share of 13 per cent followed by Germany and Japan as the third and fourth largest buyers respectively, accounting for a share of four per cent each. Garments accounted for 79 per cent of goods exported to the UK.

Accounting for more than six per cent of the GDP, earning annually almost two billion US dollars and providing more than three hundred thousand jobs, the apparel industry was by far the most profitable export-oriented business in 1999. The number of factories increased rapidly up to 1996 and thereafter remained virtually constant, ending up with around 700 garment factories at the last census taken before the turn of the century.

The GVA per worker at 4,900 US dollars is at the same level with South Asian apparel manufacturers, but almost 20 per cent of the GVA of the developed countries.

In spite of the attempts made by the 200 garment factory program to force the establishment of large factories in rural areas for it to be more cost beneficial to the employer, 73 per cent of large factories and 82 per cent of small factories are still restricted to Colombo and Gampaha districts. The preferential treatment of the Board of Investment (BoI) for the establishment of factories in rural areas resulted in 78 per cent of non-BoI factories being established in the Colombo and Gampaha districts with 46 per cent BoI factories in the upcountry.

Though many factories are concentrated in Colombo and Gampaha the number of employees in Colombo is only 25% of the total, thus showing an acute shortage of the labour force in City based enterprises. Apparel industry not only was the key employment provider but also contributed to the growth of the country's economy by increasing the GDP from 2.5% - 7% in the last 16 years.

Of a total industrial production of Rs. 363 billion the Textile, Apparel and Leather TAL sector accounted for Rs. 160 billion in 1998 which was a steady growth of 40% to 44% from 1988 to 1998. Last decade showed differential development in the textile and the apparel industries with the latter showing annual improvement whilst the former stagnating after a moderate growth up to 1994.

With 95% of the industry being export oriented taking maximum advantage of the quotas granted to the country from the Multi Fibre Agreement the local market only was a mean to fill production gaps. During the last decade the total foreign exchange earnings increased from 600-2200 million US dollars, an increase of 27% over 10 years.

The USA is our major market buying 60% of our products, with Europe accounting for 35% and the balance sharing by others with Australia and Canada being constant buyers. Sri Lankan-German ventures and the direct business between the two countries sometimes with their own production units in Sri Lanka accounts for the higher gains from the German market.

Recommendations

The objective should be the promulgation of a well-defined clear strategic plan to increase the competitiveness with active participation of manufacturers, buyers and government bodies. This shall encompass all possible methods both locally and internationally to reduce the cost of the end product without compromising the quality.

The sequence should be the identification of the areas needing adjustments for the reduction of cost first and then find out alternative strategies.

Since it becomes a responsibility and a moral obligation of the government to revive this industry, following identified remedial measurers are submitted for due consideration and subsequent implementation:

(a) Increase the efficiency of factory personnel by educating them on productivity measures.

(b) Introduce productivity based incentives funded by the CESS charged for quota issues.

(c) Simplify visa procedures for non-nationals inclined to invest on the industry

(d) Promote restarting of closed textile factory bases in Sri Lanka

(e) Make available funds for investment on new textile factories

(f) To make design related equipment and accessories for the apparel sector duty free

(g) Promote USA and EU for duty free concessions on Sri Lankan imports

(h) Increase the recognition of buying offices by making legislations for mandatory registration

(i) To provide BoI status to the buying offices

(j) To include competent representatives from the SLGOBA for any delegation on negotiation both locally and internationally

(k) Permit the operation of individual bonded warehouses

(l) Afford zero rating of GST since the services are consumed outside the country

(m) Actively intervene to abolish the Terminal Handling Charges

(n) To lobby for the complete withdrawal of the War Risk Surcharge

The phasing out of the quota system and the extinguishing of the Multi Fibre Agreement in 2005 should trigger off the preventive measures to nip in the bud the present downward trend in this industry.

Whenever there is a requirement to waive off a restriction for a final cost reduction of the end product it's prudent to consider the gains at the end, which will outweigh the individual losses during the process from an economic perspective as under the current trends in the international arena revitalised Garment Industry still has the potential to reach greater heights in spite of other Asian countries offering incomparable prices and can still be the primary foreign exchange earner.

The writer is a Director of the Board of Management of Ranaviru Apparels.

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