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| Sunday, 19 May 2002 |
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| News Business Features Editorial
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Resuscitating the domestic textile industry by Sarath Gooneratne Textile manufacture in Sri Lanka started with the setting up of Wellawatte Spinning and Weaving Mills in 1888. Then came Veyangoda, Pugoda, Thulhiriya, Paragon, Cyntex, JB Textile Industries, Nagindas, Kandy Textile Mills, Hybro and factories run by the Department of Textile Industries. Since then many medium and small scale factories have started. About 200 million metres per annum were produced by these factories at one time, feeding the domestic market, and saving large amounts in foreign exchange. Things started going wrong a few years ago with the large scale garment manufacture for export. Many of these garment manufacturers siphoned part of the imported textiles (imported without duties for re-export) to the local market. With more and more garment manufacturing plants opening up, the quantum of fabric seeping into the local market also proportionately increased. With the maiden budget of the People's Alliance in 1995, the duty on textile imports was reduced from 50 to 35 per cent, prior to the Sinhala and Hindu New Year. Textile traders imported fabric from India, Pakistan and China rather than buying from the local textile mills as it was cheaper. Textile sales in Sri Lanka had always been seasonal with the major sales quantum taking place during Christmas and New Year. All the textile mills which had built up large stocks for the New Year were saddled with massive quantities of unsold fabric and hence, liquidity problems. The duty was then brought down to zero in November 1997, with the intention of facilitating the garment manufacturing sector to develop and expand to generate high employment levels and foreign exchange earnings. However, this had a direct and adverse effect on the domestic textile manufacturing industry. Three of the large textile mills in the country at the time, Pugoda, Veyangoda and Kuruwita, which were generating large profits up to 1994, saw a massive loss in 1996 and ultimately had to close down as they were unable to compete with cheap imports. All three factories, which produced quality fabric for the domestic market, and which were on par with present day imports for domestic consumption, have now closed with thousands left unemployed. To cushion the impact of duty removal, the then government took a decision to transfer the debt burden of textile factories to the Textile Debt Recovery Fund (TDRF). However, this process took a long time and was not sufficient to prevent the closure of most factories. The TDRF has not been fully implemented even now and most banks have decided against granting of facilities to the domestic textile industry. Textile manufacture consists of yarn manufacture, weaving of the grey fabric and processing (i.e. bleaching, dyeing, printing and finishing). Garment manufacture is the manufacture of garments from any material, textiles included. The domestic textile industry should cater to the needs of the local population and need not necessarily be for export or for garment manufacture for export. If a part of the domestic textile production can be used for garment manufacture for export, well and good. Over a billion rupees It is not possible to upgrade a domestic textile manufacturing factory to that of a textile factory catering to the export garment industry. A textile factory to cater to the garment industry, either spinning and weaving or dyeing, printing and finishing will cost well over a billion rupees. If one is thinking of textile manufacture to cater to export-oriented garment factories, it will have to be a completely new venture. Over 120 countries manufacture garments for export. Garment manufacture is not a very complicated or technically advanced process compared to textiles, and the quality of garments produced in these countries has been steadily improving. The prices have therefore come down considerably, while costs have risen. The multifibre agreement will end in 2005 while China is gaining a stronghold in garment manufacture to the USA. China has a very advanced textile manufacturing base and manufactures machinery for the garment industry. Further, it is hard to believe that USA will simply allow imports to dominate its domestic market. Instruments of trade policy would definitely come up to protect trade in future. Many officials feel that backward integration of the garment industry is a pre-requisite for the industry to develop. They also think that the first step to backward integration of the garment industry is the textile industry. It is well and good if modern textile factories capable of supplying to the garment industry are in operation, but whether they will ever be in a position to compete with countries like China in the future is another matter. Even if we set up advanced textile manufacturing factories costing billions of rupees, we will still not be in a position to cater to the garment sector in Sri Lanka in appreciable quantities, because the variety of fabric, yarn and finishes required for modern day garment manufacture changes frequently. The domestic textile manufacturing industry at the moment faces closure, with no duty on imports, release of large quantities of garments to the local market from export-oriented garment factories legally and illegally, and taxes being levied for the inputs of the textile manufacturing industry as well as sales of the finished product. Imported fabric still comes into the country and to the domestic market via garment factories with no duties and taxes. A level playing field is required if the domestic textile manufacturing industry is to survive. From providing direct employment to 45,000 persons in 1994, it has now dropped below 18,000 and continues to fall as factories keep closing down. This trend can be brought to a halt and maybe even reversed if proper constructive action is taken immediately by the authorities, without any further delay. Even during this Sinhala and Hindu New Year millions of metres of low and medium quality, low width fabric were imported from China, India and Pakistan for domestic consumption, which could have been easily manufactured here. The main problem in competing with these imports is the very low price at which they are imported due to subsidies and other incentives from those countries. Anti-dumping The anti-dumping laws, as per the World Trade Organisation agreement should suffice here, but do not. The domestic textile manufacturers should request the authorities to take a reasonable decision to implement requests made by the textile manufacturers in order for the balance textile factories to survive and maybe re-start factories that have already closed down. The factories can be categorised into three segments. 1. Those who still want to run their textile factories, with the present workforce with a reasonable incentive package from the government, so that the factories can be run profitably, and the loans transferred to the TDRF can be paid back. (Incentive package could take the form of finance relief measures, low interest loans and zero rating of GST/VAT for inputs and sales.) 2. Those who would want to use the present infrastructure facilities available in their factories, and start a new, hopefully viable industry and thereby keep reasonable employment levels. 3. Those who would want to close down the existing factory and call it a day. The authorities should take a reasonable and quick decision with regard to all three categories as domestic textile manufacturers are in this plight due to no fault of theirs. |
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