Serious crisis developing:

Advantage of low labour costs in apparel industry ends

by Gamini Warushamana

The advantage of low cost labour has come to an end in the apparel industry in Sri Lanka and a serious crisis is developing.

The Joint Apparel Association Forum (JAAF), the umbrella organisation of the apparel associations in Sri Lanka said that the industry is not in a position to increase the minimum basic wage to Rs. 10,000 (US$ 100), as demanded by some trade unions.

The industry is experiencing severe difficulties following the abolition of apparel quotas and loss of business to China and other more competitive suppliers in the region, JAAF said last week. Sri Lanka's apparel industry which is striving to gain a foothold in the highly competitive international market is now facing new challenges after trade unions started a campaign demanding a basic wage increase.

The cost of production of Sri Lankan apparel is higher and the selling price continues to decline. In this market situation additional labour costs cannot be absorbed by the industry, JAAF said. JAAF published the minimum wages of the apparel industry in Sri Lankan Rupees in other major apparel producing countries such as India, Bangladesh and Vietnam and said Sri Lanka's present wage structure was comparatively higher.

Trade unions responded strongly to the JAAF statement and the Secretary of the Inter Company Workers' Union (ICWU) Wasantha Samarasinghe said that JAAF is not sensitive to the grievances of the working class.

The ICWU is leading the campaign to increase the minimum basic salary of all private sector employees to Rs. 15,000 per month. Samarasinghe said that with the escalating cost-of-living those working in the private sector have been compelled to agitate for a salary increase because neither the employers nor the government is taking any action.

"The Government has realised the hardship people face due to the high cost-of-living and has increased salaries of the government sector workers. Today the government sector's minimum salary per month is around Rs. 15,000 and the private sector salaries too should be on par with the government sector salary structure," he said.

Samarasinghe said JAAF's wages comparison, especially with China and Vietnam is incorrect as real wages in those countries are higher than Sri Lanka. With increasing cost of living the real wage is coming down. Over 70% of the private sector companies in Sri Lanka pay less than Rs. 5,000 per month as minimum wage.

In the apparel sector the minimum starting wage is Rs. 3,250 and some companies pay Rs. 2,500. In this situation the standard of living of the workers is diminishing and it would certainly affect the productivity of the workers and it is more harmful to the industry, Samarasinghe said.

The ICWU demands immediate government intervention to solve the issue and last week it collected 200,000 signatures in a petition of private sector workers requesting a salary increase.

Many apparel exporting countries have faced a similar situation. In Bangladesh, apparel manufacturers and workers failed to reach the minimum wages proposed by the Wages Board, Bangladesh media reported.

It proposed Taka (TK) 1,604 per month (minimum) starting wage for the first year, TK 1,890 and Tk 2,117 for the second and third years. Today the salary level is TK 930 per month which was fixed 12 years ago.

Apparel manufacturers and trade unions refused to accept the proposal and employers said that the amount was too high while unions found it to be inadequate. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said that the industry does not have the capacity to implement it and all association members were unanimous that many garment units would face closure if they were made to pay the proposed wages.

The Bloomberg report on Vietnam's apparel industry said that half of the 2,000 garment factories would go bankrupt in the next few years because of rising labour costs. Quoting General Director Le Viet Toa of Vietnam's biggest apparel maker Viettien, the report said that only the big companies will survive.

Workers are leaving garment factories in Viietnam for better paid office jobs. Investors said that lower labour costs is a thing of the past. The garment industry is now moving to Vietnam's rural areas seeking low cost labour, the report said.