Comment: Reviving apparel industry a challenge

After the Multi Fibre Agreement (MFA) was phased out Sri Lanka's apparel industry faced a serious challenge and the industry is now struggling to survive. A cry for salvation of the moribund industry was echoed at the AGM of the Apparel Exporters' Association (AEA) recently. AEA chief Noel Piyathilake's address at the AGM clearly demonstrates the depth of the crisis faced by the industry and the possibility of survival seems uncertain according to his remarks.

The end of the MFA was not a sudden and surprise decision and the industry as well as the authorities of this country were aware about the situation well in advance. They discussed the issue indepth for many years. In 1999 a detailed study was carried out by the Ministry of Industries on the challenges the apparel industry would face under the quota free environment.

The University of Moratuwa, IPS and apparel organisations were involved in this study and millions of rupees were spent by UNIDO and JBIC. The report was launched at a grand ceremony at a five star hotel in Colombo. The report made many important suggestions on how to face the post MFA competitive market environment.

It was not the only report or the study on the apparel industry. Apparel organisations also carried out their own studies and estimates over the challenges they would face in a quota free environment.

In addition, there are hundreds of reports and international research about the issue that could be used by our policy makers because challenges are common for almost all apparel manufacturing countries. If all stakeholders were aware of the challenges why is this sudden outburst after just two years of the MFA phase out.

It is very clear that the issue is not the lack of information or proposals of corrective measures but because as a country we have failed to implement them. We have to reiterate that the country is not in a position to compete in the present global economy in any industry, not only apparel, unless our leaders and entrepreneurs become serious of the challenges we are faced.

Though the business community is demanding for decades we have failed to provide the basic necessities for an industry to sustain and compete with low cost products coming across many. The cost of inputs always keeps our products expensive compared to our competitors' products.

Cost of electricity, transportation and ports are essentially keeping our industries at a disadvantageous position. As a country we are backward by centuries in this respect. For instance although coal power led the industrial revolution in the late 18th century, still our people are struggling against coal power plants. Piyathilake appealed to the authorities at the AGM to solve these issues now.

In Sri Lanka, the apparel industry started taking only the low cost labour advantage. There was no cotton, silk production, and fabric or textile industry to cater to the industry. The open economy killed a few large scale textile facilities run by the state and during the last three decades nobody worried about vertical integration of the industry to cater to the essential inputs.

This sweatshop industry pulled millions of people out from extreme poverty all over the world and it happened in Sri Lanka too. Finally Sri Lanka became a middle-income country ending the low cost labour advantage.

The Apparel Exporters' Association's appeal made by its chief at the recent Annual General Meeting to the government raises many issues. It complains against all sectors, ports and banks for the crisis and seeks government intervention to get stability in fares, low interest, debt moratorium and many more incentives. If this is the situation of the Sri Lankan apparel industry it is definitely breathing its last.

However, Piyathilake's reference on legal protection such as US Chapter 11 is an important proposal for all industries in the country. In the US when a troubled business decides that it is unable to service its debt or pay its creditors, it can file (or be forced by its creditors to file) with a federal bankruptcy court for bankruptcy protection under either Chapter 7 or Chapter 11.

A Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations. A Chapter 11 filing, on the other hand, is an attempt to stay in business while a bankruptcy court supervises the "reorganisation" of the company's contractual and debt obligations. The court can grant complete or partial relief from most of the company's debts and its contracts, so that the company can make a fresh start.

Often, if the company's debts exceed its assets, then at the completion of bankruptcy the company's owners (stakeholders) all end up with nothing - all their rights and interests are terminated - and the company's creditors end up with ownership of the newly reorganised company, in the hope that it will eventually succeed financially as compensation for their losses.

AEA is well aware of the industry's future. During the last two years our exports grew in categories, which are at present restricted in China. These restrictions on China will end next year. In addition Vietnam will enter the WTO this year and aim at US$ 10 billion exports by 2010. However, the demands of the AEA will not be sufficient to face the challenges from China and Vietnam.

The only way to compete in the international apparel market is by reducing costs. The Government can do it not by regulation but by increasing the competitiveness of each supporting service such as ports and banking.

Else those sectors would also go into a crisis situation with the apparel industry. The Government can also help the apparel industry by reducing the cost of electricity, water and other utility costs by accelerating the proposed mega projects and not by subsidies. Industrial sector labour productivity is crucial to face China and Vietnam because this is their main advantage.

Our policy makers and industrialists should be serious about the decisions they take. The apparel industry is a no nonsense highly competitive business. If our politicians and bureaucrats were serious about what they said many years ago our apparel industry would not have faced this crisis. China and Vietnam's success lie in the communist leaders in these countries as they are really serious on what they plan and say.

We have our reservations about the seriousness of our apparel associations on what they foresee, talk and plan. For instance, several months ago JAAF launched the Sri Lankan apparel brand "Garment without guilt" and asked all companies and stakeholders to use the brand tag in all their websites, letters and letterheads.

JAAF had spent much money and effort in designing this brand name. However, even today the JAAF web site does not carry the Sri Lankan apparel brand tag.

How serious are we as a country is the jackpot question?