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
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
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
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?