Realistic policy measures must to salvage apparels

By Gamini WARUSHAMANA

The future of the apparel industry of Sri Lanka is uncertain after March unless the government takes policy measures to address the issues faced by the export industries today, said Secretary General of the Joint Apparel Association Forum (JAAF) Rohan Masakorala.

“This is the beginning of the crisis and our order books are full upto March. But we can’t predict what will happen thereafter,” he said.

According to statistics there is a 4.7% overall growth (turnover) in the apparel exports last year. There is a 20% growth in the EU market while 6.7% decline in the US market.

However, these figures alone do not give the true picture because export volume has also increased and margins have reduced significantly. Under this global economic crisis this is a buyers’ market and we can’t dictate terms and conditions,” he pointed out.

This tough market conditions have already hit the industry and, small, medium as well as large companies have closed down or terminated operations. As the cost is high many companies cannot supply at discounted prices that the market demands.

According to JAAF statistics, at the beginning of 2008 there were 350 garment factories in operation and by mid 2008 this had come down to 320 and today only 270 are in operation.

That means 80 companies have closed down or terminated operations. Last week a large apparel manufacturer Sinotex Lanka put up shutters with nearly 3,000 workers losing their jobs.

Masakorala said that in this global economic crisis all the export industries are facing a tough time. For instance our customers ask $2-3 discount for each piece that we sold at $6 earlier and if we fail to supply at that price they will move to other markets such as Bangladesh or Vietnam.

It is difficult for our producers to supply at such a low price because our costs are increasing. Industries are taking all the measures to reduce the cost, including cutting employment, stopping expansion and recruitment.

Today the fundamental objective of the industry is to maintain the markets and competitiveness. In export industries once we lose the market it is very difficult to regain them.

According to JAAF the high cost is a major issue for the industry to face difficulties in the present crisis. We repeatedly demanded all the successive governments to solve these issues, but no attention was paid.

High energy cost, high inflation, large number of holidays, exchange rate issues, inefficient support services, especially with the government agencies still have serious issues. We pay the highest container handling cost in this region.

All the laws and plans have been finalised for digital commerce and to start the electronic clearing system but the authorities do not implement it. This system will reduce operational cost by 8%. VAT refund is another issue and even with bank guarantees the Inland Revenue Department does not refund VAT.

As a result, many companies have faced liquidity problems and even failed to pay salaries of the workers. Masakorala said that the JAAF’s demand for devaluation of rupee is based on these fundamental issues in the industry.

It will not increase the profitability of our export industries, but will help us to maintain our markets and competitiveness at this difficult time. Masakorala said that the reason the Central Bank is reluctant to devalue the rupee is to attract short term foreign investments.