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| Sunday, 16 March 2003 |
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| News Business Features Editorial
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Growth strategies for rubber and apparel industries Five-year plans for the apparel and rubber industries were presented with the aim of increasing productivity and competitiveness at the latest in a series of workshops under the theme 'Strategies for Growth, How will the Industry Compete? A Forum for Change'. Prof. G.L. Peiris, Minister of Enterprise Development, Industrial Policy and Investment Promotion said apparels and rubber are the backbone of Sri Lanka's economy. They had kept the economy afloat even during bad times. He said the five-year growth strategies are aimed at looking beyond 2005, when world trade and industry will take a different outlook. "We can survive only by improving what we do best and that is based on what we collectively produce and sell to world markets based on the combination of quality and cost. We can only do that by critically conducting a Strengths, Weaknesses, Opportunities and Threats analysis for each industry and company," he said. Rubber Studies conducted by various multilateral agencies have recommended that the rubber industry should be developed as a means of economic growth, employment creation and poverty reduction. Japanese experts recommend positioning the industry to lead Sri Lanka's industrialisation efforts and also identify rubber as the largest competitive advantage of the nation. Even though a few local firms have already reached levels of global competitiveness, Damitha Dharmasena, Secretary Sri Lanka Rubber Cluster asks, "Are we competitive? Is the industry sustainable?" Presenting the five-year growth strategy for the rubber industry, Dharmasena explained that the local industry comprises three inter-dependent sectors - the plantation industry including smallholdings, the rubber products manufacturing industry, which grew rapidly since the late 1970s, and the rubber wood-based industry, an important component due to the scarcity of forest wood. "The rubber products manufacturing sector has emerged as a key contributor to manufacturing exports and the rubber plantation sector provides the raw material base for the rubber products sector," he said. "Presently, the industry's contribution to export earnings is about 4.5 per cent, but there is potential to reach 10 per cent. By implementing the growth strategies, the Task Force aims to achieve this, while capturing one per cent of the global market for rubber and rubber products. "A concerted, near-term campaign can put in place a foundation of sustained competitiveness in existing and new markets, through concurrent initiatives in a few main areas," says Dharmasena. "The key elements would include policy reform, supply side strengthening and consolidation, product positioning and an institutional support system. Policy reforms would be necessary so that Sri Lanka can take advantage of developments in global markets. A supportive policy framework designed to create an enabling business environment must augment the rubber products and raw rubber industries and would encompass fiscal, forestry, energy, investment, legal, labour, environment and education policies. Due to the growing importance of the value-added rubber products sector in the national economy and the expected shortage of NR globally, supply side strengthening and consolidation, one of the most important initiatives for the Sri Lankan rubber sector are grouped under three main areas - raw material, human resources and financing. Product positioning comprises value addition and marketing, which would include the establishment of a Centre for Rubber Industry Competitiveness, a Rubber Industry Park, a Latex Crepe rubber repositioning program and one aimed at creating awareness on the proper utilisation of rubber wood to enhance income and maintain profitability at plantation level. The mechanisms of a Society for Rubber Industry, Smallholder Regional Societies and 'Turusaviya' will be implemented under the Institutional Support System. The preliminary roadmap displayed the results of this success-sharing initiative, which should increase export value of rubber and rubber based products from US$ 200 million to US$ 800 million annually at the end of five years, increase production of natural rubber from the current capacity of 90,000MT to 190,000MT by 2014, maintain 200,000 hectares of land under rubber cultivation, increase the average yield of traditional rubber plantations from 800 kg/ha/yr to 1,500 kg/ha/yr by 2008, generate an average yield of 2,500kgs/ha/yr in non-traditional areas such as Moneragala, attract US$ 1.8 billion in new investment into the rubber products manufacturing industry, generate a minimum value addition of US$ 80 million annually and provide more than 30,000 new employment opportunities in rubber products manufacture and a minimum of 40,000 new employment opportunities in rubber cultivation sector by 2007. Apparel The apparel industry will face many challenges at the end of 2004 when the Multi-Fibre Agreement (MFA) is phased out. "The quota system which enabled developing countries like Sri Lanka and Bangladesh to flourish despite competition, will not be abolished," said Mahesh Amalean, Chairman of the committee that evolved the industry strategy. "The apparel industry has grown to be the most significant contributor to the economy within the last two decades. In 2001, the industry, excluding textiles, contributed to 48.4 per cent of export revenue and accounted for nearly 5.55 per cent of GDP while generating employment to 338,704 persons. The removal of the quota system will enable buyers to procure requirements from the most efficient producers globally, posing a threat to those manufacturers competing solely on price. However, this will also present an opportunity to manufacturers who have been competing on quality, supplying garments to the higher end of the market to enhance their export volumes." Amalean mentions that with the loss of the protection hitherto provided by the MFA, inefficient manufacturers would lose market shares to more efficient manufacturers, thereby leading to an inevitable consolidation of the global apparel industry. The same is expected to occur at a micro level in Sri Lanka. "The objective of this strategy is to consolidate and strengthen the apparel industry, to ensure its success beyond 2005," he said. "Presently, Sri Lanka's apparel exports are heavily concentrated in the US and European Union, which leads to a heavy dependency in terms of business risk. We should diversify into new markets to increase export volumes while reducing the present dependency on two regions. The global development of preferential trade agreements should also be addressed as they pose an additional threat to our industry. Where price continues to be an important factor globally, Sri Lanka is not as competitive as it should be due to poor labour productivity and insufficient technological advancement, while improving on lead times is an absolute necessity." Amalean outlined five major objectives the local apparel industry needs to achieve to survive global competition beyond 2005. "Industry turnover should be increased from its present level of US$ 2.30 billion to US$ 4.5 billion by 2007. Taking into account, the existing growth rate of 18.5 per cent over a 12-year period (1989 to 2000) and the possible destabilisation of the industry, a realistic industry growth rate of 12 per cent per year is estimated, for the next six years. Secondly, transforming the industry from a 'manufacturer' to a 'fully integrated services' provider. Thirdly, market penetration to the premium market segments of the global apparel industry needs to be increased. Fourthly, to become internationally famous as a superior manufacturer of specific product categories identified as active and sports wear, casual wear, children's wear an intimates. Finally the industry must be consolidated and strengthened to meet the challenges of the quota-free era. He recommended the implementation of a deliberate phased-out program over the next two years to lessen the impact in 2005 and provide avenues and direction for those seeking to exit the industry. |
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