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Forex shortage costs apparel sales

20 Feb 2022

  • Industry suffers from fabric shortage 
  By Imesh Ranasinghe  Samanthi (not her real name) aged 33, from Panadura, is the owner of a Facebook clothing page whose customer base has grown to over a 1,000 over the past four months with the sale of women’s wear. However, her online business is now in jeopardy as the fabric shortage in the market has impacted the country’s clothing manufacturers. Due to the shortage, Samanthi has not been able to purchase new styles and designs of clothes from wholesale traders over the past two weeks in the quantities her customers have requested. Samanthi, whose husband left her and their 8-year-old daughter earlier this year, is struggling to carry forward the business she has managed to build in the last four months as the foreign exchange crisis in Sri Lanka has impacted every aspect of its citizen’s lives. Sri Lanka’s apparel industry is one of its major exporters which earned $ 5.4 billion in 2021. The fabric that is chiefly used is locally manufactured and imported from countries such as India, China, and Pakistan.  According to the Central Bank data, Sri Lanka in 2021 imported $ 3 billion worth of textiles and textile articles which mainly consist of fabrics, when compared to the $ 2.3 billion in 2020. Sri Lanka has already banned the import of readymade clothes as part of its import restrictions imposed since the start of the pandemic in March 2020.   Fabric stocks only sufficient for March-April season    A clothing manufacturer and wholesaler from Maharagama told The Sunday Morning Business that the fabric stocks they currently have are only sufficient to manufacture clothes for the March-April season – the Sinhala and Tamil New Year season in the country which experiences high demand for clothes in the local market.  He said that although there are fabrics to be purchased since the materials are imported to Sri Lanka in low numbers, manufacturers will have to wait for weeks on certain occasions to receive the required material even after paying cash to their local suppliers. According to him, the price of one yard of fabric has increased by at least Rs. 50, which has significantly impacted the price of finished garments. He added that a yard of fabric which used to cost Rs. 230 is no longer even priced at Rs. 280, at the very least.   Fabric shortage would cause unemployment    However, speaking to The Sunday Morning Business, Sri Lanka Apparel Brands Association President Lalantha Watudura said that the fabric shortage would not impact the March-April season, as the clothes manufactured using the fabrics imported previously were at the finished stage. However, he added that the issue would be to manufacture a batch of clothes for the June season, as the required fabrics should have been imported by now. “Normally it takes 45 days to manufacture fabric in China and 15 days for shipping. It will take another 45 days to complete the production of clothes from those materials in Sri Lanka. So normally it’s a cycle between 90-120 days,” he explained. Watudura said that the failure to open Letters of Credit (LCs) on time by the cloth manufacturers and importers would now result in a reduction of sales in the coming months. “This will, in turn, impact employment as factories will not have materials to undertake production as before,” he added. Further, he noted that although banks were not opening LCs due to the prevailing dollar shortage, the credibility of local clothing brands with their foreign suppliers has been shaken as those suppliers sometimes fail to immediately understand that banks take time to open LCs because of issues related to the country and not due to issues with the companies. “Some of the local brands have 10 to 15-year relationships with their foreign fabric suppliers,” he said. Watudura said that despite the challenges, the cloth manufacturers were able to get their fabric stock in December. This stock is being used at present to produce garments for the March-April season. But he is optimistic that the currency shortage problem could be solved quickly and the country would be able to see the best results in the last quarter of 2022.  “We have requested the Government to use alternate currencies instead of US Dollars, such as the RMB (Chinese Yuan) and the Indian Rupee when importing from China and India. If this is allowed then 90% of the problem would be solved,” he added. Apart from the price increase from the shortage in the local market, he said that the international market price of fabric has increased between 25-30% in the last few months, especially due to the global cotton crisis. He said that Sri Lanka typically imports cotton, linen, and synthetic fabrics such as polyester, and that the majority of imports are synthetic fabrics.   Apparel exporters fine    Joint Apparel Association Forum Sri Lanka Secretary M.P.T. Cooray said that even under normal economic situations, Sri Lanka did not have sufficient fabric for its apparel industry. Cooray added that only seven local companies manufacture fabric in Sri Lanka, and that the majority of those products are purchased by the country’s apparel exporters. He added that both exporters and local cloth manufacturers in Sri Lanka who cater to the domestic market were importing about $ 2.5 billion worth of fabrics. Therefore, he said given the current foreign exchange crisis in the country, companies that did not earn foreign exchange may have a serious issue in importing the required fabrics for the purpose of producing clothes for the local market. “But the export community doesn’t have that problem as they can import fabrics with their export earnings,” Cooray noted.   Some importers stop importing fabrics    “Some fabric importers have completely stopped importing fabrics to the country as they are unable to open LCs in banks and unable to cope with the black market rate of US Dollars to rupees,” Chamira Dewage, a medium scale fabric importer from Colombo, told The Sunday Morning Business. He said that many importers purchased US Dollars through the black market at a rate of Rs. 260 for a dollar. Moreover, he added that the existing importers have reduced their fabric imports by 50% when compared to the normal import quantities. Dewage, who also owns a cloth manufacturing factory, said that they are now importing only the amount of fabric required for their own manufacturing needs rather than selling to others, as the bank only opened LCs for his company with the greatest difficulty. “The problem will only get bigger in the coming months, so we will have to think about a solution to the fabric issue. The stocks will reduce by April,” he declared.   Finance Ministry to provide $ 30 million for fabric imports    Speaking to The Sunday Morning Business, State Minister of Batik, Handloom, and Local Apparel Products Dayasiri Jayasekara said that during the meeting held under President Gotabaya Rajapaksa and Finance Minister Basil Rajapaksa earlier this month on essential imports, the Finance Minister had promised to provide $ 30 million to import the required amount of fabrics needed for apparel manufacturers. Accordingly, a discussion will be held with the local cloth manufacturers in the coming week to inquire of the manufacturers about the quantities of fabric that are required to be imported. “They (cloth manufacturers) have two problems; one is that they don’t have enough yarn and the other is there is not enough fabric,” the Minister noted.  However, the Minister added that apparel exporters do not have a fabric shortage issue as they have the dollars to import the required amount. However, Watudura said that $ 30 million dollars was not enough to obtain the required amount of fabric to produce garments, since if one yard of fabric costs $ 2, they would require 15 million yards of fabric, which could on average produce one million garments. According to him, this is lower than the requisite monthly demand in Sri Lanka.


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