Sri Lanka’s apparel industry has called for a more competitive investment climate to drive export growth, where high utility and labour costs, regulatory constraints and limited market access are weakening the country’s ability to compete for new manufacturing investment, Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawrence said on First Capital Holdings ‘Global Trade Resets: What it means for Sri Lanka’s Apparel Industry’ programme yesterday (21).
Speaking at the programme, Lawrence said: “The reality today is, we don’t have a queue of people wanting to invest in Sri Lanka, where we have to fight to attract investments, with countries like Bangladesh, Cambodia, Vietnam, who are also pitching for that same level of investments. And the investment offer that Sri Lanka brings to the table has to be competitive and conducive. For instance, If we are in a situation where we have inflexible labour regulations, high labour, high utility costs, restricted market access, it begs the question ‘Why would someone come and invest in Sri Lanka?’
“We don’t have an offer currently that is going to draw the investor in, and if we want to grow the exports, we have to have market access, creating the environment to attract investments. There’s a lot of work that’s happening to look at that offer and to see how we can make Sri Lanka more attractive to the investor, to move on the sector ahead,” he said.
“We have our location as the key driver, but it needs to be more than that. We have income tax rates that are higher than any other export in any other country. So when we have those big blocks, then you also have things like negative lists, para tariffs, which will inflate the cost of setting up a factory in Sri Lanka,” Lawrence said.
He also added: “There is room for growth in Sri Lanka. But the sector’s annual exports have been stuck at roughly $ 5 billion for several years. The growth has to come from doing various things, whether that is Free Trade Agreements (FTAs), reform of electricity tariffs, moving away from our current pricing model to a more stable, sustainable electricity supply, and relaxation of labour laws. So there’s a lot that has to happen. For us to be able to grow, there are certain things we have to do in order to build that capacity, it can’t happen overnight but the sector can grow.”
Against the backdrop of the Government’s $ 36 billion export target, apparel remains a major contributor, with the sector accounting for around 40% of merchandise export earnings, according to JAA, under the National Export Development Plan (NEDP).
He added: “Although clothing prices have fallen significantly, Sri Lanka has seen some growth in the volume of clothing needed to generate the $ 5 billion in apparel exports, today. I think for us, we see certain major key drivers, which is the role of FTA’s. Sri Lanka struggles with a number of our competitors. For instance, Vietnam, Cambodia, these countries have arrangements with their main markets that provide them with preferential access on duty. Sri Lanka doesn’t have that, we have GSP+ to the European Union (EU) and Developing Countries Trading Scheme (DCTS) to the United Kingdom (UK). But to the rest of the world, we don’t.”
“From our perspective, countries like Japan, Korea, Australia, are markets that we could penetrate their market which could afford to take in the apparel sector. But as long as we have to compete with countries who have either duty free or low duty access, we can’t. For instance, if we talk about India, today in reality, it is Sri Lanka that has benefitted more from the FTA than India, which was agreed upon 25 years ago. But that FTA needs to be upgraded. I think it’s important that we work on that piece to enable us to further drive growth in the sector,” he said.
Lawrence said” “Sri Lanka has had a history of crises. In that time, industries did not have the bandwidth to be able to invest in upgrading technologies, and bring new technologies. This is another key unlock that we have to have. We have to encourage existing companies to be able to invest in automation, new technologies that are going to help take productivity up and make us more competitive. So those are quick wins, to boost the sector.”