By:Staff WriterColombo (LNW): Sri Lanka’s apparel sector, once thriving as a foreign exchange spinner for the country, begins its downfall amidst the current economic crisis.
Apparel export earnings are set to slump by US $1 billion this year, a top industry expert said, as slowing global demand hits the crisis-hit South Asian country.
Apparel is Sri Lanka’s largest industrial export and earned $5.95 billion in 2022, helping the country as it weathered its worst financial crisis since independence in 1948, triggered by a record reduction in foreign exchange reserves.
But the industry’s first-quarter performance in 2023 has struggled with textiles and garment exports dropping 13.8% to $1.3 billion, data from Sri Lanka’s central bank showed.
Exports in March marked the lowest in three years, said Yohan Lawrence, Secretary General of the Joint Apparel Association Forum (JAAF), which is the industry’s apex body.
Sri Lanka’s garment sector made up almost half its export revenue last year, after remaining resilient even through the pandemic and the country’s debilitating economic crisis.
But shocks in the international market have led to a plunge in demand, prompting factories to lay off hundreds of employees.
Apparel is one of the biggest export earners in Sri Lanka, an industry that produces goods for major global retailers such as Marks & Spencer, Victoria’s Secret and Nike, among other brands.
Last year, the sector accounted for some 46 per cent of Sri Lankan export revenues, or US$5.93 billion.
But amid a challenging global economy, year-on-year export volumes shrank about 11 per cent by March this year, industry statistics showed.
Softening market conditions in the United States, European Union and Britain; fears of a global recession; and the Russia-Ukraine war accounted for a sharp contraction in demand, said Yohan Lawrence, head of the Joint Apparel Association Forum of Sri Lanka.
But the industry has bigger worries. Data suggests Sri Lanka is losing market share to neighbouring Bangladesh, Lawrence said.
From 2021 to 2022, Sri Lanka’s export revenue rose by 10 per cent, from some US$5.07 billion to US$5.59 billion, while that of Bangladesh grew by 28 per cent, from US$35 billion to US$45 billion.
The fact Bangladesh’s growth accounted for almost double of Sri Lanka’s entire market share was deeply worrying. “If that does not frighten [the country], I don’t know what does,” Lawrence said.
Trade agreements are at the core of this dynamic, since Bangladesh as a least developed country (LCD) holds more preferential trade terms, and could export apparel free of duty to the EU and the UK under the “Everything but Arms (EBA)” trade agreements.
Sri Lanka, however, trades under the Generalized System of Preferences, which comes with conditions based on the rules of origin.
As a result, apparel made in Sri Lanka is less price-competitive than that of Bangladesh.“[Sri Lanka] has to lobby for better trading terms,” Lawrence said.