From rags to riches

New opportunities await Thai textile operators interested in doing business here in Sri  Lanka

By Neville de Silva

Bangkok Post: If the Thai textile industry is looking to expand its export market, then Sri Lanka might just afford an opportunity.

A delegation from the industry visited the South Asian country this year, but sources said the three-day visit was too short to make a detailed assessment.

With Sri Lankan garment retailers coming to Bangkok practically every day to buy relatively cheap ready-made garments, the Thai industry senses an opportunity to establish more permanent contacts with wholesalers and manufacturers to supply garments, fabric and accessories.

Interest picked up further last month when Sri Lanka announced its budget for next year. President Mahinda Rajapaksa, who is also the Finance Minister, declared textile yarn imports will be free from all taxes charged at the point of customs.

The economic rationale is straightforward. Sri Lanka now spends US$ 2.5 billion on imports of textiles and related accessories for the manufacture of garments for export. That means more than half the US$ 4 billion it earns from garment exports goes for imported materials, fabric, yarn and accessories.

The apparel industry remains one of Sri Lanka’s leading export earners, and not even last year’s withdrawal of the EU’s GSP Plus trade concession extended after 2004’s disastrous tsunami seriously affected it despite Cassandra-like predictions of gloom and doom.

But the problem is that a huge chunk of foreign earnings is flowing out in the way of imported materials to feed this lucrative industry, which is perceptively moving upmarket into the international fashion world.

With tax exemptions and other concessions giving a boost to local production, Sri Lanka expects to produce at least half the material it needs within the next five years. There will now be a new all-inclusive tax of Rs. 75 on a kilogramme of imported yarn.

That means Thailand’s textile-yarn manufacturers could position themselves in the new space created by Sri Lanka’s desire to produce much of the material needed for its expanding garment industry, which has established itself globally as a high-end producer of garments servicing leading international brands.

These include such well-known names as Nike, Marks and Spencer, Victoria’s Secret, Liz, Gap, Claiborne, Jones New York, Tommy Hilfiger, Pink, Ann Taylor, Abercrombie and Fitch and Intimissimi.

Thailand’s textile and garment manufacturers have already shown an interest in breaking into the Sri Lankan garment trade. One Thai firm is interested in supplying uniforms and garments to schoolchildren, while another is looking at setting up a large textile mill and ancillary requirements if all the land it wants is available.

Here again, next year’s Budget provides incentives. President Rajapaksa, in his capacity as Finance Minister, has proposed the removal of value-added tax and customs duty on machinery and other equipment required to modernise the textile sector.

Moreover, he has proposed reducing income taxes for substantial new investment in existing textile factories and extending long-term tax holidays for related new investment.

With increased demand for garments and sportswear from schoolchildren and other youths, the Government has decided to allow export producers to supply up to 25% of their total output to the local market if manufacturers guarantee 75% is for export.

A cess of Rs. 25 will be charged on each garment thus released into the domestic market, while high taxes will be imposed on similar garments that are imported, so that there will be less spent on foreign products.

Sri Lanka’s apparel industry has been setting itself up as a socially responsible and a preferred destination for apparel sourcing. It has progressively moved to position itself as a “fashion” industry that adheres to ethical practices and has been identified as a manufacturer of “Garments without Guilt” in that it does not employ under-18-year-olds, thereby adhering to International Labour Organisation rules on child labour.

Sri Lankan exporters were given further impetus when President Rajapaksa announced a 3% depreciation of the rupee. This will also benefit Thai entrepreneurs who have established joint ventures or have sole ownership of export-oriented projects.

Given the gloomy international economic outlook and the serious downturn in consumer spending, particularly in the West, Sri Lanka is looking for new markets in Asia, Africa and Latin America, where spending power overall is not as high as in developed markets.

Sri Lanka is hoping to cut back on imports by giving an impetus to local industries providing financial and tax incentives to boost interest. On the other hand, it is giving incentives to exporters to explore new markets by making its export products more competitive via the depreciated rupee.



(The writer is a veteran Sri Lankan journalist currently on diplomatic assignment in Bangkok.)