Apparel industry to hit US$ 4 b this year

Monday, 14 October 2013 00:10 -     - {{hitsCtrl.values.hits}}

By Cheranka Mendis Given the necessary thrust, Sri Lanka’s apparel industry could reach US$ 4 billion by end this year, even though the value would be 8% less than what is expected from the industry to support the growth targets of the country. Moving up from a ‘difficult place’ from a year earlier which marked some 7% down for the industry, apparel has managed to discontinue the downward move to stand at two to three percentage points above last year and record a 9% increase in its exports to the US. For the industry to sustain, achieve growth and accomplishes growth targets set for itself, the industry must focus on various areas for improvements – starting from capacity building to adding new markets to its map, finding solutions for the towering energy costs and increased labour market flexibility among others. Announcing what was termed as his ‘Wish List,’ Sri Lanka Apparel Exporters Association Chairman Yohan Lawrence on Friday drew attention to the needs of the hour of the apparel industry. Speaking at the association’s Annual General Meeting he noted that in order to continue the development in the sector which has been fuelled by various measures undertaken by the Government – such as the creation of the Freeport or ‘hub concept’ covered in the amendments to the Finance Act No. 12, including apparel to the FTA with China now being compiled and the paperless documentation process for export documentation – the industry would need to create additional facilities by way of new investments and facilitating existing capacity, building on the work done in the past year. CBSL Governor Ajith Nivard Cabraal and BOI Chairman Dr. Lakshman Jayaweera were part of the invitees at the event. New markets Growth of the industry must come from new markets, he said marking China, other BRIC countries such as Brazil and Russia, Japan and South Korea as markets to develop in the future. “While the existing markets will continue to maintain our base line export value, growth has to come from new markets.” Lawrence said. Preferential trade agreements with Japan and South Korea at the earliest would facilitate this development; while a move to further liberalise the FTA with India is also key to harness regional strength. “While we have a FTA with India, this is limited to eight million pieces of textiles and apparel.” Pointing out that Russia is also a potential market for the Sri Lankan apparel industry, he asserted that a trade mission is now in Russia to study the market and its trends to later evaluation options for market development. Energy costs Large and increasing energy costs have continued to drive a stake through the industry’s heart with the recent increase in costs of power recording a 17-18% rise the cost of energy. For an average sewing unit, energy would represent 8% of the total cost of running a factory. The cost of power is said to be much higher for factories with large wet processing units. “We would look to the removal of the Fuel Adjustment Charge of 15% that is applicable on the IP tariffs under which most of our member companies operate,” Lawrence said. The Fuel Adjustment Charge was introduced in 2012 as a result of the rise in the costs of thermal fuel. He argued that with the commissioning of the coal power plants, there is valid argument for the removal of the surcharge. The association has made a number of observations to the Public Utilities Commission regarding the structure of the CEB tariff, he asserted noting that the association is now seeking an opportunity to discuss in detail some fundamental issues in the current tariff system structure. Sharing his views on alternative energy, he commented that while there is some take up of the use of solar electricity in the domestic sector, the payback on commercial applications is still prohibitively long. However there is scope in the conversion from furnace oil to bio mass for boilers. “Currently there is no incentive for this. While there may be limited applications in our industry there is potentially a large benefit across other industries, which includes fabric mills.” He claimed that it would be of mutual benefit if the industry is to receive low cost funding or tax concessions on the specific area. Growth of the industry is also restricted by the cost of capital equipment. “We would seek the removal of PAL and NBT on the imports of capital items as it would encourage investments in apparel, textiles and accessories sectors.” Flexibility in labour market Taking up office last year, Lawrence made a request for flexibility in the labour market which has gone unheeded so far. Recognised internationally for the exceptional working conditions and treatment towards its employees, those involved in the factories locally work less hours than competitor countries with a more rigid set of rules. He explained that in order to maintain compliance to the law of the land and the compliance requirement of buyers, a factory in Sri Lanka can work no more than 57.5 hours. Competitors in Bangladesh however can put in 60 hours of work while those in Vietnam put in 64 hours. Also restricting the work shifts in the local trade is the fixed weekly holiday. “Flexibility in deciding the weekly holiday will be a significant advantage to the industry as this allows us to have 24/7 shift operations.” On the flip side of looking for increased labour market flexibility, the industry is concerned about the proposed amendments to the Industrial Dispute Act, he admitted, noting that the Act is already discriminatory of employers. He continued: “Many of us use (or are forced to use) FOB as the terms of trade with our buyers while in most instances we are required to hand the cargo over to the buyer’s forwarder. Once we hand over the cargo, as the seller we no longer have physical control over the goods. But as the FOB contract has not been executed at that point, the legal liability for those goods still remains with the seller.” The anomaly has been reflected in the 2010 revision to INCOTERMS where it recognises that FOB is not the appropriation term of trade. While the industry continues to raise the matter with buyers, it is now the right time to encourage the use of international best practices in relation to the carriage of goods. Lawrence noted that this could be achieved by the authorities instructing the Director Merchant Shipping to issue a regulation to shippers to ensure that they comply with the latest version of INCOTERMS.” Shortage of labour The industry also needs to accept the shortage of labour in the metropolitan areas. Colombo and Gampaha districts account for a large part of the association membership which includes a number of small and medium enterprises. Coupled with the increase in land values in these areas, it will become a necessity for these industries to relocate in to areas where there is an available pool of labour. A number of bigger businesses have already begun setting up in remote locations. However for the SME sector Lawrence encouraged assistance of any form through development finance schemes for the continuation of the said segment in the industry. Pix by Sameera Wijesinghe