Crisis fatigue, shifting demand and rising rivals impacting Sri Lanka apparel

• Egypt’s AGOA-driven rise as apparel manufacturing base poses both competitive threat and expansion opportunity, with several Sri Lankan firms already operating manufacturing bases in Africa
• JAAF exploring incentive schemes with Govt. to encourage automation investment and address gaps in renewable energy adoption

Sri Lankan apparel manufacturers have fallen behind regional competitors on automation and technology adoption, not for want of capability but because the industry has spent much of the past decade absorbing one crisis after another, Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawrence said.

Speaking at a recent First Capital Research Stock Talk podcast on “Global Trade Reset: What It Means for Sri Lanka’s Apparel Industry,” Lawrence said that from the end of the civil war to the pandemic and the 2022 economic collapse, successive shocks had left the industry with little capital or management bandwidth for upgrading production lines. 

He pointed to China, where higher labour costs are offset by substantially higher labour productivity, itself a result of sustained investment in automation and new technology. Closing that productivity gap, he said, would help offset Sri Lanka’s structural cost disadvantages as a small, non-scale producer.

Lawrence described the push to get both new and existing manufacturers investing in automation as a “quick win” for the industry, adding that the JAAF was exploring possible incentive schemes with the Government to encourage such investment, alongside separately flagged gaps in renewable energy adoption that some international buyers are increasingly using as a sourcing criterion.

On demand, Lawrence said Sri Lanka’s apparel exporters had benefitted from a global consumer shift towards athleisure, a category he said the island was well-positioned to capture given its existing expertise in lingerie and technical garment construction. Combined with continued strength in infant wear and children’s wear, and a retreat from the declining formal wear segment, he said the country’s current product mix was broadly the right one.

That positioning, however, sits atop consumers with less spending power. With US inflation running close to 4.5%, oil prices near $ 120 a barrel, and similar pressures building in the UK, Lawrence said apparel purchases are discretionary rather than essential and are among the first casualties of a domestic cost-of-living squeeze. 

Faced with tighter budgets, buyers will trade down, he said, weighing whether to pay $ 17 for a garment from an established, higher-cost origin such as Sri Lanka or $ 12 for an unbranded alternative from an unproven source. For a country positioned at the premium end of global sourcing, he said a sustained squeeze on Western household budgets posed a direct risk to order volumes, independent of tariff or trade policy.

Lawrence also flagged a revival of interest in African apparel manufacturing, with Egypt cited as the most prominent example given its proximity to Western markets, as both a competitive threat and an expansion opportunity for the Sri Lankan industry. He attributed the shift primarily to trade preference arrangements such as the African Growth and Opportunity Act (AGOA), rather than any inherent manufacturing advantage, noting that Africa lacks the deep pool of skilled garment labour built up over decades in Asia.

Rather than viewing the trend purely defensively, Lawrence said a number of Sri Lankan apparel companies already operate manufacturing bases in Africa, giving them the flexibility to offer international brands a choice of sourcing locations depending on trade terms and cost. 

He drew a parallel with Sri Lankan investment in India, driven by that market’s own domestic sourcing requirements, arguing that the industry’s long-term competitiveness will depend on maintaining a compelling enough domestic offer that Sri Lanka remains a preferred base even as manufacturing capacity diversifies globally.