PRESENT POSITION OF THE SRI LANKA GARMENT INDUSTRY
Sri Lanka Institute of Textile & Apparel Technology (SLITA)
Sri Lanka Institute of Textile & Apparel Technology (SLITA)
MAJOR MARKETS OF SRI LANKA
Since more than 90 percent of exports from the Sri Lanka’s textile and clothing industries consist of ready-made clothing, the focus here is on clothing. Sri Lanka currently maintains bilateral textile agreements in the context of the MFA with Canada, the EU and the USA. More than 90 percent of Sri Lanka’s exports of clothing are accounted by only two markets, the EU and the USA. The USA continues to account for about 60 percent of total clothing exports from Sri Lanka. About 90 percent of exports (by value) to the USA consist of quota items. The bilateral agreement between the US and Sri Lanka contains more than 30 quota categories, covering over 50 clothing items. While the quota performance against the US market is generally high, utilization rate of certain quota categories such as knitted shirts and blouses, trousers, underwear, coveralls, and overall, terry and other pile towels etc. has reached almost 100 per cent during the recent years.
The EU has been absorbing about 35 percent of Sri Lanka’s total exports of clothing every year. The largest buyer of Sri Lankan garments within the EU is the UK (about 45%) which is followed by Germany (about 20%), the Netherlands (about 9%), France (about 5.5%), Belgium- Luxembourg (about 5% ) and the rest Sri Lanka’s exports to the EU has been subject to quotas under four categories namely, trousers, blouses, shirts and jackets. The utilization rate of quotas of the first three categories (most sensitive ones) during 1996 was 84 percent, 100 percent and 73 percent respectively, while the rate of the fourth category was nearly 30 percent. Canada continues to account for about 1.5 percent of Sri Lanka’s total exports of garments. While Sri Lanka’s bilateral textile agreement with Canada contains about 15 product categories under quotas.
THE ABOLITION OF QUOTA SYSTEM
Sri Lanka's apparel industry is now a major contributor to the country's economy after its modest beginnings in the seventies. It represents 54% of our total exports and 71% of Sri Lanka's total industrial exports. The garment exports make a direct contribution of 7% to the overall economy.
The rapid growth of this industry could be attributed to the followings:
a. A stable market because of the quota system.
b. Low labour cost.
c. Liberal economic and trade policies.
d. Tax benefits and the concessions granted to the industry.
e. From its inception the quota system was a boom to Sri Lanka's apparel industry. The availability of a stable market eliminated the danger of competition from established industrialists in the international field, and attracted direct foreign investment and helped Sri Lanka prosper in this industry.
f. Although the abolition of quota system in 2005 had a negative impact on the industry it also opened up an expanded free market. As such the future of the garment industry in Sri Lanka will depend on our ability to face competition. One third (1/3) of the total exports from Sri Lanka are done by 25 large scale manufacturers. These organizations are in a position to restructure and sustain themselves in a competitive market according to surveys. But the survival of the other small and medium scale industries is at stake, making the situation critical because these small and medium scale manufacturers are the biggest employers in the apparel industry.
Contribution to the National Evolution
The apparel industry in Sri Lanka had a modest beginning in the 1960s producing mainly textile and clothing for the local market under heavy protection. The export oriented production of clothing (readymade garments) began in 1970s and expanded rapidly after the liberalization of the economy in 1977. When Sri Lanka liberalized its economy in 1977 the country’s garment industry took off immediately mainly as the quota hopping East Asian garment exporters who were attracted by the country’s liberal trade regime relocated their already well-established garment business to Sri Lanka due to low labor cost which ensured the production costs being low. This relocation encouraged local business community to commence its own garment enterprises to exploit markets guaranteed by quotas assisted by the liberal trade regime for importations and subsequently incentives granted by the Board of Investment of Sri Lanka (BOI) including tax holidays and other fiscal and non-fiscal concessions.
During 1980s garment exports were growing rapidly and by 1986 garment exports accounted for the largest share of all exports (27%). In 1992, the BOI offered an attractive incentive package to all garment manufacturers to move into the rural areas of Sri Lanka under 200 garment factory programme which is considered as the turning point of the apparel industry. The BOI was able to set up 163 factories under the said programme by 1995. By 1992, the garment industry had become the largest foreign exchange earner in the country (US$400Mn) overtaking the tea industry. By 2002, Sri Lanka’s textile and garment sector accounted for 6% of the GDP, 30% of industrial production, 33% of manufacturing employment, 52% of total exports and 67% of industrial exports.
The apparel sector is the highest industrial employment generator and the highest foreign exchange earner. The total export income of the sector for the year 2011 was US$ 4.2Bn which is equivalent to 39.6%. The export growth in 2011 is 24% Year on Year. The apparels exporters are entitled in to dispose 40% of the output locally subject to the payment of all inclusive levies of Sri Lankan Rupees(Rs.) 25 per Piece and income tax for such local sales is 12% as against the normal corporate tax of 28%
Apparel manufacturers comprise nearly 90% of the textile/apparel sector in Sri Lanka. They produce a wide range of international branded clothing such as Victoria’s Secret, Liz Claiborne, Pierre Cardin, Nike, Gap etc. BOI approved ventures account for almost 90% of Sri Lanka’s total garment export.
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The employment generation exceeds 283,000 in 2011. Originally, the industry commenced as a sewing operator (contracted Manufacturer) and dependent on textile quota offered by USA and EU and currently it has transformed into a full apparel solution provider. The most number of apparel projects operate in the Western Province. This shows that opportunities for apparel factories are available in emerging areas where enough employment is available and emerging constraint in the Western Province. Therefore, prospective investors could set up their projects in emerging areas including the Northern Province. With the peace prevailing in the country, apparel projects could be set up in the Northern and Eastern province and other emerging areas of the country.