Sri Lanka’s Apparel Exports Witness A Turnaround

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Sri Lanka's leading apparel exporters are on an expansion drive. Since the beginning of the year, the government has cleared apparel investment proposals worth US$ 28 million. The largest chunk of the investment comes from MAS Active, that will invest US$ 21million to increase capacity. Other companies that are expanding include D2 Clothing (Pvt) Ltd, Original Apparel (Pvt) Ltd and Hirdramani International Exports. Investments totalling US$ 28 million had been approved for apparels up to April.

Sri Lanka's exports got a boost after the European Union restored GSP+ benefits to the country. Sri Lanka's exports grew 10.2% to US$ 11.3 billion in 2017, with industrial exports up 7.6% to US$ 8.64 billion.

Teejay Lanka doubles capacity of India plant with $15 million expansion

Teejay Lanka, one of the region's largest textile manufacturers, has announced a doubling of capacity of its Indian mill, following the completion of an expansion project involving an investment of US$ 15 million. Located within the 1,000-acre Brandix India Apparel City (BIAC) in Vizag, Andra Pradesh, Teejay India is now capable of manufacturing up to 42 million metres of weft knitted fabric annually.

The expansion entailed the installation of state-of-the-art machinery for knitting, dyeing, finishing and inspections as well as fully-automated packing machines, a lab dip dispenser for colour service and a chemical dispensing system. The expansion has also generated additional employment opportunities for up to 276 people, the release said.

Commenting on Teejay India's expansion, the company's Deputy CEO, Pubudu De Silva said: "We now have a remarkable new facility in India which is one of the best in BIAC and sends a clear message that Teejay is a global company which believes in high standards of production, and is ready to take on more orders. The decision to expand despite tough market conditions is likely to be one of the best the company has made, as it equips Teejay to tap into the broader Asian and expanding EU business".

Sri Lanka's only multinational textile manufacturer, Teejay supplies fabric to some of the best international brands across the world. Teejay Lanka PLC is a public quoted company with 39% public ownership. The company is backed by Sri Lanka's largest apparel exporter, Brandix Lanka which has a 33% stake and Pacific Textiles of Hong Kong which owns 28% of the company.

Amazon to cash in on Lankan clothing

Amazon, one of the largest online shopping portals held a round of talks with the Sri Lankan apparel industry to sell their products on the digital platform.

Officials from Amazon India which is in proximity to Sri Lanka met the Sri Lanka Exporters Association (SLEA), its president Felix Fernando said adding that this was with a view to tie up with some of the big names in the industry that have made a market internationally to sell their products on the Amazon.com space.

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Particularly due to the reputation built by the local industry internationally Amazon had been keen to do business with the apparel sector in Sri Lanka. These products would then be sold via their US offices or directly from Sri Lanka, he noted adding that currently at least 15 Sri Lankan companies were already marketing their garments on Amazon.

Sri Lanka's apparel exports are recovering slowly

Sri Lankan rupee has been depreciating continuously for a year now, resulting in a slight improvement in its exports to US and EU, where consumer spending is otherwise subdued.  Apparel exports account for 52% of the country's total exports, making it an important foreign exchange earner, at a time when Sri Lanka is trying to reverse its trade deficit.

Sri Lanka's apparel exports in 2017, at US$ 4818 million, clocked a growth of 3.06%, the highest in the last three years. In 2016, the country exported apparel worth US$ 4674.8 million, growing 1.16% over the previous year.

US and the EU account for over 86% of Sri Lanka's apparel exports. Exports to both the markets slowed down in the last two years, recording a turnaround in 2017. Sri Lankan companies such as MAS, Brandix, and others of international repute, have taken social compliances seriously, under the Garments Without Guilt campaign. Also, the country has made a mark in high end lingerie exports. Investments in the latest manufacturing and supply chain management technologies are the trend in Sri Lankan garment industry.

SL seeks $500 mn apparel trade deal with India

Sri Lanka is hoping to convince India to remove the existing quota system for the apparel industry and instead requesting a US$ 500 million worth trade deal.

Negotiations are currently underway between the two sides to ascertain whether the existing quota system for the sale of garments to India that is limited to eight million pieces annually worth US$ 30 million could be altered to a higher US$ 500 million worth, value-based system.

These negotiations are said to be part of the Economic and Technological Cooperation Agreement (ETCA) discussions between Sri Lanka and India.

Sri Lanka Apparel Exporters Association (SLAEA) Chairman Felix Fernando said that the industry has already exhausted this year's quota and the reason why changes to the system is being requested. Industry analysts opine it was a doubtful agreement to pull through and noted that negotiations were still underway in this regard.

India's burgeoning middle class has an eye on branded apparels and in this respect Sri Lanka has a market to cater to for a segment that is increasingly looking at quality purchases.

SL insists on removal of non-trade barriers before ETCA

The Sri Lankan free trade agreement (FTA) negotiators want India to implement interim remedies for the non-trade barriers that exist in the current Indo-Lanka Free Trade Agreement (ISFTA) prior to the signing of the Economic and Technology Co-operation Agreement (ETCA), in order to build up the confidence on the ETCA among Sri Lankan stakeholders. According to local apparel exporters, Lankan apparel exports to India have already reached the imposed quota at the end of 1Q18.  The removal of these bottlenecks would provide a big boost for Sri Lankan exports to India.

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Sri Lanka is likely to maintain a 30% negative list with India while protecting domestically sensitive industries. The Sri Lankan FTA negotiators plan to conclude the technical negotiations of the ETCA by the end of the year. Meanwhile, the Sri Lankan FTA negotiators expect the Sri Lanka-China FTA talks to continue to beyond this year as there is a lot to be discussed with regard to the proposal made by the Chinese negotiators to liberalise 90% of tariff lines, where the two parties have to thoroughly discuss the sectors and the timelines of liberalisation.

ADB proposes Sri Lanka economic corridors to address regional imbalances

Meanwhile, to give a boost to economic development of the country, the Asian Development Bank (ADB) has proposed an economic corridor to help correct regional imbalances in Sri Lanka, linking Colombo on the west coast with Trincomalee in the east, covering 10 districts and half the total population. The economic corridor development plan has a potential to generate 1.2 million new jobs by 2030, according to a recent study of the ADB. In keeping with the Sri Lankan government's development strategy, Vision 2025, the ADB said it has initiated a comprehensive development plan for the Colombo-Trincomalee Economic Corridor (CTEC).

"Pilot economic corridor development initiatives will focus on an east-west corridor that can flourish by taking advantage of existing international gateways, such as the Bandaranaike International Airport and Colombo Port, which are located at the western end of the corridor," a statement said. The proposed Central Expressway, which is about 280 kilometers long, will act as the spine of the corridor. An influence area of 50 kilometers on either side has been selected, which cuts across 6 provinces and 10 districts, the ADB said. The districts in the influence area cover 42% of Sri Lanka's total area, account for 58% of the total population, and contribute 86% to industrial output. The ADB said the right mix of industries needs to be promoted in order to develop effective and efficient production clusters along the corridor. Acknowledging Sri Lanka's competitiveness in traditionally strong sectors such as apparel, food processing, and rubber and rubber products, the study proposes to build on existing strengths by upgrading the performance of these sectors as well as to focus on identifying newer sectors in which Sri Lanka can improve internal competencies and diversify into other sectors.

Infrastructure interventions – power, road, railways, ports, and airports – along with supporting urban ecosystems will play a critical role in enabling industrial development and achieving the vision of the corridor, the statement said.

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Sri Lanka GDP, exports on the rise

Sri Lanka's gross domestic product grew at an estimated rate of 3.2% in the first quarter of 2018 and 2017 growth has been revised to 3.3% from 3.1%, based on final data, the state statistics office said.

Manufacturing industry had grown 2.8%, with food and beverages up 4.7% and apparel 4.7% too. Construction activity fell 4.9%. Services which now account for 53.6% of the economy, grew 4.4%, with wholesale and retail trade up 5.4%, hotels and restaurants up 7.6%, telecom up 11.1% and financial services up 12.2%.

Sri Lanka exports up 10.5% in March

Sri Lanka's exports grew 6.3% to US$ 1107.7 million in March 2018 from a year earlier, with industrial exports growing 10.5% to US$ 861 million, the central bank said. Apparel exports grew 7.4% to US$ 486 million, rubber products grew 11.8% to US$ 85.8 million and gems and jewellery grew 91.9% to US$ 38.7 million. Consumer goods imports rose 1.8% to US$ 477.1 million. Non-food consumer goods imports rose 17.6% to US$ 299 million.

Difficult economic situation ahead

While the GDP of the country may have shown a slight improvement, it is lower than Sri Lanka's central bank estimation of 5% GDP growth. Moreover, with incessant loans, especially from China, the government debt to GDP ratio is as high as 77.6%. Trade deficit has increased over the years. The government has been reduced to taking more loans to make interest payments, besides of course, giving up territory to China to repay loans. The situation will not correct itself, and the government will have to put in place harsh economic reforms for its economy (and independence) to stay afloat.

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