Apparel exports get off to gloomy start in January

• Jan. apparel export earnings hit 5-year low of US$ 397mn, down 11% YoY
• Exporters cite COVID-19 related disruptions and growing competition as key reasons
• Industry’s ‘delivery-on-time’ falls to around 65% from 90-95%
• Urge govt. to re-look at certain quarantine practices; expedite industry vaccination drive
• Perturbed by CB’s 25% instant export proceed conversion rule

By Nishel Fernando
Sri Lanka’s apparel exports got off to a gloomy start in 2021 with export earnings recording 11 percent decline in January, which is below the US$ 400 million mark, as constant COVID-19 related disruptions undermined buyers’ confidence concerning timely delivery of export orders, combined with growing competition.

In January, apparel export earnings hit five-year low of US$ 397.61 million, down 10.74 percent year-on-year (YoY), according to export figures released by of Joint Apparel Association Forum Sri Lanka (JAAF). 

The apparel exports to the United States declined by 16.1 percent YoY to US$ 164.80 million in the month, while exports to the European Union (EU) including United Kingdom fell by 7.84 percent YoY to US$ 171.78 million, ending the brief recovery seen in the previous month.

According to apparel industry sources, the industry has seen its ‘delivery-on-time’ falling to around 65 percent from 90-95 percent with the second COVID-19 wave in October 2020, which has damaged the country’s reputation as an on-time exporter among buyers.

“As we faced factory closures and disruptions in operations with the second COVID-19 wave in the country, our competitors such as Vietnam and Bangladesh more or less were able to improve their delivery-on-time ability and instill confident among buyers. On other hand, our delivery-on-time fell to around 65 percent on average with most of the factories forced to opreate with 20-25 percent less staff,” a top apparel exporter who requested anonymity told Mirror Business. 

He noted that Sri Lankan apparel exporters’ ability to deliver export orders on a timely manner was a key reason for the industry to sustain growth at a premium price compared to the competitors in the region.

He pointed out that the government needs to re-look at some of the quarantine measures in place to tackle COVID-19 or to speed-up the vaccination drive, in order for the apparel exports to bounce back to pre-Covid levels from the second half of the year. 

He noted that the export orderbook doesn’t look promising in the first half of the year for a possible bounce back to reach pre-Covid export levels.

The Export Development Board (EDB) targets US$ 5.4 billion from apparel exports for the year and the Central Bank (CB) together with the Ministry of Finance expects a record US$ 6 billion from export of textiles and garments this year.

“If we correct this soon and convince our buyers that we can deliver our orders on time, we can expect exports to rebound from the second half of the year. We have to look at how countries such as Vietnam was able to meet 90-95 percent of their export orders on time,” he added.

Meanwhile, the industry also expressed serious concerns on the recent Central Bank decision to force exporters to convert 25 percent of their dollar proceeds into rupees while continuing the 180-day repatriation rule.

“We acknowledge that the government needs forex inflows to build up forex reserves and to service external debt obligations. We are ready to support the government in every possible way; however, it should not have an impact on our operations, which would ultimately hurt the country’s export earnings,” the exporter stressed.

Further, he noted that the 25 percent rule on foreign exchange proceeds has already caused confusion among exporters as well as within the banking sector.

However, the exporters, following the discussions they had with key officials of the Central Bank last week, expect the Central Bank to come up with a solution that doesn’t hurt the industry.

“This is becoming an operational issue. Due to confusion, some foreign currency accounts of exporters in certain banks have been kept in suspension citing issues in documentations due to the gazette notification issued.  We are confident that we would be able to sort out different interpretations of the gazette notification, and we hope the Central Bank will issue a clarification on this within the week,” he noted.