Apparel industry struggles persist amid decline in orders

• Orders shrink by 20% YoY as demand from major export markets decline 
• JAAF warns decreasing orders will have a cascading impact on employee compensation
• SMEs worst impacted due to constrained conditions they operate in and limited resources for borrowing
• JAAF asserts need for FTAs with Canada, Australia, Japan and Korea, which are identified as new potential markets
• Also stresses need for stable exchange rate

By Shabiya Ali Ahlam
As Sri Lanka’s major apparel markets continue to grapple with challenges, the local apparel industry is experiencing a decline in orders to the tune of 20 percent compared with last year, an industry association said. 
The Joint Apparel Association Forum (JAAF) asserted that the dip in demand from the key apparel markets, such as the US, EU and UK, is unlikely to improve in the next few months, which means the local apparel sector is set to face prolonged issues, amid the ongoing economic crisis at home.

“While all manufacturing plants are in operation right now, this trend of decreasing orders will have a cascading impact of reduction in overtime and employee earnings,” JAAF Secretary General Yohan Lawrence told Mirror Business. 

 However, the downturn is not unique to Sri Lanka alone.
As is always the case, the SMEs will be the worst impacted by this reduction in volumes, making it extremely challenging for the companies within that scale to brave through the crisis, given the constrained conditions under which they operate and the limited recourses available for further borrowings at this time, he added.

In an effort to maintain global market share, Lawrence reiterated the need to explore new markets such as Canada, Australia, Japan and Korea. While the government needs to step up efforts in concluding the free trade agreements (FTAs) with India and China, steps must be taken to enter into FTAs with the identified four new potential markets, asserted Lawrence.

Meanwhile, the sector is also in dire need of a stable exchange rate. Given the fairly long lead times the industry works on from a pricing perspective, where there is a large variance between the rate at the time of costing and transaction, Lawrence noted that the current volatility means the industry is unable to cost and therefore price products with accuracy.  

While the peg has been lifted on the US dollar, the restrictions on imports and mandatory conversion of remittances on the seventh day of each month remain. This essentially means the Sri Lankan rupee has not been fully floated.  

“The true position of the Sri Lankan rupee will be seen only once these restrictions are lifted.  It is important that Sri Lanka begins lifting these controls, fully allowing market mechanisms to establish the real exchange rate,” said the JAAF official.

During the last couple of weeks, the rupee appreciated against the US dollar, due to a host of reasons, including higher inflows, improved sentiment and lower demand for dollars from importers. 

Sri Lanka earned US $ 5.6 billion from apparel exports in 2022, up 22 percent compared with 2021. However, the final quarter of 2022 showed a significant slowdown in apparel exports and earnings, as the demand from the major Western markets eased. 

Earnings from textile and garments exports in January 2023 declined 18 percent to US $ 424.4 million.