In addition to these woes, the crippling recession in major markets, high gas prices in Europe, and a deceleration of these economies are all contributing to the low orders, industry officials said.

The SME sector continues to be the worst hit, as a number of these plants act as subcontract manufacturers for the bigger plants, and as a result of the reduced volumes, there are no subcontracting opportunities available, Yohan Lawrence, secretary general of JAAF, told FIbre2Fashion.

“SME companies generally have heavy borrowings which means they have limited access to any new finance. This coupled with the rise in interest rates makes access to finance very challenging right now. Options for relief are also limited as the economic crisis means there is little that can be done,” he said.

For experts in economics, Sri Lanka's economic meltdown is not a surprise as years of bungling have been worsened by several external shocks and the former President Gotabaya Rajapaksa’s reluctance to seek help from the International Monetary Fund (IMF) earlier. Now the country is grappling with budget and current account deficits, hyperinflation (inflation has surpassed 50 per cent and could hit 70 per cent), a devalued currency and a massive sovereign debt held by many countries, most notably China, India and Japan that it can no longer pay.

A number of the SME factories are working only a few days a week with there being very little work around, industry officials pointed out. A medium-sized apparel manufacturer said that this year looks to be very challenging as the bookings they got are very low priced.

Sri Lanka’s apparel export industry currently accounts for approximately 44 per cent of the total exports, providing about 33 per cent of the manufacturing employment in the country, according to the US International Trade Administration.

Janaka Boteju, chairman Bernard Boteju Industries Private Limited told Fibre2Fashion that his company has seen a price reduction of 40 to 50 per cent in some cases. “The quantities we get are also low. While it is a worldwide situation, we must remember that the industry is competing with other regional counterparts.”

Currently, it is a buyer's market, he said noting that it is difficult to navigate the industry. Predicting that from May onwards things will start improving, he said that to get back into a strategic situation it will take at least 12 more months.

Complicating the issues further, energy, which is a significant part of the industry costs, and the recent revisions by the power regulator have eroded any comparative advantage that Sri Lanka may have had over its regional competitors. “We are therefore extremely concerned over discussions for a further increase in power costs in early 2023 given the huge increases we had in late 2022,” Lawrence said.

One of the ‘quick fixes’ has been the installation of solar electricity on the rooftops of factories. That said, several plants have already done this over the past few years so the potential to scale this up is limited. Moreover, the Ceylon Electricity Board (CEB) has a large amount of pending payments to rooftop solar providers under the Net Plus scheme.

This can be overcome by facilitating power wheeling, which will allow industries (or investors) to set up renewable energy sites in remote locations and then sell this power directly to factories, by using the CEB grid for transmission for which payment can be made to the CEB.

Currently, this is not permitted under the CEB regulations. “We believe that power wheeling can open a number of new opportunities for the generation of renewable energy which would be cheaper than the CEB tariff, and more importantly, take a load off the national grid which will in turn reduce the costs of energy to households. The approval for power wheeling is something that is long overdue and will be of great benefit not just to the industry but to every consumer,” Lawrence explained.

He added that right now there are no plans to boost renewable energy production as it is not viable due to the restrictions on power wheeling. “Moreover, the CEB tariff under the Net Plus scheme needs to reflect a commercially viable tariff if we are looking for industries to use their own rooftops for solar. The pace at which the CEB is moving to renewable has historically been extremely slow and there is an urgent need for a change in the mindset here.”

Industry analysts constantly point out that Sri Lanka needs to fight hard to ensure that it can provide a competitive offer for any new investment, be it the expansion of an existing one or attracting new investment. “There are several factors in this decision including importantly the ease of doing business. Unfortunately, we are not as competitive here as we should be and as a result, the country is losing out from potential investments as the package on offer in competitor nations is, simply put, better than ours,” Lawrence added.

Things like market access and preferential trading agreements are other key factors when investing in  location. “If you take the example of Vietnam, that country’s international trade has increased multiple times due to the number of FTAs that Vietnam has signed with major markets. Sri Lanka needs to up the offer that it has for attracting investors,” Lawrence added.

Expressing similar sentiments, Boteju added that Sri Lanka should eye an FTA with India to widen trade in the apparel sector.

JAAF has identified five markets with great potential—Canada, India, China, Australia, and Japan. Lawrence said that the industry is looking at fast-tracking FTAs as being a key part of the recovery. "We are very happy to note that discussions are on track with both China and India which offer great potential for Sri Lanka’s apparel. We are also looking at opportunities for better trading terms with the EU and the UK and also exploring trade agreements with Australia, Canada, Japan and South Korea. These will allow us to compete on even terms with the other apparel manufacturing countries."

A board of investment official who was very positive about the future of the apparel sector said that sustainability initiatives zealously embraced by the Sri Lankan apparel manufacturers, growing investments in R&D and advanced manufacturing technologies, big local talent in fashion design and advanced education programmes to groom that talent and the skilled workforce are striving to pull the apparel market out of the crisis. He added that sector revenue is expected to be $1.68 billion in 2023. The market is expected to grow annually by 2.26 per cent compound annual growth rate between now and 2027.

Fibre2Fashion News Desk (WE)