Tough stitch but apparel industry wears resilient cap

Amidst woes in US and European markets, Sri Lanka’s apparel sector has survived to grow with the outlook for the next few quarters remaining positive, industry sources told the Daily FT yesterday.

Whilst July saw earnings from textiles and garments increase year on year by 5% to US$ 385 million, the highest monthly value, August exports had grown by 21.7% to $ 359 million.

Cumulative exports in the first eight months had topped the US$ 2.8 billion mark, reflecting a 47% increase in comparison to the corresponding period of last year. In the first seven months up to July, the cumulative growth was 29% to $ 2.4 billion.

Industry analysts said that though some sections even within the sector had been baffled by high growth data in relation to highly recessionary conditions in major markets US and Europe and in the case of latter loss of preferential entry window GSP++, dynamics were favourable to Sri Lanka.

“Recently a top retailer in Europe, H&M opened office in Colombo after having started to source from Sri Lanka around two years ago.



This latest development was on top of two other big European buyers setting up shop in the past two years. They include Turkish GATT Group and Indian unit of Knor Lanka both representing the George at Azda, considered to be the Wallmart of Europe,” industry sources said.

These buyers have been stepping up purchases from Sri Lanka. This and other improvements have boosted exports, they added.

Another positive development is an Italian buyer setting up a major plant in Vavuniya with an envisaged investment worth $ 25 million.

It was also pointed out that a pickup in sourcing from a small base in Sri Lanka reflects big in data. The level of activity in the apparel sector is also confirmed by the fact that its import of inputs had risen by 43% to $ 1.3 billion as at end July.

Robust apparel exports had been a key contributor to an overall 30% growth in exports up to July this year topping the US$ 6 billion mark. However rising imports, especially cost of oil, had resulted in the widening of the trade deficit, a key cause for concern among some analysts.

Imports in the first seven months were up 48% to $ 11.09 billion, whilst the trade deficit had ballooned by 77.5% to $ 5.07 billion.

The Central Bank in its post-October monetary policy review meeting statement said that as per provisional data, both earnings from exports and expenditure on imports grew further on a year-on-year basis in August 2011.

Increased remittances, higher earnings from tourism, as well as other inflows to the services account continue to cushion the impact of the trade deficit on the overall balance of the balance of payments. Substantial amounts of foreign inflows on account of direct investments, equity investments and other inflows to the private sector are expected during the remainder of the year.

In September it said the balance of payments, which includes all foreign currency inflows and outflows, recorded a surplus of $ 1,006 million by end July 2011. Gross official reserves, excluding Asian Clearing Union (ACU) balances, increased to $ 8,099 million by end July 2011 from $ 6,610 million by end 2010.

The improved macroeconomic environment and several initiatives to attract foreign inflows contributed towards strengthening the country’s external reserve position to this level. Total external reserves (excluding ACU balances) increased to $ 9,487 million by end July 2011.

In terms of months of imports, gross official reserves and total external reserves by end July 2011 were equivalent to 5.7 months and 6.7 months, respectively.

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