Apparel appalled

Friday, 8 February 2013 00:01 - - {{hitsCtrl.values.hits}}

Could it be that Sri Lanka’s largest foreign exchange earner is suffering in silence? A recent report by research organisation Institute of Policy Studies (IPS) showed that the local garment exporters are losing market share, which resulted in a 4.6 per cent drop in income last year to US$ 3.6 billion.

Despite considerable increases in absolute export earnings to both and US and EU markets, it is of concern to note that Sri Lanka’s relative market share in garment exports has been losing ground. The increase in export earnings over the years has been due largely to a shift in Sri Lankan garment exports from the US to EU, noted the IPS in its recent flagship publication ‘Sri Lanka: State of the Economy 2012’.

The organisation points out that Sri Lanka has been seeing a steady decline in its market share in the US from 2.3 per cent in 2005 to 1.8 per cent in 2011. Sri Lanka has been losing out to countries such as Pakistan, Vietnam, Bangladesh, Indonesia and Cambodia. Pakistan’s share in the US apparel market was significantly below that of Sri Lanka in 2005 at 1.8 per cent, but is now ahead at 2.1 per cent. Diversification of its product range, marketing and large investments in value-added sectors including sewing machines, stitching, knitting, finishing and knitting processing have contributed towards Pakistan’s progress.

While Sri Lanka has been successful in penetrating the EU market, 2010 and 2011 have seen a marginal decline in the share compared to 2009. Moreover, Sri Lanka is bound to lose its foothold further as the EU GSP Plus concessions eroded. Sri Lanka garment exports will face higher tariffs under the new reforms that would come into effect from 2014. Whereas China and Turkey still account for over half of the garment export share in the EU, Sri Lanka has been losing its market share to competitor countries such as Bangladesh, India, Vietnam, Pakistan and Cambodia. Bangladesh has been particularly successful in penetrating the EU market, with an increase of 6.2 per cent in 2009 to 11.2 per cent in 2011.

Bangladesh is already a beneficiary of GSP Plus concessions, and Pakistan will also become eligible under the new reforms. Additionally, India is scheduled to sign a free trade agreement with the EU in 2014 which would guarantee benefits to Indian garment imports through tariff preferences.

IPS points out that with competitor countries gaining from such tariff concessions, securing market share in the EU would be a challenging task for Sri Lanka in 2014 and beyond. IPS recommends it is imperative that market diversification takes place in Sri Lankan garment exports. In this respect, Sri Lanka has made rapid inroads in to new markets such as Turkey and the United Arab Emirates.

Yet these positives are not outweighed by the loss of GSP plus, which some observers have noted would have provided Sri Lanka as much as US$ 1 billion in additional revenue. As the highest earning export apparel has been heralded as a global success story for Sri Lanka. In the previous Budget, plans were drawn up to covert the island to an ‘apparel hub’ by twinning the industry to its geographical location. Yet it would seem that there are much more urgent steps that need to be taken.