From strength to strength

By Uditha Jayasinghe

Joint Apparel Associations Forum (JAAF) Local Image Building Sub-Committee Chairman and Orit Apparels Lanka Chairman Channa Palansuriya talks to Daily FT of the impressive progress made by Sri Lanka’s largest foreign exchange earner and its expectations for 2012

Q: Tell us about the progress in taking apparel companies north.

A: There has been good progress. Orit Lanka, our company is planning on a US$ 12 million investment but because of a water issue we have since downgraded to half that and if we get approval from USAID we hope to commence operations in nine months. Because of this change we have also decided to switch our product to lingerie.

Q: How will you train labour and obtain employees?

A: If we get approval from USAID then we hope to start training in July, basically within the first six months. Initially we are hoping to recruit 500 people.  We are planning to recruit some Tamil speaking instructors, supervisors and top management. Other than that we do not expect to need more people.

Q: There has already been one prominent player establishing a factory in the east but this has not resulted in the expected returns. Do you fear that the same may happen to companies locating to the north?

A: It is true that they are disappointed. Projects are dragging and they also have a certain time frame to utilise these funds but unfortunately due to a process delay I think that we might lose some good opportunities. However I do not think that we will face the same issues as the apparel company that set up in the east because this area is completely different. We have a highly populated area, unlike the east that has a lot of small villages, which has a decent population including resettled people.

Q: Will you integrate reconciliation mechanisms as part of your business approach?

A: We will encourage everyone to come and work together, be they Sinhalese or Tamil or even former LTTE members. We are keen on promoting unity and harmony so the training programme will be directed towards that goal as well.

Q: What needs to be done to maximise this investment opportunity in the north?

A: We have so many agencies to deal with. If you take BOI for example there are so many bodies that they must get approval from before they commit anything to the investor so if the government can streamline these organisations to get a real one-stop-shop without allowing the BOI to get each and every approval then we can speed up the process.  Even more than losing the investment companies get demoralised.

They think there is no point in doing anything because the authorities are not interested and may be inclined to take the investment elsewhere.

Q: The government had plans to restructure the BOI. What difference do you see on the ground?

A: I don’t see any difference for us or any impact. We are not really concerned about it because it is not applicable to us. The delay is not with the BOI – it is because they must go to many different bodies to get approval and if the government can streamline this process then investors would benefit.

Q: What potential does Sri Lanka have to attract foreign apparel companies?

A: This is a good destination for buyers and we see a lot of new ones coming. There is a good possibility that Sri Lanka will get business that was earlier taken to China. At one point China was producing 38% of all imports to the US if they pass even 1% of that to us that is more than enough. It is happening now and a lot of new customers are coming to Sri Lanka. Unfortunately at present we do not have the capacity to offer some of the services that they are looking for. So it’s a good time for us to increase capacity, especially in the north and east because we have labour there. We have seen about 40% growth this year and the industry is inching close to US$ 4 billion this year. Already last year’s target has been achieved which was US$ 3.2 billion.

Q: What are your views of the Budget proposals including depreciation?

A: The depreciation will definitely help us by increasing competitiveness in the market. Overall we think the Budget is really good as it has provided everything that we have requested. The government is taking things very positively and has been very supportive. Small and Medium Enterprises got the maximum benefit out of the Budget.

Q: Even though the Joint Apparel Associations Forum (JAAF) is supportive of the government the Exporters Association has been critical. What are your thoughts?

A:That is only one person’s view. It does not speak for all exporters. This gentleman only heads one association and he is not the voice of the organisation. He has only given his personal view as chairman but the industry does not share his sentiments.

Q: Will the recent takeover Bill by the government have an impact on the industry since most of the companies listed are defunct garment factories? Will it adversely affect investment?

A: When I was at BOI I noticed these lapses and how badly some of these investors handled our resources including money, property and resources. Some property was being held for 10-15 years with no development. Money was also squandered since earlier we used to give US$ 20 million interest free loans to establish factories. After taking these loans that haven’t paid back a single cent to the BOI and they were holding onto properties without returning them to be used for other projects. This Bill is important but I don’t know if this is the right time. Yet it is important that we have a mechanism act in these instances. If investors don’t develop the property given to them and don’t generate employment then what is the point? We should take it back and give it to someone who will run it properly, which is my view.

Q: What are your plans for 2012?

A: We are very positive and are going ahead with all expansion plans. As an industry we see a very positive future. Target is to achieve US$5 billion 2015 but we want to go beyond this. Once people get used to the hub concept introduced by the industry and government there will definitely be fast growth. Since the end of GSP plus there has been 46% increase in exports to that region, some of the top buyers are coming here and showing we surely have an edge in the world market.  We do not have to depend on any concessions and should not. 

Q: Do you think that the continued economic downturn in the west, particularly in the Eurozone will impact Sri Lanka?

A: Outside Europe and the U.S. our export share is 29%, which is a significant growth. We don’t think we can get a big jump from market outside the U.S. and Europe because they are not organised yet. The advantage that we have in the U.S. and Europe is that their markets are very organised and their buying chain is very good, which is not the case in other countries. But there are countries like India that are developing very rapidly and once their buying mechanisms are organised they will definitely source from markets such as ours.

Q: Will more companies come out with their own labels to promote a different dimension of the industry?

A: MAS, Avirate and Hameedias are promoting their label overseas and we see this as a very positive development. I expect that there will be other companies coming out with their own labels in the near future. It will help the industry greatly and we should help to promote them.

Q: In the last Budget there were provisions for research and development. How has the apparel industry made use of them?

A: Fabric mills are expanding by using these benefits. Almost all fabric mills are growing because of investment in research.  As an industry we cannot keep asking handouts from the government, as entrepreneurs we should know to grow our business.