Fuel and dollar shortage in Sri Lanka hurts lucrative garment export industry

ECONOMYNEXT – Despite a full order book at the moment, Sri Lankan garment exporters feel their customers are shifting orders to reduce risk from Sri Lanka’s current crisis.

The five-billion-dollar industry, one of the country’s biggest earners, has a healthy order book so far.

But for the second season (the industry operates on a six-month cycle) due to start in July, exporters say they are seeing signs of customers pulling back to be safer.

“We see a reduction on the horizon and it is not because of the sector’s ability to deliver to the customer, but rather because of the customer who sees the country as a risk; to reduce the risk they have in Sri Lanka,” said Yohan Lawrence, Secretary General of the Joint Apparel Association Forum of Sri Lanka.

“Where they bought 100, they will buy 80. The impact will probably be felt in July/August.”

If Sri Lankan apparel customers start cutting orders now, the impact won’t be felt until July or August when the new production season begins.

“We are seeing the first signs of customers transferring orders to other countries, mainly because they are worried about the social stability of the country,” said Rehan Lakhany, former chairman of the Sri Lanka Garment Exporters Association. Lanka.

“Mainly with what they (customers) see from foreign media reports, they are worried about whether we are able to operate our factories and whether we can deliver the goods to their stores on time.”

Customers send questionnaires to exporters on a daily basis to inquire about the country’s situation.

“We need to show stability in our ports, our transport sector and our diesel supply. Unless concrete assurance is given to them, not just verbally [assurance, they will move orders]“, said Lakhany.

He added that there was unnecessary fear among buyers, but regardless, the country must show them that the banks are capable of making payments on time and give assurances that transactions are going well. as per usual.

The top three factors currently worrying them are the shortage of dollar liquidity at the bank, Lakhany said.

“A lot of banks don’t have dollars now. Even if we give them 100 million for exports, they are not able to give us the same 100 million for importing raw materials.

“We have taken orders, but the banks are unable to make the payments. Banks have liquidity problems in foreign currencies.

The second concern of buyers is the shortage of fuel because generators must operate during power cuts and to transport employees.

The third concern is the social stability of the country.

In the first four months of 2022, the industry earned $1.8 billion.

hanging on a thread

Sri Lanka’s 30-year-old garment industry, once known for its quality and reliability, has become a question mark among its customers as social instability and a severe shortage of dollars and fuel continue to paralyze the country.

Compared to regional competitors, the size of Sri Lanka’s garment exports is very small, but the quality of its products has made it a favorite among its dollar-rich European and American buyers.

The Export Development Board (EDB) specifically notes that the island’s fame in clothing is due to its “excellence in prompt delivery and reliability”.

The “Made in Sri Lanka” label is synonymous with quality, reliability, social and environmental responsibility, says EDB.

But all of that could come to an end as the country goes through its worst economic situation created by years of bad monetary practices channeled through money printing.

Lakhany says no matter how hard they try to say that despite the challenges faced by factories and businesses, customers are not ready to accept it.

To make matters worse, Shanghai in China has opened up after a strict two-month lockdown related to COVID-19.

Which Lakhany sees as bad news for Sri Lankan businesses, as customers now have more options to make an easy change. Shanghai is one of the largest garment and textile exporters in the world.

Therefore, losing even 20% of a month’s orders or exports ($500 million on average), exporters say the impact will be multiple.

“If we lose orders, the impact will be unimaginable. The garment industry operates on margins. Even if we lose 20% of orders, the impact will be 80%. Factories will eventually close,” Lahany said.

He fears that the factories will not be able to provide for the needs of the workers.

Nearly 800,000 workers depend on the industry.

In addition, builders are struggling to pay their suppliers who, after experiencing late payments, have started to demand these payments.

“One of our biggest suppliers has been overdue for so long that he wants us to pay the supplier. But we can’t pay because the banks aren’t releasing funds,” Lakhany said.

“So there are multiple factors, and customers pulling out are the final nail in the coffin.”

“If they pull out with no ground and just out of fear, the impact that will be felt over the next four months will be unstoppable.”

Exporters say action must be taken now to mitigate the risks before it is too late. (Colombo/June 10/2022)

Michael O. Stutler