By Chandeepa Wettasinghe
The Sri Lankan apparel sector finally appears to have started realizing the benefits of the recently reinstated Generalized System of Preferences Plus (GSP Plus) facility with the European Union (EU) with double digit growth in exports, while the exports to the US market too saw an uptick.
“Yes, this is the gain we were expecting from GSP Plus. We’re expecting the trend to get even better by the end of the year. The order books are filling up,” Sri Lanka Apparel Exporters Association President Felix Fernando told Mirror Business.
According to data published by the Joint Apparel Associations Forum (JAAF), apparel exports to the EU this August expanded 14.29 percent year-on-year (YoY) to reach US$ 192 million.
Fernando said that based on the positive outlook of manufacturers on future orders, the industry may have the potential to create growth in excess of 20 percent during the first 12 months of experiencing GSP benefits, ending June 2018.
During the same period last year, apparel receipts from the EU fell 2.91 percent to US$ 1.89 billion, due to Brexit and other political upheavals in the region, coupled with some major European department stores and retailers that sourced apparel from Sri Lanka downsizing their operations.
The EU market would indeed have to grow at over 20 percent to exceed the US$ 500 million target the industry has set for itself during the first year of GSP Plus.
“But even if growth remains at the current 15 percent or so, it’s still good,” Fernando said.
The EU market expansion began in earnest this July—one and a half months after officially receiving the GSP benefit, due to delays in receiving orders—when export growth reached 10.34 percent YoY.
Despite the strong July and August performances, the growth in the EU market for the first eight months of 2017 remained at a negative 1 percent YoY, registering US$ 1.34 billion in export earnings, which represented 42.58 percent of Sri Lanka’s total apparel export earnings for the eight months.
Sri Lanka regained the duty-free GSP Plus facility after the government showed commitment to uphold human rights in the country. Sri Lanka lost the preferential trade benefits in 2010 due to accusation of violating of human rights during the final stages of the civil war.
GSP Plus came at a crucial time, since EU trade officials who visited Sri Lanka last year noted that while the EU importers had remained mostly loyal to Sri Lankan apparels, despite the higher prices, a significant change in sourcing apparel for the EU could take place if Sri Lanka failed to regain GSP Plus status.
Sri Lankan apparel exporters too had made significant investments in regional countries to produce apparel at a lower cost, due to rising Sri Lankan labour costs.
Fernando said that he is hoping for the EU market to keep growing even after the effect on the base numbers wear off in July 2018.
“It can do better, provided that we manage to utilize our full capacity by finding the required labour,” he said, reminding of the continuous complaints the apparel sector has made to the government on the labour shortage issue, and the numerous pleas made to allow the importation of foreign labour.
The government appears to have received these requests in a positive light, with a minister last week saying that plans are afoot to streamline labour mobility.
Meanwhile, the US market too recorded gains in August with a 5.52 percent YoY growth, hauling in US$ 172 million in earnings, after posting a stronger performance of this July with an 8.11 percent YoY growth to US$ 200 million in receipts. Fernando noted that challenges in the US markets still remain, and that this boost could even be a temporary phenomenon.
“There’s no particular reason for this as far as I know. We will get a better feel on whether it is a trend once we see the September figures,” he said. For the first eight months of this year, apparel exports to the US fell 4.28 percent YoY bringing US$ 1.38 billion in revenue. Apparel exports to all markets increased 9 percent YoY this August, bringing in US$ 412 million in export earnings, while from January through August, the earnings fell 1.96 percent YoY to US$ 3.14 billion.