NDB Securities (Pvt.) Ltd (NDBS) released a report on the Generalized Scheme of Preferences (GSP) special incentive arrangement (GSP+) and its expected impact on the apparel sector of Sri Lanka. The report makes some interesting revelations about the expected time horizon for which Sri Lanka may be eligible for this scheme, whilst also analysing two listed companies in the textiles and apparels sector.
Sri Lanka first received GSP+ in 2005, the same year the European Union (EU) introduced the scheme to assist the developing countries become more competitive in exports to the EU market. In 2010, the country lost the GSP+. The topic of GSP+ regained prominence after the elections in 2015 at which point the new regime lobbied its case amongst the EU member states for GSP+ readmission for Sri Lanka.
“As the global economic drive shifts towards the developing countries, trade and competition amongst nations become two very important aspects of inclusive global economic growth. This may empower the developing nations through transfer of sophisticated technical knowledge, flow of capital and access to larger markets. For Sri Lanka, one such way of harnessing those benefits from trade and competition and the resultant economic development is through access to global value chains,” NDBS Head of Research Sidath Kalyanaratne mentioned commenting on the latest publication.
He added, “Sri Lanka’s total exports to gross domestic product (GDP) deteriorated from around 30 percent in 2000 to around 13 percent in 2014. However, during the same period, other competing countries in the region strengthened their exposure to the global market. For example, Vietnam (that competes with Sri Lanka on certain apparel and textile product lines) increased total exports to GDP from around 55 percent in year 2000 to around 86 percent by 2014.
This is expected to improve further due to Vietnam’s entry into a free trade agreement with the EU (in 2015) and the recent inclusion in the Trans Pacific Partnership (TPP), which has induced some of the region’s leading textile and garment players such as Texhong Textile Group Ltd, Shenzhou International Group Holdings Ltd and Pacific Textiles Holdings Ltd, to increase their operational exposure to Vietnam.”
NDBS Sector Analyst Upul Atapattu stated, “In this context, the EU will remain a very important trading partner for Sri Lanka, especially in the apparel and textiles segment. Sri Lanka’s apparel and textiles exports account for around 45 percent of total exports to all destinations. Further, apparel exports contribute to around 60 percent of total exports to the EU. Hence, the GSP special incentive arrangement, if awarded to Sri Lanka, will benefit the country more through the apparel and textiles sector compared to any other sector covered under the scheme.”