Statement by JAAF Chairman Mr. A. Sukumaran on the Impact on Sri Lanka’s Apparel Industry Due to the Prevalence of Covid-19
As the novel coronavirus (Covid-19) pandemic continues to spread across the globe, people around the world find their daily lives and means for subsistence affected in numerous ways. The impact of this phenomenon on the apparel industry in Sri Lanka is unprecedented and second to none. Currently, the apparel industry in Sri Lanka is home to over 400,000 direct employees and in the last fiscal year recorded $5.6 billion of exports. When compared to the last fiscal year, the Joint Apparel Association Forum (JAAF) foresees an immediate contraction of US $1.5 billion in Sri Lankan apparel exports during the 3-month period ending in June. However, the damage does not stop there as we expect further demand contractions that could result in reduction of apparel exports by an additional 30 – 40% after June, in a best-case scenario.
The reduction forecasted above is due to a multitude of factors such as mass cancellations by buyers of orders currently in production or already produced, orders that Sri Lankan entities have assumed liability for through the purchase of necessary raw material force and orders for future. These circumstances coupled with forced, discounts, delayed payment terms, have led to a decimation of working capital across the industry and significantly hindered the future prospects of revival to the normalcy. The situation alluded to above is further compounded when the effects of the current closure with no clear date of resumption are factored in.
The primary concern of ours at this point of time is the health and well-being of all employees and bearing this in mind the current curfew is prudent to prevent the accelerated spread of the novel coronavirus. However, it is inevitable that the extended curfew will lead to additional losses to those projected above as more and more orders in production get cancelled as a result of delays in production. The impact of the curfew is compounded and may result in trade shift due to countries like Vietnam, Cambodia, and Indonesia, our main competitors, being completely operational. The few orders Sri Lanka could be getting are being diverted due to the uncertainty related to when the country will begin work again.
The members of JAAF believe that extreme measures are inevitable unless there is intervention and support to avert the impending disaster. While most companies have pledged to pay March salaries, a vast majority of the industry will struggle to pay salaries from the end of April onwards due to the factors outlined above that have led to the evisceration of the industry’s working capital. Despite the challenges of the situation, the primary goal of industry participants is to do what is best by the workforce. While measures such as pay cuts are inevitable, most players are considering relative income bands and ensuring any reductions are reasonable and do not adversely impact lives to an unreasonable degree.
The JAAF played a key role in working with the Government to obtain certain relief measures such as the concessionary working capital loan and others granted through Central Bank circular nos 4 and 5. We are extremely grateful for these provisions however, we look forward to working closer with relevant authorities to further explore what can be done to mitigate the current situation as the problem has evolved since these measures were granted. When these relief measures were granted, Sri Lanka’s primary issue was a supply chain problem related to raw materials coming in from China. Currently, the problem has evolved to become one of demand contraction. This new problem would require further measures to avert the disastrous outlook for the industry.
Keeping the well-being of our employees as our primary focus and the development of a scheme that would enable us to do what is best for our workforce, our current mission remains working with all parties involved, including the government, to develop a modality that can benefit those dependent on the apparel industry for their sustenance despite the low demand projections in the coming months. Further, industry players are exploring all new markets in play, including those related to new products currently in demand in Europe and North America. Despite the presence of other markets, it is unlikely any of them will compensate for the losses the industry is and will be facing.
The sustenance of this industry is vital to over 400,000 direct beneficiaries as well as over 2 million indirect beneficiaries. Sri Lanka’s apparel industry has a proud history and we implore that all avenues are explored to ensure the continued survival and growth of an industry that is vital to countless individuals and this country we all call home. Failure to intervene at this stage will result in the inevitable doom of the industry with a large proportion of participants being forced into staying at home with no work to fulfill.
With this situation in mind JAAF tabled the following proposals for urgent consideration.
a) To reopen apparel factories in their full capacity as early as possible to avoid a very serious trade shift that may take place in favour of our competitor countries. Since our competitors like Bangladesh, Cambodia, Vietnam, and Indonesia still remain open for business despite the presence of COVID 19.
b) JAAF requested a means of sustenance for employees who will have no work to perform from April, for Companies employing less than 3,000 people. JAAF is confident that large and strong players will have their own mechanisms to face force majeure circumstances like this of course only for a given period.
c) Suspension of EPF/ ETF for 6 months for employers and employees – This is another temporary relief requested to increase worker income plus aid in the current working capital dilemma of companies.
d) Finally a request was made to that directions be given to the banking community to grant the loan beyond Rs 25 mn and sufficient enough to pay a minimum of two months basic salary being paid by an applicant company who is willing and capable of bearing that liability since we are advised by commercial banks that Central Bank had instructed outside the circular to limit the loan to Rs 25 mn per company for better distribution and that banks be directed to provide above loan without collateral but under the refinancing scheme of the government.
We requested that these proposals are treated with the utmost urgency. Failure to do so would result in the non-existence of an industry to reopen once the global economy normalizes. Export oriented SME are at very difficult situation compared to large players and our members who are catering to the domestic market also will be in a dire status as a minimum of 50% of their turnover is totally lost as a result of missing this festive season. Thus the fate of Sri Lanka’s apparel industry where 2 million citizens of this country relies is dependent on the effectiveness and speed at which these proposals can be implemented. 09th April 2020