China's pain could be Sri Lanka's gain. The supply side of the Sri Lankan apparel sector has a chance to grow following the exodus of apparel companies from China, an expert said at the Sri Lanka Economic Forum 2016.
An initiative of Prime Minister Ranil Wickremesinghe, the event was sponsored by George Soros, founder and Chairman, Open Society Foundations.
“China is still about a third of the world's exports of apparel, and the wages have tripled in the last ten years. There's a lot of movement out of China, and a lot of investment from China in other countries as well in the garment sector,” University of Warwick Economics Professor Christopher Woodruff said.
He noted that Sri Lanka cannot compete with apparel manufacturers in regional countries such as Cambodia, Ethiopia, Myanmmar and Bangladesh, since they have lower wages. “Everybody looks at Sri Lankan companies as the best managed companies in the region in the apparel sector; and they have to be, because wages are higher and they are competing against low wage countries,” he added.
Prof. Woodruff said that as the competitors copy Sri Lanka's practices, industry growth will die off. “There's a lot of movement out (of China) and that movement out may slow the demise of the sector here, in the sense that the low wage countries - Ethiopia, Bangladesh, Cambodia - can only grow so fast, and there are a lot of companies that are moving out, so this is an opportunity,” he said. Since there is a human resource shortage in apparel, Sri Lankan manufactories are looking for more automated processes, which may increase productivity further.
Meanwhile, Harvard Centre for International Development Director Riccardo Hausmann said that traditional industries such as apparel, agriculture and tea would stop growing in Sri Lanka as it transitions into a post-knowledge economy, similar to countries like Thailand, Turkey and Costa Rica in the 1990s.
“They didn't abandon the old things. They went into new things with value addition,” he said.
Sri Lanka's apparel sector has set an export target of $10 billion by 2025. In 2014, it brought in $4.9 billion in foreign exchange, compared to $4.3 million in 2013. The Sri Lanka Apparel Exporters Association wants to achieve this growth through increased demand by selling to regional economies which are now becoming strong enough to afford higher-quality Sri Lankan apparel products.
George Soros in his address said that in addition to several unsolved problems in Sri Lanka, the imbalances in the world economy too will create problems for the island nation's forward march.
"A falling Chinese currency is de-stabilizing the world, and the country is trying to transfer its problems to the rest of the world," Soros said at the inaugural session of the Sri Lanka Economic Forum.
The exchange rate is now dropping and it is de-stabilizing the rest of the world. China is now inflicting on the rest of the world this deflationary pressure, he said. (SH)
Fibre2Fashion News Desk - India