Interview with Rehan Lakhany

Rehan Lakhany
Chairman
Sri Lanka Apparel Exporters Association

The Pandemeconomics Of Manufacturing

It has been the same story since the beginning of the covid-19 outbreak—cancelled orders, production drops or halts due to the lockdowns, drying out of cash. It has only been getting worse, with trade conflicts and political tension among countries and blocs exacerbating the situation. Sri Lankan Apparel Exporters Association chairman Rehan Lakhany gives first-hand account in a conversation with Richa Bansal.

How badly has your country's textiles-apparel industry been hit by the covid-19 pandemic? How much have been the losses revenue and sales wise?

Sri Lanka was formally put into a lockdown from March 19 which evolved into an island-wide curfew, which lasted until the early part of June. Once it reopened, however, there were still certain travel restrictions in place preventing the travel between districts, etc. In the months of March, April and May, Sri Lanka's exports of apparel fell 50 per cent against the same period of the previous year. This represented a loss of some $680 million. Our estimate for the year to March 2021 is that we will lose up to $2 billion against last year's exports of $5.6 billion.

As a result of the curfew, barring a few exceptions where factories were permitted to manufacture urgently needed PPE apparel, the industry was at a complete standstill right through to the early part of May from when there was limited restarting of the economy under strict health conditions. Companies are required to take a series of measures involving social distancing, sanitising of facilities, individual employee checks on temperature, etc. These are coordinated through the local health authorities who work with plant-level management to agree on the safety measures, including the number of people allowed into work. Generally, factories can operate at a maximum of 50 per cent of their usual strength.

As factories worldwide slowly get back to work, the industry has to coordinate carefully on raw material supplies as the industry imports a large volume out of China.

How many factories have been closed down, and how many people have lost their jobs?

As the country returned to work in the month of June, the majority of factories have recommenced albeit with a smaller workforce as the combination of social distancing regulations plus the lack of orders have meant that factories are not able to operate at anything like full capacity. There are some factories which are yet to open-these tend to be in the small and medium sector of our industry as these companies simply do not have the resources to stay open in these difficult times. We estimate that up to 100,000 jobs could be lost in the course of the year. That would represent about 30 per cent of the workforce.

How much were you hit by order cancellations?

This has been the biggest issue as in the immediate aftermath of covid-19 buyers were cancelling their orders. These are unlikely to be replaced, and as such we see a big issue in the coming six months as there is simply no loading for factories.

What is the kind of stimulus package that the industry has received from your government?

The government of Sri Lanka announced a relief package for covid-19 hit businesses, self-employed and other individuals. The total value of the relief package was LKR 50 billion (approx. $250 million), which in itself was very small relative to the needs of the country.

A key tenet of this scheme was a low interest loan to cover company working capital requirements. While the majority of apparel manufacturing companies applied for this loan, unfortunately only a handful of companies have actually received funding under this scheme. JAAF (Joint Apparel Association Forum, Sri Lanka) estimates of the industry requirement to meet monthly employee salary payments alone was $65 million for payment of basic wages plus fixed allowances. In the absence of funding for this, a number of employees, particularly in the SME sector have not received full payments for the months of April and May. Apparel employees without a source of income were entitled to a monthly payment of LKR 5,000 ($25) per month for April and May.

What are you as a trade association doing to help your members? Could you please elaborate?

The SLAEA, through the industry apex body JAAF, has been in discussion with all stakeholders to help navigate a way forwards through the quagmire we are now in. In early March, we saw the first fallout from covid-19 as raw materials stopped coming out of China, a major supplier of raw materials to our industry. Our primary concern at that time was that we were going to be short of work in March and April, and by May/June we were expecting factories to be stretched to catch up on lost production once the raw material supply recommenced. One major callout at that time though was the plight of the SME sector, where a number of companies act subcontractors to larger companies, saw their order book dry up overnight. Our demands from the government at that time included the request for a financial assistance package at low interest rates to allow companies to meet their working capital needs. While this request did mature into part of the relief package that the government made available, regrettably the combination of the requirement for collateral, and a lot of red tape have meant that even in the middle of May very few companies had been able to obtain these much-needed funds, putting payments to employees at risk.

Our submissions in the middle of March also included a request for a moratorium on interest payments and it was heartening to see this being included in the relief package.

As we are all aware, by the end of March the situation had taken a turn for the worse as covid-19 had reached not only the shores of Sri Lanka but also those of our major markets in Europe and the US. The response from buyers was an en masse blow of cancellations, hold on orders, refusal to accept shipments and in a crushing blow to cash flows at this critical juncture, a unilateral decision to take extended payment terms across the board. This, combined with the delays in companies obtaining funds under the relief package, heightened the crisis faced by the apparel sector.

We are also represented at the Ministry Level Task Force on covid-19 impacts of employment, which is a tripartite body consisting of unions, industry and government which works on relief measures for companies who are unable to offer work to employees at this time.

There are two things that are certain: the virus is not going away any time soon, and the big markets of North America and Europe are in the dumps and exports to those destination are bound to be hit. What is going to be your country's strategy in the days to come?

Unfortunately, the US, the UK and the EU take the lion's share of our exports. Sri Lanka has been looking at developing other markets, but these efforts have not been very successful.

There has been a lot of talk on companies the world over about pulling out of China and exploring other countries like yours. What steps are being taken by the textiles/apparel/footwear players in this regard?

We were beginning to see signs of movement of orders from China before covid-19 and we are confident that one of the upsides from covid-19 is that there will be a shift away from China and that Sri Lanka will benefit from this. We are working with the authorities to also attract investment in fabric mills and other backward linkages in order to strengthen the offer that Sri Lanka can make to the international buyers.

Besides the pandemic-related issues, what are the main challenges that this industry faces in your country? Are these likely to become worse, or do you think you will be able to overcome them no matter what?

The key drivers in the supply of apparel are quality, speed and pricing. Sri Lankan apparel has always prided itself on our product quality, our ethical and sustainable manufacturing practices, speed to market and value for money. Sri Lanka offers its customers a total solutions service which includes dedicated innovation and product development working spaces, local design houses, etc, right through to warehousing and dispatch to individual outlets, etc. We believe that these all add up to a fairly unique and attractive proposition to our customers.

As political tensions continue to adversely affect international politics, trade is bound to be affected and would continue to be plagued by uncertainties. How is your country planning to walk the thin line between politics and trade?

The apparel industry has always worked closely with our stakeholders to balance these issues. The government continues to support the industry through a number of initiatives, and we are appreciative of the efforts taken in this regard.

This article was first published in the August 2020 edition of the print magazine.

Published on: 31/08/2020

DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.