As Coronavirus tears Sri Lanka’s apparel sector apart, an insider calls for help

ECONOMYNEXT – Chamila Samarakkodi has been in fashion and apparel manufacturing industry for over 30 years. His firm Design Studio has plants in Anuradhapura and Kurunegala employing over 2500 rural persons. The group exports to UK retailers including Primark, ASDA, Topshop, Sainsbury’s, ASOS, River Island, Oasis and Urban Outfitters, high-end ladies soft and tailored garments.

In this analysis he explains the economic shock to the apparel sector the fallout on workers and the need for support. No event in modern history has caused implications as severe as that of the Covid-19 outbreak, which is in danger of tearing the very seams of the fashion trade, he says.

Tearing the very seams of the fashion trade

The clothing industry has consistently faced instability over the past few years after its slow recovery from the last global financial crisis. Economic headwinds have eroded even the mightiest industry participants globally.

The UK’s most recent shockwave, Brexit, thrust both retailers and suppliers into new and uncharted territory – decreasing the buying power of clients and creating a ‘price-war’ situation for manufacturers in Sri Lanka.

But no event in modern history has caused implications as severe as that of the Covid-19 outbreak, which is in danger of tearing the very seams of the fashion trade. For the first time in memory, we have witnessed the effective cancellation of an entire fashion season:Spring/Summer 2020 is no more. As a result, there are unavoidable financial blows to every supplier involved. Finished garments have been cancelled, gathering dust in warehouses and retiring as dead stock.

Hard losses

Our clients are all closing down stores and cancelling all orders indefinitely, including those that are already a work in progress in our factories, as the UK goes into a lockdown state. Cessation of all trading operations until the health crisis situation is resolved – including the cancellation of all future contracts as our clients attempt to safeguard their business continuity, sustainability and resilience – puts all of us manufacturers in a period of great uncertainty over the next 6 months.

And there is no mercy from the desperate buyers either – a recent article off Drapers, the fashion retail sector’s premier magazine, evidenced the plight the local industry faces as follows:

“Industry-wide, suppliers are forced to absorb direct losses and accrued liabilities. Even the most trusted retailers are simply unable and unwilling to foot any part of the bill. … The devastating effects of these cancellations are being further amplified by forced extended payment terms – non-negotiable, of course. There is little concern for the suppliers that have been – and post-pandemic will continue to be – the mechanics of billion-pound retail businesses.”

Nation-wide impact

In an internal survey I set up, that was carried out among the members of the Sri Lanka Apparel Exporters Association (SLAEA) representing the island’s premier apparel manufacturers and exporters, it was made evident that there is already a struggle to service salaries and other statutory payments over the next 6 months at minimum – or even longer, depending on how the current unprecedented situation plays out – due to the non-availability of funds.

For a group of key players that have persevered through numerous challenges when apparels first kicked off in the country, there is an overarching sense of uncertainty around if there is even a future for the industry post-Covid-19 if adequate buffers aren’t put in place and support provided – and these leaders are certain ramping back up to merely the same scale and health their organisations used to be at will be a slow and tedious process, even after normalcy is restored.

For context, the apparel industry accounts for about half of our country’s total exportsand employs over 15% of the local workforce. In fact, this is the only case in Sri Lanka of a single industry providing mass employment to its citizens (990,000+ skilled workers), in addition to being the country’s second largest FOREX earner for over 8 years with a 2025 target of $8 bn that is at risk – this is what’s at stake and why the government should be worried.

In speaking to many of my colleagues and peers in the industry, I have understood that the gravity of Covid-19’s implications to our organisations are far severe to what we make it out to be in our communications to the authorities, including the Sri Lanka Apparel Exporters Association (SLAEA) and Joint Apparel Association Forum (JAAF-SL) leadership.

Numerous manufacturers – majority being BOI-approved ventures – have already written to the Department of Labour, banks, creditors and so on but believes the urgency and severity of the situation has not been fully appreciated yet. This is an exceptional situation where the government must intervene to safeguard the continuity of one of its largest revenue and employment generators who are already at the point of bankruptcy.

Priorities

Traditionally, many organisations are in the habit of painting a strong and stable image of themselves – particularly true in our culture – but there’s nothing traditional about the challenges we are all collectively faced with today. Now’s the time for transparency and to be upfront on this evolving situation.

For my companies, right now our priorities are the well-being of our 2500+ people – our greatest asset – many of whom are the sole breadwinners of their family; and to keep our business alive until BAU can be resumed. We provide extensive vocational training and upskilling, employee benefits and other forms of social responsibility to our people, their families and the localities ourfactories operate in – including annual sponsorship of school stationary and other needs for the children of our staff, medical insurance and employee counselling, provision of visual and hearing aids, a death donation fund, free meals and transport, and many direct/indirect emoluments to the local citizenry.

This is not possible without a few sacrifices up front though, for which we need the support and approval of the government and its institutions. For instance, we really want to protect all of our employees and have them with us once business resumes – but we can’t do that unless we are allowed temporary lay-offs and other short-term measures.

My organisation alone works withsix other outsourced manufacturing partners with a cumulative workforce of an additional 3500 employees – a demonstration of just how many lives could be changed forever, if we don’t take action.

Government bailout

It’s been almost a month since the more serious implications of Covid-19 kicked in, and after having really put in both individual and concerted efforts to try remediate the pitfall we are headed towards – if not already are in –it’s become apparent that the businesses can’t do this alone. While appreciating all the prompt, hard work the government is putting in to control the spread of the virus – an inspiration to the rest of the world – the post-Covid situation too deserves equal attention. Industries need to be safeguarded via a plan of action, or the country will collapse post-Covid despite having been saved from the virus.

By bringing together all the conversations I’ve partaken in recently, I have laid out the following straightforward requestsand proposed solutions which my colleagues and I hope will ensure the industry has a future in the aftermath of the coronavirus crisis:

1. Salaries

1.1. All manufacturers have paid salaries for the month of March, due on 10th April 2020, by way of collecting all available cash-in-hand at their disposal. Even this required certain pay-cuts to have been made.

1.2. Manufacturers have no means to provide for the remaining timeframe of 6 months at minimum until trading resumes and we are all back in business.

1.3. As such, we request the Government to join hands with us and make arrangements to provide some form of allowance for our employees during this period.

1.4. We require permission to initially work on a pro-rata basis for less than the full work week, once we are back in business and are still ramping up to full capacity. This is because securing adequate work from clients will take time.

2. Statutory Payments

2.1. As we face difficulty paying core salaries alone, we request abolishing statutory payments – i.e. EPF and ETF – for the next 6 to 9 months.

2.2. Rescheduling ongoing non-payments of EPF to be paid back in 24 months, with at least a 6 to 9-month grace period and no penalties enforced. This is due to no trading taking place over the next 6 months, and an unclear landscape of how the business and the situation will progress during and after this period.

3. Employment Contracts

3.1. We request laying off a fraction of our staff for the next 6 to 9 months unpaid, i.e. on furlough.

A small price to pay

If you are wondering if these concessions that are sought after will be a tough call for the authorities to make, to me, it’s a no-brainer.Real jobs of real people who need them the most, are at stake here – and we cannot look after them and protect their employment if we aren’t allowed to make some drastic changes in the interim to cushion the shock waves we are facing today. We need to be cautious of this fact.

There are a number of best practices mypartners abroad and their governments have taken up, as well as plenty of examples of incentives similar to what I am proposing being implemented in other countries where the apparel industry is dominant, as illustrated.

Sri Lanka is already knee-deep in increasingly fierce competition with suppliers in Vietnam, Cambodia and Indonesia. This is no time to experiment, test your confidence and pride, or do nothing.

To end on a (potentially)positive note, however, I am sure the industry as a whole would be sincerely grateful if the above propositions are actioned. We are confident that, with the support of the right parties and if we work together to take the right approach, we will survive through this period and come out as preferred suppliers of choice once global trading resumes – and more importantly, enable all of our employees to resume working with us with minimal disruption to their livelihoods.