ECONOMYNEXT – Apparel exporters in Sri Lanka, already battered by disruptions of raw materials from China which may trigger factory closures are seeing a double blow with orders slashed by buyers as the novel Coronavirus spreads in Europe spooking retailers and consumers, an industry official said.
“The new problem now is the markets we export to has been impacted by Coronavirus; Italy has got badly hit and Germany too is starting,” Rehan Lakhany, Chairman of Sri Lanka Apparels Exporters Association told EconomyNext.
“So what’s scary is our orders being cancelled or reduced which is going to be even worse.”
Falling Export Orders
The novel Coronavirus now named COVID-19 spread in Italy and a number of European countries over the last week, as China itself saw the number of new cases fall.
Europe and the US are top buyers of Sri Lanka’s apparel.
“Some of the manufactures are forecasting a 20-30 percent drop in orders from the next season onwards (starting in June),” Lakhany said.
Italy is Sri Lanka’s third largest apparent export market after the US and the UK.
Sri Lanka exported apparels worth 463 million US dollars to Italy in 2018, the latest year for which detailed data is available, while exports to the United Kingdom amounted to 737 US dollars, out of a total of 2.0 billion US dollars that went to the region.
“We never expected the virus to spread to the European zone. That is our biggest problem, panic itself worries consumers from going in to buying clothing,” Lakhany said.
“This is going to be a double impact, from one side we are getting hammered with sourcing raw materials and on the other hand, we have to face the reduction in order.
Apparel is Sri Lanka’s top export, bringing in around 5.5 billion US dollars out of a total of 11.9 billion dollars of foreign revenues in 2019.
Sri Lanka could lose between 200 to 500 million dollars of orders though it was difficult to make an accurate assessment at this time, he said.
The US bought 2.2 billion US dollars of apparels in 2018, according to central bank data. The US reported six deaths on Monday.
Italy is the worst hit country in Europe with 2,036 cases and 52 deaths.
In Germany, the number of infected people has almost doubled over the weekend, reaching 157. Germany is Sri Lanka’s fourth largest buyer of apparels.
France, another coronavirus hotspot in Europe, has registered some 130 people infected since late January, three of whom have died.
The European Union had raised the risk level to “moderate to high”.
The blow from export markets come as Sri Lanka’s apparel firms are struggling to fill existing orders with fabric and other supplies from China disrupted as cities were lockdown and workers failed to turn up after the Chinese New Year.
Factories in China are now starting to operate, but it may be weeks before supply chains get back to normal, Lakhany said.
“On the side of raw materials, looking at the situation there’s going to be a problem until May-June this year,” he said.
“There are factories which are going to shut down to about two to three weeks because of non-delivery of raw materials,” he said.
“Some are managing by finding alternative orders, but some will have to close factories for a week or two.”
Sri Lanka apparel exports are looking at Turkey, Indonesia and Korea as an alternative market predominately to source polyester.
However, Lakhany says that the sudden surge in demand in substitute markets will jack-up the prices pushing up costs for manufacturers.
Some factories may extend Sinhala-Tamil New Year holidays in Apri if market disruptions continue, he said.
“Some factories are going to prolong Sinhala-Tamil New Year holidays factory closures too until the fabric and raw materials arrive for them to start production.”
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The Organization of Economic Co-operation and Development has warned of a “severe hit” to growth. (Colombo/Mar03/2020-sb)