ECONOMYNEXT – Sri Lanka’s apparel industry is expecting to lose 1.5 billion US dollars’ worth of revenue between March to June as the Coronavirus from Wuhan sweeps through western markets, battering economies.
“Finally, the impact we feared would come from our customers has hit us very badly,” Rehan Lakhany, President of Sri Lanka Apparel Exporters Association told EconomyNext.
“The impact has been quite massive; we are estimating the loss to be in the region of about 1.5 billion dollars which accounts to the revenue from March to June (almost a quarter).
Initially, the industry expected the loss of orders to be around 200-500 million US dollars.
Sri Lanka’s apparel industry accounts for almost 40 percent of the total exports and 52 percent of merchandise exports while contributing 6 percent to the GDP.
As a high revenue export industry, it brought in 5.5 billion US dollars out of the total 11.9 billion dollars of foreign revenue in 2019.
The US and Europe are Sri Lanka’s largest apparel export markets accounting for almost 90 percent of the turnover.
With the COVID-19’s disruption on Chinese supply easing, Sri Lankan manufacturers were faced with massive hits on the demand side when Italy became the new hotbed for the novel Coronavirus sickness in Early March.
“A lot of factories have got orders which were running in their production were suddenly cancelled, almost all customers have said to stop production and shipments of the products that have been already produced,” Lakhany said.
“They are considering it as cancelled without any liabilities due to the corona issue”.
Apparel industry works on long calendars, the manufactures produce garments six to four months ahead of entering retail stores.
The products which are being cancelled went into production in January, when COVID-19 was at its initial stage.
“Our members are also hit by the fact that product that is ready to be shipped cannot be moved due to the lockdowns,” said Lakhany.
“Even if cargo could be moved the reduction in flights has meant a huge reduction in air freight volumes and a consequent increase in freight rates.”
Sri Lanka imposed strict curfews Island wide from the second week of March, after the first domestic patient, a tour guide was identified.
Cash flow constraints
As the order cancellations take place, buyers in the export markets have also requested an extension in the credit period from 30 days to 120-180 days for already exported goods.
“All of the above will mean a massive hit on the cash flow of companies in the next 4 months,” Lakhany said.
“In the absence of any revenue for the minimum of the next 3 to 4 months, the ability of companies to pay even basic salaries will be constrained. This will threaten the very future of the industry in Sri Lanka.
“So, we have to wait till the situation to settle down to find out what the status of the payments is. It looks like there won’t be any production for at least for the next three-months.”
Medium Term Prospects
The industry is worried that even after the coronavirus is settled, there won’t be enough business like in the past.
“Western markets are not going to back in full swing. We expect it would take about 1-2 years for their economies to come back to normal as those economies will almost surely be in recession themselves,” said Lakhany.
“Therefore, there have to be some layoffs as well in the industry. That’s the way the industry is thinking, they know they can’t pay salaries; there are no orders, there’s no money, massive losses are happening for the industry and if they don’t lay off then the industry will get wiped out.”
Sri Lanka’s apparel industry workforce consists of more than 990,000 workers, in other terms 15 percent of the country’s total workforce.
Lakhany said the survival of the industry itself is in big question looking at the way things are at this moment.
However, he said “the government has made available details of a relief package for the industry and we are working closely with the authorities on implementing of these relief measures.”
Globally the virus has infected more than 650,000 people and killing more than 30,000.
Western countries are in lockdown as the infection cases surge. The US alone has 100,000 active infection cases meanwhile the death toll in Italy stands at 9000.
Sri Lanka has been aggressively contact chasing quarantining arrivals. (SB-Colombo/Mar31/2020)