• Air freight and fuel cost impacting apparel: JAAF
• Urgent need for long-term sustainability solutions
• Floated rupee may reduce demand for dollars: CCC
• Trade Ministry working to provide relief: Minister Dr. Bandula G.

By Vinu Opanayake Sri Lanka’s business community is bracing for the impacts of the floated rupee, increased prices of goods and services, power cuts, shortage of commodities, and impending electricity tariff hike on their manufacturing businesses, threatening Sri Lanka’s competitiveness in the global market.  Local developments that took place within the past few weeks, including the freshly-imposed non-essential import ban, floating of the rupee, fuel price hikes, and subsequent hikes of other goods and services have brought down the productivity of Sri Lanka’s business and manufacturing sectors. Joint Apparel Association Forum Sri Lanka Speaking to The Sunday Morning, Joint Apparel Association Forum Sri Lanka (JAAF) Secretary General Yohan Lawrence stated that at this point in time, the industry was managing as best as possible to fulfil orders under the circumstances, despite disruptions. “Our orders are secure for the next three to four months and are being processed, with some companies having to resort to costly air freight to meet committed deliveries,” Lawrence stated. However, unless resolved soon, the extended power cuts, coupled with shortages of diesel, will have an impact on the industry’s performance this year, he stated.  “Time is key in the fashion garment business. When we are late, the first thing the buyers ask us is to air freight the goods and when we air freight, we have to pay a horrendous cost. When air freight is used, our profitability will be impacted and the revenue the industry is making will come down,” he added.  Lawrence noted that what was needed urgently was a long-term sustainable solution to the issues being faced, in order to secure buyer confidence and maintain Sri Lanka’s reputation for delivering orders on time. When asked how Sri Lanka could ensure its competitiveness in the global market at this rate, Lawrence stated that with the ongoing crisis, some buyers were showing signs of moving orders elsewhere, although it was too soon to assess the impact of such shifts on our long-term growth and competitiveness. “If our buyers do move their business to other apparel producing countries, gaining their confidence back would be tough. It is vital that we work towards maintaining our global reputation for high-quality products and timely delivery,” he stated. He asserted the apparel industry is committed to making sure the necessary steps are taken to prevent this from happening. This includes working with all stakeholders, including the Government, to ensure the long-term stability of the industry. Sri Lanka’s apparel export earnings rose to $ 487.6 million in January, overtaking the $ 452 million record in January 2019, prior to the pandemic, by 8%, and the growth over January 2021 export earnings was 23%, according to JAAF. Accordingly, Sri Lanka’s apparel exports in January 2022 achieved the highest level for that month in the last five years. This performance demonstrates the industry’s underlying strength as it bounced back from the shocks sustained from the impact of the pandemic over the last two years.  The industry’s 2030 vision is to transform Sri Lanka into a global apparel hub while an intermediate goal is to increase annual export earnings from apparel to $ 8 billion by 2025. Ceylon Chamber of Commerce Meanwhile, the Ceylon Chamber of Commerce (CCC) is optimistic about the decision by the Central Bank of Sri Lanka (CBSL) to float the rupee. On 7 March, the CBSL decided to revoke the directive issued to Licensed Commercial Banks (LCBs) requesting them to keep the selling rate of the US Dollar below Rs. 203. Speaking to The Sunday Morning, CCC CEO/Secretary-General Manjula de Silva stated the decision to float the rupee would help to reduce the demand for imports including fuel and that would ease the pressure on the dollar.  “Floated rupee will also help our exports and tourism to be more competitive and will also help to attract more remittances from migrant workers through official channels increasing the supply of dollars to the market. The combined effect will see the dollar stabilise at a level determined by market forces,” he added.  However, de Silva also noted that it would result in some cost escalations in the short run but it was preferred to having shortages of fuel and other essential inputs which had a far more detrimental effect on the manufacturing sector.  According to him, exporters will benefit from currency depreciation as it will help protect margins. Those who are producing for the local market will face some challenges but they will also have to adjust their prices to protect margins, he said. Commenting on the impact of these developments on Sri Lanka’s global competitiveness, de Silva stated that usually currency depreciation had a positive impact on a country’s competitiveness. “While some costs (based on imported inputs) will escalate, their revenue will also increase in rupee terms to absorb that. They may also have the opportunity to become more aggressive in their pricing,” he added. National Chamber of Exporters National Chamber of Exporters Secretary General Shiham Marikkar told The Sunday Morning that a country with an import-dependent economy, when its currency has depreciated by 30% overnight, would face an increase in the cost of production and services. “This will create short- and long-term negative impacts on all areas of business and society. Until meaningful steps are taken to minimise the challenges, the impact will affect both local and international confidences,” he stated. Ceylon National Chamber of Industries Ceylon National Chamber of Industries Chairman Canisius Fernando told The Sunday Morning that floating the rupee would bring in some short-term benefits such as increased remittances as workers may now be encouraged to send their remittances through legal channels. However, commenting on other burning issues, Fernando stated that the fuel shortage, power cuts, shortage of dollars, and inability to open Letters of Credit (LCs) had severely affected the industries in the country. “Micro, Small, and Medium companies are affected and they are just dragging their businesses. They have financial problems they cannot continue. They are just operating because their existing cost is higher than the operating cost,” Fernando added.  Speaking further on global competitiveness, Fernando added that there was definitely a problem in terms of global competitiveness as the news reports on shortages and lengthy queues even for essential items had resulted in buyers questioning the capability of the country and they were hesitant to reach local sellers. A Gazette Extraordinary has been issued by the Department of Import and Export Control limiting the import of 367 non-essential goods into Sri Lanka unless with a valid licence on 9 March. Thereby, the Imports and Exports Control Regulation No. 05 of 2022 – Imposing requirement of Import Control Licence (ICL) on selected items came into effect at midnight 9 March. The relevant gazette notification was issued by Finance Minister Basil Rajapaksa. The regulations prescribed in the communiqué are only applicable to the importation of goods, which have the date of the Bill of Lading/Airway Bill on or after 10 March. Licence to import the specified non-essential items will be issued subject to the recommendation of the Secretary to the Finance Ministry. Any importers who wish to import the specified goods are thereby required to be in possession of a valid licence issued by the Controller-General of Imports and Exports Control Department, prior to the date of the Bill of Lading/Airway Bill of such importation. Trade Ministry action When asked what the Ministry of Trade was planning to do to address the grievances of exporters and businesses that were engaged in the manufacturing sector, Minister Bandula Gunawardena stated that in order to avoid a decrease in production by the export manufacturers, the Ministry has provided them with fuel from Sri Lanka Transport Board (SLTB) Depots after rounds of discussions.  “We have also prevented blackouts in their factories. We provide the required assistance for the exporters by having regular discussions with them,” Gunawardena added.