Sri Lanka has been a locus of global enquiry in recent months, as the country has been in the throes of financial crisis, with crippling inflation and fuel shortages. The resignation of Sri Lankan President Gotabaya Rajapaksa on July 15 also contributed to political instability – he has since been succeeded by current President Ranil Wickremesinghe. At the same time, the country distinguishes itself in the region and upholds ambitious aims for the future – including an annual apparel industry export goal of 8 billion USD by 2025. Despite considerable challenges, the garment industry has remained an exporting stronghold and has shown remarkable resilience.
Yohan Lawrence is the Secretary General of the Joint Apparel Association Forum, Sri Lanka (JAAF). JAAF is uniquely positioned as a membership body of different membership organizations, not just representing local buyers and manufacturers, but also international brands, creating a comprehensive alliance of employers within Sri Lanka’s garment industry. Lawrence has worked in positions throughout the supply chain, as Chairman of the Apparel Exporters’ Association and as a member of the National Labour Advisory Council, among other leadership positions. Lawrence pinpoints the value of JAAF being “the single voice of an entire industry.”
Yohan Lawrence sat down with Better Work to discuss the challenges facing Sri Lanka today, and how he sees recovery and the industry’s future shaping up.
BW: It’s encouraging to see the apparel industry persevere despite challenges, but it’s also a bit surprising. Why is the sector continuing to fare well despite this economic crisis?
YL: This goes back to learnings from COVID-19. Sri Lanka recognized at the time that not just apparel, but all manufacturing, needed to continue. We worked with unions and the Ministry of Labour to figure out how we could continue operating without putting people at risk unnecessarily. So, this current crisis kickstarted the same thinking – what do we need to do to ensure that the apparel sector can continue operating? We know it is economically crucial.
Since April, the industry has been able to procure diesel from other countries directly by payment in dollars, so access to diesel has been a critical lifeline. There has also been a lot of price inflation and a massive increase in raw material prices. We continue to bring in valuable foreign exchange to the country, and in that respect, we have been completely transparent. We have worked closely with the government, so if they need money for urgent purposes, can we convert money early to help make sure the government continues to operate. Together – with a sympathetic government working on the macroeconomic side – we can steer the ship into the next phase of recovery. We have co-created this ecosystem where we continue to operate.
BW: That’s impressive. Yet externally, international headlines have focused on economic instability. With that in mind, what is the incentive for global brands to continue to source from Sri Lanka?
YL: We have a safe and secure exporting environment. You can place your orders, and we can deliver them. Even through everything, we have continued to operate. Manufacturing, which includes exports, is a vital part of the ecosystem, and we have managed the roadblocks.
What we are saying to brands is: we understand you must protect your position, but look at our history – the orders continue to come through, and the industry continues to operate. The industry also adapted to the needs of brands to produce PPE (personal protective equipment) and medical apparel during the COVID-19 crisis. Now, it is up to brands to do their part to stand by the country. Pulling out has a massive knock-on effect. We hope that confidence and ability to deliver bodes well for brands, and it bodes well for the health of the industry in the second half of the year. To brands: talk to your manufacturing partners, look at the situation on the ground, look at the micro and the macro, and look at the big community picture.
BW: So, reliability is a big part of it. JAAF also boasts that the Sri Lankan garment industry prides itself on ‘ethical business and manufacturing practices’. What differentiates Sri Lanka from competitors in the region? How do the organizations of JAAF ensure better practices?
YL: Most recently, we have been strengthened by the call to action by the Ethical Trading Initiative (ETI) and the American Apparel and Footwear Association (AAFA) to support the Sri Lankan apparel sector’s efforts towards ensuring worker welfare. This is important crisis response. Historically, our ethical foundation is part of our story as a country. Apparel exports in Sri Lanka started in the 1970s, from small family-run businesses who previously made clothing for the local market. In the 1970s, there was a big change in government, and the country transformed to an open economy largely based on exports. In the 1990s, the government at the time brought in a scheme where companies were incentivised to travel to rural areas, to set up in remote locations; your factory had to provide uniforms and meals – there was a certain standard set.
In the late 90s, when brands looked to move manufacturing outside of the UK and US, they looked to source elsewhere. Our three biggest export companies – that employ over half of the sector’s workforce – are Sri Lankan-owned factories. Our industry is not characterized by foreign investors that come in and run a factory for five years. Besides a good facilitating environment and investment, there a focus on sustainable production, product innovation, fairly strong labour relations, and good mechanisms for monitoring and compliance.
I think that because the initial companies were family-run, and they knew their employees, they knew treating workers well was the right thing to do, and then it became clear it also made good business sense.
BW: What is the biggest concern manufacturers are voicing to you right now?
YL: I think the challenge is really with MSMEs (micro-, small and medium enterprises), because they don’t have the resources. Big factories could do things like purchase three to four weeks’ worth of diesel, but MSMEs can’t. We still haven’t been able to get our head above water from Covid. These are small factories, but when you put them all together, it is a large part of the ecosystem. Bigger plants can provide transport to employees, assist them through the crisis, offer additional allowances, and so forth, but smaller businesses just can’t. They suffer from increasing interest rates and limited access to finance. What keeps us up at night, to be honest, is how we keep MSMEs going.
BW: How can stakeholders – in particular the government – help stimulate the industry’s growth and promote stability?
YL: The post-Covid and financial crisis stabilization period will be rough; we have a long road ahead of us. Yet, there’s this foundation of trust and understanding now. We need stability, and we don’t yet have the political stability, and that’s what we keep pushing for. We see the role of the state as creating an enabling environment, that encourages people to invest and existing investors to grow. We know that there will be things like higher taxation – that’s okay, we just want to be told what it will look like, and the business model can adjust. We do our part, you do your part, and we go down the road together. Sri Lanka has stopped so close on the brink of collapse before and recovered. We just need to work a roadmap out.
One other piece I will add is investment in fabric mills and sourcing locally is important, so that we are less reliant on materials and inputs coming from outside of the country.
BW: What is your ideal vision for the future of the Sri Lankan garment industry?
YL: That Sri Lanka becomes what Hong Kong was in the 80s and 90s. Sri Lanka could be the center and offer the brand a place that would help develop the product from scratch. We would make all the technical, higher value-added product, and then we could supplement this with the scale of production from other locations. The brand knows that the product can flow from where they are made to where they are to be sold. So, there is a hub of knowledge here, a hub of specialized manufacturing. That is how we see our place.
We have an industry with massive investments in renewable energy and circular projects. More manufacturers and brands are going carbon neutral, and locally, there is even a big initiative that converts plastic water bottles into yarn. Sustainability is part of the culture here, and we are investing heavily to help support the Government of Sri Lanka’s target of 70% renewable energy by 2030. We know this is the right thing to do, and it makes good business sense. We work quite in step with our brands, not on a transactional basis. If we have all of this – with an enabling environment from the government – it’s not just a pipe dream.