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ECONOMYNEXT – Sri Lanka’s apparel exporters are facing difficulties in getting inputs due to import controls and a bottleneck of un-cleared cargo at the port, an industry official said just as the sector is trying to emerge from a Coronavirus crisis.
Raw materials exporters are shipped in as FCL (full container load for a large consignment or LCL (less-than-container-load) where several small consignments due to importers or exporters are consolidated into one box.
The cost could vary from rice 200 to 300 dollars to 5000 dollars or more per shipment. LCL cargo has to be ‘de-stuffed’ and each consignment allocated to different owners.
“If you can’t clear the raw materials, let’s say you have got everything to make a shirt but the buttons needed are stuck at the port due to delayed de-stuffing, then the whole product is not going to be shipped,” Sri Lanka Apparel Exporters Association President Rehan Lakhany, said.
“…[T]his has put a lot of our factories in hardships. Apparel industry operates on time, if we do not have the goods on time, the customers cancel the order.
These are very difficult and unnecessary blocks that have come.”
Cargo ordered earlier in 2020 for extra shopping usually seen during the April New Year season and also Ramazan is still stuck at the port with curfews only recently being lifted, industry officials say.
Import Controls
Sri Lanka also slammed severe import controls after the central bank printed large volumes of money, de-stabilizing a soft-dollar peg with the US dollar, driving the rupee close to 200 to the US dollar at one point, creating even more problems for exporters.
The rupee has since strengthened to around 186 to the US dollar amid weak private credit.
Under import controls announced after currency troubles, Sri Lanka cannot import items on ‘open terms’ except on a 90 day credit term.
To make payments 90 days from the clearance date it should be mentioned in the first invoice sent to the buyers before delivering the goods.
To make a garment, there are a lot of components needed such as clips and pins, which have small values.
“…[W]hen we import materials like clips and pins, we usually do on an open term because we have that relationship with the supplier,” Lakhany said.
“So, what happens is with the new restriction, we cannot import anything on open terms meaning banks are not accepting goods on open terms, the Customs aren’t clearing.
“There is a large label supplier called Avery Dennison, they supply to all the top brands and the value of the labels is insignificant. But the label suppliers can’t get the raw materials in due to the 90 day payment term.
“We don’t want to be bogged with sorting out these little issues. We have to concentrate our full effort into marketing, sales and production.
Apparel manufacturers are in discussion with the authorities and are hoping to get these issues sorted soon.
Sri Lanka has also restricted the import of clothing, slips, jackets, pantyhose, scarves, ties, shoes, hats, etc.
“…[I]n the restricted list also there are things such as hangers and hanger clips which are required for the apparel industry,” Lakhany said.
Sri Lanka’s apparel exporters are beginning to get orders but trade restrictions from monetary instability and port bottlenecks are keeping them at bay.
“At the moment, coming out of the crisis we are trying to stand on our feet again, but these are difficulties we are facing,” Lakhany said.
The problems are coming as orders are just beginning to come from foreign buyers with lockdowns being relaxed the West.
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Though Sri Lanka is not the only country to go through a Coronavirus crisis, Sri Lanka has placed severe import controls due to monetary instability.
Monetary Instability
Competitors like Vietnam and Cambodia, where central banks have been reformed do not have foreign exchange problems.
The lack of a credible anchor for policy triggers foreign exchange shortages in Sri Lanka whether or not there is a crisis leading to Nixon shock style import controls. In 2012 and 2015/2016 the rupee collapsed due pro-cyclical policy amid economic booms and in 2018 in a small recovery.
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Sri Lanka is recovering, Central Bank threat looms: Bellwether
Sri Lanka has strongly resisted a credible external anchor through a ‘flexible’ exchange rate and also sidestepped a credible domestic anchor through ‘flexible’ inflation targeting giving a high degree of discretion for errors and pro-cyclical policy, critics have said.
Instead there are multiple mandates including targeting the real effective exchange rate and a perceived output gap as well as a partial external anchor through the ‘flexible’ exchange rate and forex reserve target.
Analysts have called for central bank reform to help the country progress, and also avoid sovereign default of dollar debt.
Competitors like Vietnam no longer face such problems because the State Bank of Vietnam was reformed in the late 1980s after severe currency collapses led to a severe economic contraction.
Cambodia’s central bank was worse and people shifted to US dollars. As a result the National Bank of Cambodia cannot now print money to control interest rates (loosen monetary policy) in a dual currency regime and destroy the external sector. (Colombo/June05/2020)
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