GSP+: Gearing to reap its benefits amidst huge shortage of labour
The 23rd Annual General Meeting of the Sri Lanka Chamber of Garment Exporters was held last week at the Hilton and every one present was talking of the GSP +.
But many had no idea as to how the resumption of this facility will help the manufacturer. In simple terms the restoration of GSP + will mean that the importer of products from Sri Lanka in the European Union will be able to clear the items imported without paying any import duty which is the region of 17 per cent. So the products imported will be 17 per cent cheaper to the importer. The manufacturer will not receive a cent more.
But the natural corollary will be that the importer, as the goods are now cheaper will place an increased quantity of orders, as he benefits from the restoration of the GSP + and cheaper prices.
If the manufacturer is powerful enough he may be able to bargain for an increased price and at least share the advantage between them. That will happen only on the relationship between the two parties. The average manufacturer may not enjoy such a luxury.
So the logical outcome will be an increased demand for Sri Lankan products. The question that looms large in the minds of the apparel exporter is whether he will be able to adjust himself to cater to such an increased demand
Looking at the apparel industry as it stands today there are important questions for which answers have to be found if the industry is to reap the benefits from the decision to reintroduce the GSP+.
As an exporter and one who served on the Textiles Quota Board for 12 years I recall that there were as many as 845 apparel exporters out of which 457 fell on to the category of small and medium with less than 100 to 150 machines .
This was the time where the late President Ranasinghe Premadasa ventured into his ambitious 200 factories programme. Although an ambitious and far reaching innovative economic decision it dealt a death blow to the small and medium sector.
SMEs lose quotas
At a time when quotas were a determining factor it was the quotas held by the small and medium sector that was withdrawn and doled out to those entering the 200 factories programme. Faced with the only prospect of closure this sector appealed to R. Paskeralingam, then Chairman of the Quota Board and some relief was granted by the allocation of 5000 dozens to each of the small and medium scale factories. This amount was grossly inadequate to keep the factory running for a year and these factories were compelled to look for sub-contracting at ridiculously very low CMT prices. Mr. Premadasa never opened 200 factories. At the time of his untimely death only 96 factories were in operation and after his death 38 factories that were in the pipeline were opened. These factories enjoyed a concession of 50000 dozen quotas. And with the abolition of the quota system there was no attraction for most of these factories to operate.
The sorry site of the clock towers that were erected with each of these factories now not taken care of and depleted and the non-func- tioning clocks showing the time as half past six depicts or symbolizes the fate of the state of affairs of the majority of these factories. The prime mover who owned 27 factories does not operate even five factories today.
In all there are around 230 garment factories in operation today as against the 847 factories that functioned 10 years back. Of this number only around 60 are small timers.
During the past 10 years there has been a 300 per cent increase in the wages paid to sewing operators. A sum of Rs. 12,000, 10 years back, is Rs, 35,000 today and even at that rate the factories cannot find skilled operators.
To add to the woes the government has brought in an increase of Rs. 2,500 to the salaries.
Factories forced to close?
Factories having over 800 workers will face inevitable closure if the salary increase is granted and the government has offered a grace period of two years. In addition the factories are being requested to pay VAT at 15 per cent which was not imposed on the exporters earlier.
In some respect the apparel exporters have shown great maturity in creating an apex body - the Joint Apparel Association Forum to address their pressing grievances in one voice, which is an example to other industrial sectors.
If the benefits are to come to Sri Lanka due to the reintroduction of the GSP+, the factories must be geared to accept increased orders. Today due to the lack of labour factories are operating below 65 per cent efficiency
According to the Foreign Employment Ministry each month over 13,000 female workers seek foreign jobs. This has compelled the factories to request the government to grant permission to import labour from India and even China.
The garment industry in Sri Lanka is highly labour incentive. It still remains basically a cutting room-to-sewing machine operation.
But other countries such as Hong Kong have gone digital. This is one way of cutting costs and also increasing productivity. Faced with these adverse conditions some factories have switched their operations to countries such as Ethiopia Kenya, Vietnam and even Nigeria. Labour in these countries are not disciplined at all and the factory owners risk even their lives when operating in such environments.
Looking at the apparel industry as it stands today there are important questions for which answers have to be found if the industry is to reap the benefits from the decision to reintroduce the GSP+. As an exporter and one who served on the Textiles Quota Board for 12 years I recall that there were as many as 845 apparel exporters out of which 457 fell on to the category of small and medium with less than 100 to 150 machines
Paradigm shift needed
So if the country is to reap the benefits of the reintroduction of GSP+ a massive paradigm shift is necessary. Given the present situation whatever happens the big 15 stakeholders will survive. Virtually they perform the dual role of being the producer and the buyer also. Others are in a serious dilemma. Are they geared to meet the increased demand? It must be remembered that with the industrial revolution it was the textile industry that thrived first. But it is equally a fact that it was also the textile industry that faced the exit first. Countries such as Britain, Germany and Japan are no longer depending on themselves for textiles they all import. Will history repeat itself ?