Inflation has hit the world in myriad and unexpected ways.
Wildly unstable prices across the globe are making it hard for businesses to pay electricity bills and cope with fuel costs, while food prices that have risen double digits have consumers cash strapped.
Much of these spiraling costs are occurring in sourcing heavy locales. According to data from Trading Economics, by late 2022, Turkey saw inflation of 88.5 percent, Sri Lanka at 66 percent, Laos at 36.8 percent, Pakistan at 26.6 percent, Myanmar at 19.4 percent, Sudan at 103 percent, Argentina at 88 percent and Zimbabwe at 269 percent. Much of Europe saw double-digit inflation as well, while the U.S., by comparison, was a relatively tame 7.7 percent.
The World Bank noted in December that record high food prices have triggered a global crisis that will drive millions more into extreme poverty, hunger and malnutrition.
According to the World Bank assessment, Lebanon, Zimbabwe, Venezuela, Turkey and Sri Lanka are the five countries with the highest food price inflation. Food prices are a special concern in low- and middle-income countries since a larger share of their income is spent on food than people in high-income countries.
Top apparel exporters have been hit badly.
Last year, Bangladesh became the third South Asian country after Pakistan and Sri Lanka to seek a loan from the International Monetary Fund as its foreign exchange reserves shrank and trade deficits mounted.
With the IMF loans come tough economic measures, including reducing subsidies and increasing taxes, as in Sri Lanka—leaving harried consumers in their wake, and labor struggling to stretch their pay checks to cover necessities.
The impact of Sri Lanka’s political and economic crisis traversed every echelon of life in 2022.
After the president declared bankruptcy in May as foreign reserves continued to dwindle and the devaluation of the Sri Lankan rupee worsened, food inflation spiraled as high as 70 percent, medicines were scarce, and for some months transportation was impossible as petrol reserves were hard to come by. Electricity prices increased dramatically, and the population of 22 million was faced with extreme inflation on all fronts.
For the most part, the apparel industry and the manufacturers appear to have kept their composure, with factories continuing to run right through the crisis. One of the main reasons was the fact that apparel exports were bringing in much-needed currency and got government support to keep running. Also, years of difficult situations have made the local industry steadfast.
“Having got past the last 40 years so far with professionally run factories, despite the 30-year civil war, we have passed all those stages,” said Indika Liyanahewage, director/CEO, Eskimo Fashion Knitwear (Private) Limited, a German company that manufactures in Sri Lanka with three factories for brands like Decathalon and Next, with 95 percent of the company’s exports to Europe. “We were cautious, but we had the confidence we could get through it. Two years of Covid was a massive challenge and we got through it with minimum impact to business. Last year was one of the worst economic crises, but we came through that, too,” he said.
“Inflation has definitely been impacting business in every way, but our first action was to take care of employees—and we made sure we paid extra as well as added some food rations, we paid bonuses despite the difficult times, and helped in every way we could to manage the impact to the employees,” he said.
Liyanahewage is also the chairman of the Sri Lankan Apparel Exporters’ Association and cognizant of the fact that small manufacturers have been hit particularly hard. “Each day is about finding ways to manage our costs better, to cut down wastage at all levels. It’s not possible to cut it down 100 percent—of course there’s a huge bottom-line impact,” he noted.
“The electricity hike is a major issue, and the tax implications for local purchases, too,” he added. “From Jan. 1, the income tax has gone up substantially and that will have a huge impact on employees,” he said.
“The biggest problem is the European and U.S. markers coming down—that is more of an issue than inflation. If there are orders we will be able to manage. We will look for a lot of support from the customer’s side,” he said.
Yohan Lawrence, president, JAAF, said that while small manufacturers were taking the brunt of the situation and struggling
for survival, many of the larger companies had been finding ways to address the situation. “Some companies have been giving food rations to their workers, many have added an additional amount of monthly salary and most have given employees bonuses, except during the extreme slowdown in the past months with a cut down in orders,” he said.
As of November, apparel exports for the year for Sri Lanka stood at $5.14 billion, up from $4.57 billion for the same period in 2021.
The annual inflation rate in Turkey as 2022 neared its end was 85.5 percent, according to the Turkish Statistical Institute. Unofficial counts on inflation are much higher, and analysts said the crisis has put an end to almost 20 years of growth.
In November, the prices for food and beverages increased 102.6 percent, while costs for transportation rose 107 percent.
“The depreciation of the Turkish lira does not positively affect apparel and clothing exports. The depreciation of the Turkish lira causes inflation and cost increases. Competitiveness and profitability are negatively affected. In addition, buyers demand reductions in prices when the Turkish lira depreciates. Depreciation of Turkish lira doesn’t make Turkey a more attractive destination,” said economist and consultant Can Fuat Gürlesel.
“We’re not trying to make money, we’re just trying to survive so we have enough capital because whatever we are earning we invest in keeping afloat,” said Mehmet Kaya, owner of TYH Textile, a $150 million company with 10 factories including one in Bulgaria and one in Moldavia. Kaya is also part of the Istanbul Apparel Exporters’ Association.
“Over the last year electricity prices went up 400 percent, gas prices by 300 percent, and wages by 100 percent,” he said
With the fall of the Turkish lira, to almost half its value in the last year against the U.S. dollar, imports have become dearer, creating a harsh situation for business owners, and a devastating one for workers.
“Turkey has limited cotton production,” Kaya explained. “We can only produce half of our needs. For example, if we are producing an approximate 500,000 tons, we are consuming 1.2 million. We’re importing yarn from India from Egypt. My company, TYH, is importing fiber from Australia, it is traceable fiber and we are making yarn in Turkey and it is traceable from field to shop,” he said. The company manufactures for brands like Tommy Hilfiger, Calvin Klein, Armani, Banana Republic, Ralph Lauren and Gant.
“Everyone is trying to make their payments properly and on time. We’re just trying to give them the best we can. We don’t have workers. We have colleagues. If they need any additional financial aid, we give them that kind of support,” Kaya said.
Yet, Turkey has not done badly on apparel exports in 2022, crossing $16.378 billion from January to October 2022, up from the $15.102 billion in 2021 for the same period.
Industry analysts said the situation is more political than economic, as 2023 is an election year, and much of the inflation has been as a result of president Recep Tayyip Erdogan cutting interest rates, in direct contrast to the global system of raising interest rates to keep prices in check. His promise: to bring inflation down to 20 percent by the end of 2023.
This article originally ran in Sourcing Journal’s 2023 State of the Industry Sourcing Report. To read the full report, click here.