Global unrest is putting a strain on sourcing nations—and the timely delivery of goods in jeopardy.
Sri Lanka’s president and prime minister will step down, making way for an “all-party government” to lead the bankrupt nation.
President Gotabaya Rajapaksa’s resignation plans were first announced this weekend by Mahinda Yapa Abeywardena, the speaker of Sri Lanka’s parliament. Though Rajapaksa has kept out of sight since protestors stormed his home over the weekend, Prime Minister and Finance Minister Ranil Wickremesinghe said Monday that Rajapaksa had confirmed plans to return and resign by Wednesday. Wickremesinghe, whose private home was also targeted by protesters, announced plans to resign on Twitter Saturday.
“To ensure the continuation of the Government including the safety of all citizens I accept the best recommendation of the Party Leaders today, to make way for an All-Party Government,” Wickremesinghe wrote. “To facilitate this I will resign as Prime Minister.”
News of the two leaders’ planned resignations came days after the prime minister, discussing a potential 17th rescue program from the International Monetary Fund (IMF), told parliament the country was “bankrupt.”
“We are now participating in the negotiations [with the IMF] as a bankrupt country,” Wickremesinghe said. “Therefore, we have to face a more difficult and complicated situation than previous negotiations.”
The tumultuous past week capped off months of economic and political turmoil, including widespread shortages of food—three in 10 households are food insecure, the World Food Programme reported Wednesday—and fuel—the nation’s petrol resolves were just below one day’s worth of consumption on July 3, according to power and energy minister Kanchana Wijesekera. The apparel industry, however, appears to be one of the few silver linings.
“It’s a bit of a sweet spot in the middle of a tornado,” said Yohan Lawrence, secretary general, Joint Apparel Association Forum (JAAF), in reference to how the apparel industry has continued to grow over these past months, even as Sri Lanka declined into economic chaos. “The country is now on the path that is set by the economists not by politicians. There’s a lot that is happening.”
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Having said that, Lawrence is not sweetening the pill. Apparel manufacturers are barely finding ways to keep labor afloat, let alone obtain enough fuel to bring workers to the factories and keep the machines running. In late May, JAAF warned that unless policymakers stopped dragging their feet on sweeping reforms, softening global consumer sentiment could drive a one-fifth reduction in next season’s orders.
“Overall it is a very difficult time,” Shiran Fernando, chief economist, Ceylon Chamber of Commerce told Sourcing Journal. “Right now, we are negotiating an IMF program for macro-stabilization, so a lot of reforms for state-owned enterprises, labor and energy are likely to get tied into this program. The crisis has accelerated a few reform areas, which previously were moving very slowly.”
“I don’t think we will see immediate results from the reforms, but what will be more key over the next six months is to see how we can continue to get steady earnings from exports and services. The priority has been given to exports and that is a continuing focus,” he added, noting that the results of a recent survey on exports showed that even though the economy is not doing well, exporters are still seeing a rise and growing potential.
The results from the apparel sector, which accounts for approximately 6 percent of Sri Lanka’s gross domestic product (GDP) and almost half of all merchandise exports, support the point. In May, exports hit $446 million, a 30 percent increase from $344 million a year earlier. Year-to-date, earnings totaled $2.2 billion, a 16 percent year-over-year increase. JAAF said it is “hopeful” it will reach $6 billion by the end of 2022.
Lawrence noted a number of reasons that the industry is continuing to survive and prosper.
For one, companies are able to buy diesel directly from providers and don’t have to wait in the queues, which are long, and therefore have largely had sufficient diesel to function, he said. Second, the ports have continued to work throughout this crisis, even as day-to-day life is impacted greatly.
“Last year this time we were still coming out of Covid recovery stage,” Lawrence said. “In our view, we’re doing OK. The concern is in the future months. Right now, petrol is a big issue, people are carpooling, doing whatever they can to keep plants operational, so a lot of on-the-ground thinking. Big companies are helping out smaller companies where they can, also conscious of looking after employees, and providing them relief financial and non-financial. It’s a time when everybody is coming together.”
The government also has announced an extension of the debt moratorium. Companies can apply on a case-by-case basis.
“In addition to ensuring that large manufacturers are able to maintain production, much more needs to be done to prioritize support for the small and medium apparel producers, who are an equally essential component of the industry,” Lawrence said. “We are seeing a level of cooperation between manufacturers that we’ve never seen. There is a genuine country-first approach, and that is something. Although it’s not been a walk in the park.”
Myanmar garment workers strike
Meanwhile in Myanmar, roughly 2,000 garment workers in Mingaladon Township went on strike Thursday morning, according to the news site Myanmar Now.
The workers were reportedly employees of the JW factory in the Zaykabar Industrial Park. According to the publication, it is owned by Great Glowing Investment and operated by another factory in the park, ADK. Both facilities are managed by Canadian nationals, the Myanmar-based outlet said, citing the country’s Directorate of Investment and Company Administration. The factories manufacture clothing for international sportswear brands, including Crivit, and employ nearly 7,000 people.
A 22-year-old worker quoted by the publication said she was required to work 12-hour shifts six days per week. Meeting management’s high expectations had made it difficult to take a half-hour lunch break and to use the toilet, she added.
“We can barely make 45 pieces an hour but now they’re asking us to finish 62 pieces an hour,” she told Myanmar Now. “Injustice is widespread here. The workers are not able to practice any of the rights we are entitled to.”
Another worker said she had only been paid a monthly salary of $145 despite working more than 100 overtime hours.
Myanmar Now, citing the striking workers, said roughly 20 junta soldiers and police arrived at the industrial park Thursday morning to speak with factory management. The outcome of this meeting was unknown as of press time.
Labor organizers, many of which have been forced into exile since last year’s military coup, have long warned of deteriorating working conditions in Myanmar. In December, Khaing Zar Aung, the exiled president of the Industrial Workers Federation of Myanmar (IWFM), a trade union, warned that “forced labor” was “rampant in many factories.”
According to a January report from the International Labour Organization (ILO), production stabilized “to some degree towards the end of the year, with an estimated 220,000 jobs—roughly 27 percent of all garment manufacturing jobs—lost in 2021. Women accounted for nearly nine in 10 of these estimated losses, the ILO said.
Labor campaigners have pushed for a complete shutdowns of apparel operations, arguing that a return to democracy is the only path forward. In December, ACT (Action, Collaboration, Transformation), a multi-stakeholder initiative that seeks to improve living wages for garment workers, ceased all activities in Myanmar after IndustriALL Global Union’s local affiliate, Industrial Workers Federation of Myanmar (IWFM), said it was no longer able to operate freely under current circumstances. The following month, the U.S. Departments of Commerce, Homeland Security, Labor, State and the Treasury, along with the Office of the U.S. Trade Representative, issued a business advisory warning of the “heightened risks” associated with doing business that could benefit the military regime.
An ongoing fuel shortage, however, could be the “final straw” for Western brand holdouts—Primark, H&M, Bestseller, Next and Inditex source from the country—Sofia Nazalya, senior human-rights analyst at global risk-intelligence company Verisk Maplecroft, said last month. Khaing Zar Aung said she hadn’t heard of factories closing due to power shortages, but predicted that any cash flow problems would be borne by workers.
Fuel shortage in Pakistan could cost $1B
In Pakistan, a lack of gas and electricity supply has forced 400 textile mills in Punjab province to temporarily close their doors, the Pakistani news channel ARY News reported last week.
Like Sri Lanka and Myanmar, Pakistan is wrestling with the consequences of soaring energy prices. In June, state-owned Pakistan LNG failed to complete a purchase tender for July shipments of liquefied natural gas for the third time due to its spiraling cost. Weeks earlier, the government backtracked on the six-day work week Prime Minister Shehbaz Sharif implemented in April—introduced to increase productivity, the policy was eating into the already stretched-thin fuel supply.
In a letter addressed to Sharif and shared on Twitter, the All Pakistan Textile Mills Association’s (APTMA) patron-in-chief Gohar Ejaz warned that a two-week suspension in energy deliveries would translate to a loss of at least $1 billion. He urged the government restore the gas and re-gasified liquefied natural gas supply of “export-oriented industry” “immediately.”
“It is inexplicable that the exporting sector which has the capacity to deliver over $2 billion in exports per month is being denied energy/gas and consequently exports will be significantly lower, much to the detriment of Pakistan’s economy,” Ejaz wrote.
The letter, dated July 1, said “gas/RLNG to the industry has been suspended from July 1 to July 8.” Eid holidays would stretch the shutdown through to July 14, Ejaz noted.
“More than 50 percent of output will be lost in this month, with the very real risk of losing orders on a permanent basis as well as loss of repeat business due to delays in delivery of orders,” Ejaz said.
According to APTMA patron-in-chief, Pakistan’s textile exports reached “a new record” of “nearly $20 billion” in the fiscal year ended June 30, up from $12.5 billion two years earlier. He attributed this “fantastic growth” to the implementation of a regionally competitive energy tariff (RCET), as well as the investment of more than $5 billion in the expansion and establishment of 100 new textile “units.” Textile exports, Ejaz wrote, were expected to reach more than $25 billion in the new fiscal year.
The overlapping power and economic crises are “heaping” pressure on Sharif’s recently installed government, Joseph Parkes, senior Asia analyst at Verisk Maplecroft, said. “The window in which he can pin the blame on his predecessor is diminishing,” he added. Securing the next phase of an “unpopular but necessary” IMF program will only “further strain” the government’s standing with its citizens, Parkes noted.
“The soaring cost of living is already driving unrest, and the shuttering of industry—including garment factories—to reduce energy demand will add to the pain,” he said. “The disruption to export-orientated industries like the garment sector will compound the pressure on government finances.”
Parkes said the government has responded to the garment sector’s concerns with efforts to restore energy to the industry, “but the extent of the crisis means further disruption is guaranteed.”