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World Bank Says Sri Lanka Could Boost Apparel Manufacturing to Realize Growth

Sri Lanka has been working its way up the ranks as a viable apparel sourcing locale, but the World Bank says potential gains could be “huge” if the country throws a little more weight behind its apparel manufacturing.

In terms of quality, lead time reliability, social compliance and sustainability, Sri Lanka’s apparel sector outperforms other South Asian nations, World Bank said in a report released Tuesday titled, “Stitches to Riches?: Apparel Employment, Trade and Economic Development.”

With China slowly scaling back its apparel manufacturing, Sri Lanka could score a slice of the share provided it could better position itself against competitors. Right now, according to World Bank comparisons, apparel prices are higher in Sri Lanka than neighboring competitors, and lead times, product range and availability of apparel offerings could all benefit from some improvement.

“Competition is increasing in the global apparels market with buyers moving towards greater consolidation in sourcing decisions and the impending approval of the Trans-Pacific Partnership,” said Gladys Lopez-Acevedo, report co-author and a lead economist for the World Bank. “Sri Lanka should seize this opportunity and implement policies to become a regional leader in creating good jobs, bringing more women into the work force and diversifying its products and end markets to increase skills and value.”

The average apparel worker in Sri Lanka earns upward of $120 a month, more than many in Bangladesh and more than the average $80 agricultural workers in Sri Lanka take home each month. Apparel manufacturing accounts for $4.4 billion of Sri Lanka’s exports, or roughly 45 percent, and 70 percent of the country’s apparel workers are women.

Literacy rates in Sri Lanka are higher, on average, than in other South Asian countries, and the more skilled workforce has made for more sophisticated apparel, like fashion-oriented niche products, including intimate apparel, trousers and swimwear.

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China’s slowing pace of apparel manufacturing is part of what will provide an opening for Sri Lanka, but not more so than its rising prices. Companies have been looking over China’s shoulder for cheaper opportunities as the country’s costs continue to rise, and further cost increases will only further fuel the fleeing to lower-cost countries.

World Bank research found that a 10 percent increase in Chinese apparel prices would result in a 13-25 percent (depending on the country) increase in South Asian countries’ apparel exports to the United States. Further, that same 10 percent increase in Chinese apparel prices could increase Sri Lankan male employment by 8.55% and female employment by 7.87%, job growth that could lead to greater positive social impacts.

But to capture more apparel manufacturing market share, Sri Lanka needs policies to diversify its export markets, it needs to attract more foreign investment and it should capitalize on its skills advantage by producing new, more sophisticated products, World Bank said.

To get there, policy makers in the country might want to consider more trade agreements.

Last week, Sri Lankan Prime Minister Ranil Wickremesinghe discussed plans for the country to enter into bilateral trade agreements with India and China, and according to the Financial Express, he said the government is looking at entering into similar partnerships with Singapore, Turkey, the U.S. and Pakistan.

“Our end goal is the creation and sustenance of a dynamic and thriving economic hub that will generate thousands of jobs,” the Financial Express reported Wickremesinghe as saying.

Sri Lanka also wants to regain its Generalized System of Preference (GSP) Plus status with the European Union, which was pulled in 2010 over alleged human rights abuses.

Adopting clear policies to portray stability and emphasize what has—since 2010—become a country with improved working conditions, would also help reinforce Sri Lanka’s position as an apparel producer.

“Compliance and political stability are strong areas for Sri Lanka, and the country has attracted partnerships with ethically oriented buyers, including M&S, Nike, and Victoria’s Secret,” the report noted.

To capitalize on Sri Lanka’s apparel production skills, World Bank said firms could expand into new product areas like formal wear and high-end outerwear that require higher skills.

Foreign investment in Sri Lanka accounts for only 2 percent of the country’s GDP, so attracting capital inflows will be key to maximizing competitiveness. The country will also have to play nicer with the rest of South Asia and reduce tariffs on manmade fiber imports, which accounts for 50 percent of Sri Lanka’s industry inputs.

“Apparel manufacturing not only has a huge potential for creating jobs, particularly for the poor but also has a unique ability to attract female workers,” Françoise Clottes, country director for World Bank Sri Lanka and the Maldives, said. “Employed women are more likely to create positive social impacts as they tend to dedicate their income to the health and education of children.”