Sri Lankan garment makers import around half of their fabric requirements

Sri Lankan garment makers import around half of their fabric requirements

Plans just announced by the Sri Lankan government to develop the country's textile sector have been questioned by industry specialists who doubt the viability of more textile mills.

Sri Lanka currently has only six textile mills to supply the apparel export sector. As a result, garment makers still import around half of their fabric requirements.

This week, though, the government, in its national budget for 2011, announced incentives for the textile and apparel sector - aimed at increasing domestic value addition.

These include removing import duties and VAT for machinery to manufacture textiles, and slashing income tax from 15% to 10% for companies that show domestic value addition in excess of 65%. Exporters with lower value addition will get a smaller income tax reduction from 15% to 12%.

Nevertheless, despite government aims for more domestic value addition, textile industry specialists say the local cost structure does not favour more textile mills.

"Textile mills are very much more capital intensive than garment factories. Also Sri Lanka's energy costs are comparatively higher than many competitor countries," one textile industry specialist told just-style.

"Water, water treatment and energy are the second biggest cost for textile mills, behind the cost of raw material. Given the costs in Sri Lanka, in many cases, it would be cheaper to import fabric than to manufacture in Sri Lanka."

Another textile expert said shifting existing factories to a higher value rung might be a better option than introducing more textile producers into Sri Lanka's limited market.

"We cannot compete at the lower end with countries like India, China and Bangladesh. So shifting our existing mills into producing higher value outputs, while retaining economies of scale, might be more feasible than getting more new players in," says Mr Shehan Witharana a director at Textured Jersey, a local producer of knit fabric.

The government is trying to attract investment to support the apparel industry in many areas of value addition, including textiles, as the island nation recovers from a decades-long civil war that ended earlier this year.

But whether the local apparel export industry can absorb more textile investments remains questionable.