12 February 2022, Mumbai:
Much has been said of the potential economic costs to Sri Lanka, of losing the Generalised Scheme of Preferences (GSP) Plus trade concessions to the European Union (EU).
While these costs will be high, the social and human costs are likely to be even greater. Considering official statistics for 2021, available up to end November, the EU was Sri Lanka’s single largest export market for 2021, accounting for nearly a quarter (24.1%) of the latter’s total merchandise exports of US$ 11.1 billion.
Given the EU’s importance to Sri Lanka, the loss of preferential tariffs for Sri Lanka’s exports to the EU through GSP+ previously, in 2010, had a substantial adverse impact on the Sri Lankan economy. This likely led to an increase in poverty and income inequality as per academic studies (for example, Bandara and Naranpanawa, 2014).
At present, given the ramifications of the pandemic, the consequences of the loss of GSP+ could be far more dire, leading to increase in unemployment, poverty, vulnerability and inequality, as well as loss of improvements achieved in female empowerment.
According to the World Bank’s estimates, Sri Lanka’s poverty rate rose from 9.2% in 2019 to 11.7% in 2020, putting more than 500,000 additional people in poverty.
Currently, SMEs account for approximately 45% or nearly half of Sri Lanka apparel manufacturing facilities and provide employment to around 50,000 employees.
Many apparel manufacturing facilities in Sri Lanka are located outside urban areas and industrial zones and are crucial in generating rural employment.
SMEs are particularly vital in this regard since due to their relatively smaller scale, which requires less workers, a high percentage of these factories are located in less-populated and lagging regions.
Many other sectors in Sri Lanka rely on the apparel industry, given its heavy presence across the island.
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These include logistics and transport providers, raw material suppliers as well as small-scale businesses providing food and refreshments.
In addition, several cottage industries, such as producers of carpets and pillow covers, depend on apparel factories in their neighbourhoods for raw material (in the form of waste fabric).
If the industry is to suffer a downturn due to loss of GSP+, this entire economic ecosystem too will suffer adverse trickle-down effects.
Given the pandemic’s unprecedented impact, GSP+ to the EU is critical for Sri Lanka and its export sectors at present.
Contributed By:
(Felix A. Fernando who is the CEO of Alpha Apparels Ltd. and Sirio Ltd., and a Group Director of Omega Line, which ranks among Sri Lanka’s five largest apparel exporters. He holds a MBA from the Post Graduate Institute of Management (USJ), in addition to being a Fellow Member of the Chartered Institute of Management Accountants, U.K. Fernando is also the Deputy Chairman of the Joint Apparel Association Forum Sri Lanka and a Past Chairman of the Sri Lanka Apparel Exporters’ Association.)
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