In the Isle of the Storm

The financial crisis that Sri Lanka is mired in is not as bad as it sounds—it is, in fact, far worse.

A financial crisis often manifests first in the form of an energy crisis, that has a cascading effect on all other sectors of the economy. So it has been, with matters sinking to a new low last month.

First, the country's Public Utilities Commission on February 22 announced it would shut off the grid on a rotating basis between regions. The state-owned Ceylon Electricity Board had wanted the cuts because of fuel shortages that had led to a loss of about 700 MW to the national grid.

This is, on the face of it, not a power shortage issue—it is a fuel shortage crisis, caused by an acute cash crunch. Power cuts across the country have been long and excruciating, queues at petrol pumps have lengthened by the day, with many of the latter even running bone dry.

This has left the government firefighting on a daily basis, with one hand tied behind its back. On February 23, Sri Lanka paid off $35 million for a 40,000-tonne shipment of diesel that had been waiting at Colombo port for four gruelling days. Another identical shipment was due to arrive on February 27. A third 38,300-tonne petrol shipment worth $33 million procured on a letter of credit is already in Sri Lankan waters. Energy minister Udaya Gammanpila put it succinctly: "Earlier, we were short of dollars to import oil. Now we don't have the rupees to buy the dollars."

The crisis was reflected in stock market trading which was halted twice on February 23 after blue-chip shares fell by 8 per cent. Fuel prices were hiked 12% on February 26, close on the heels of a 7% rise only three weeks earlier. Food inflation was 25% in January, and overall inflation 16.8%.

The numbers don’t look good. Sri Lanka has to make repayments on $12.5 billion in international sovereign bonds. The foreign debt obligations exceed $7 billion this year alone, including repayment of another bond worth $1 billion coming July. The gross official reserves were a mere $2.36 billion at the end of January, according to the country's Central Bank.

The inflow of dollars has been reduced to a trickle. Another major forex revenue earner—tourism—-took a body blow with the pandemic, and is only now showing any flickering sign of hope. Sri Lanka’s tourism industry had peaked in 2018 with a revenue of US$ 4380 million, falling to US$ 3606 million the next year as a result of the Easter Sunday attack. The pandemic was a nightmare, with revenues plummeting to US$ 682 in 2020, and dipping further to US$ 261 million in 2021.

With travel restrictions easing at a snail’s pace, it would be a while before tourism picks up. Till then, the apparel industry would have to lead from the front, waging that proverbial lonely battle.

The apparel industry of Sri Lanka seems to have its task cut out, but not before it sorts out matters.

There are a number of small countries that serve as tiny sourcing powerhouses for the global apparel industry, each vying for a share of that lucrative pie. They all have their own competencies and favourable trade agreements. But, Sri Lanka’s apparel industry is sophisticated, it is efficient, and it is well-respected. That’s till the SARS-CoV-2 virus landed on its shores.

As with all other countries and industries, the COVID-19 pandemic exposed faultlines within the industry and revealed intrinsic chinks in all links of the value chain. Domestically speaking, the issues were the same as in most other countries: complaints about non-payment of labour wages, and trampling of worker’s rights.

In March 2021, a group of trade unions and labour rights organizations urged brands and factory owners in Sri Lanka “to address the issues ranging from inadequate health and safety measures to withdrawal of attendance bonuses and transport allowances, and the imminent closing of several large factories employing thousands of garment workers.”

As allegations kept mounting and being archived/documented through news reports—most not very favourable, by and by it was the Brandix incident that kept recurring.

Brandix, one of Sri Lanka's biggest apparel companies, came into the spotlight for all the wrong reasons. Workers with fever and cough symptoms were allegedly asked to continue working sometime towards the fag end of September 2020. In a matter of days into early October, the district of Gampaha, where the Minuwangoda factory was located, reported the country's biggest COVID-19 outbreak, with over half of the country's disease tally. Over 1,000 of the factory's 1,400 workers tested positive for COVID-19. The district soon went under curfew.

Allegations flew thick, fast, and they stuck: that Brandix had neglected the early signs and virtually forced workers to keep up production without adequate occupational health and safety measures. An official investigation was launched, but gradually it petered out. No evidence could be found.

In July 2021, US-based Human Rights Watch listed out a number of cases and issued a statement urging the government, factory owners and international clothing brands sourcing from Sri Lanka to “protect the safety and employment rights of garment workers during the COVID-19 pandemic.”

The “bad press” continued, and just when it looked as though industrial relations had been strained beyond salvage, the Joint Apparel Association Forum (JAAF) and the Trade Union Collective signed an agreement to ensure that business owners and employees worked together to maintain continued vigilance on pandemic prevention, discuss issues of mutual interest and jointly participate in addressing grievances. JAAF is the apex body of Sri Lanka’s apparel industry while the Trade Union Collective comprises three of the sector’s most prominent trade unions—General Services Employees Union, Sri Lanka Nidahas Sewaka Sangamaya, and the National Union of Seafarers.

The MoU, signed on December 23, 2021, detailed the establishment of a bipartite dispute resolution mechanism by the unions and the JAAF. Any grievance raised by the unions will be forwarded to JAAF’s executive committee and the trade union collective for review. JAAF and the respective union will then collaborate to resolve the issue within a month, or mutually extend the timeline and seek an independent external investigation to help reach a resolution. They also agreed on bipartite health committees with equal representation from workers and employers in every garment/apparel factory to improve health and safety, mitigate risks posed by COVID-19 and ensure adherence to guidelines issued by the ministry of health at the workplace.

They signed another agreement outlining how employers and unions would collaborate to assess and coordinate efforts in managing the negative impact of the pandemic on all stakeholders.

With the home front sorted out, Sri Lanka’s apparel industry can now focus attention on what many in the country now want it to do: get the monies coming in.