The apparel industry in Sri Lanka had a modest beginning in the 1960s producing mainly textile and clothing for the local market under heavy protection.
The export oriented production of clothing (readymade garments) began in 1970s and expanded rapidly after the liberalization of the economy in 1977. When Sri Lanka liberalized its economy in 1977 the country’s garment industry took off immediately mainly as the quota hopping East Asian garment exporters who were attracted by the country’s liberal trade regime relocated their already well-established garment business to Sri Lanka due to low labor cost which ensured the production costs being low. This relocation encouraged local business community to commence its own garment enterprises to exploit markets guaranteed by quotas assisted by the liberal trade regime for importations and subsequently incentives granted by the Board of Investment of Sri Lanka (BOI) including tax holidays and other fiscal and non-fiscal concessions.
During 1980s garment exports were growing rapidly and by 1986 garment exports accounted for the largest share of all exports (27%). In 1992, the BOI offered an attractive incentive package to all garment manufacturers to move into the rural areas of Sri Lanka under 200 garment factory programme which is considered as the turning point of the apparel industry. The BOI was able to set up 163 factories under the said programme by 1995. By 1992, the garment industry had become the largest foreign exchange earner in the country (US$400Mn) overtaking the tea industry. By 2002, Sri Lanka’s textile and garment sector accounted for 6% of the GDP, 30% of industrial production, 33% of manufacturing employment, 52% of total exports and 67% of industrial exports.
The apparel sector is the highest industrial employment generator and the highest foreign exchange earner. The total export income of the sector for the year 2011 was US$ 4.2Bn which is equivalent to 39.6%. The export growth in 2011 is 24% Year on Year. The apparels exporters are entitled in to dispose 40% of the output locally subject to the payment of all inclusive levies of Sri Lankan Rupees(Rs.) 25 per Piece and income tax for such local sales is 12% as against the normal corporate tax of 28%
Apparel manufacturers comprise nearly 90% of the textile/apparel sector in Sri Lanka. They produce a wide range of international branded clothing such as Victoria’s Secret, Liz Claiborne, Pierre Cardin, Nike, Gap etc. BOI approved ventures account for almost 90% of Sri Lanka’s total garment export.
The employment generation exceeds 283,000 in 2011. Originally, the industry commenced as a sewing operator (contracted Manufacturer) and dependent on textile quota offered by USA and EU and currently it has transformed into a full apparel solution provider.
The most number of apparel projects operate in the Western Province. This shows that opportunities for apparel factories are available in emerging areas where enough employment is available, and emerging constraint in the Western Province. Therefore, prospective investors could set up their projects in emerging areas including the Northern Province. With the peace prevailing in the country, apparel projects could be set up in the Northern and Eastern province and other emerging areas of the country.