THULHIRIYA, SRI LANKA — Sri Lanka's clothing and textiles companies are struggling to compete against India and China as inflation runs at its highest level for thirteen years, the island's top apparel exporter warned on Friday.
"As a result of high costs of some essential goods due to depreciation (of the rupee), there is an increase in the cost of living ... You will have to increase salaries to compensate," said Mahesh Amalean, Chairman of MAS Holdings Private Ltd, Sri Lanka's biggest apparel exporter which produces garments for Nike Inc, Victoria's Secret and Marks & Spencer.
"We can't allow our costs to increase too high. We have to be competitive," he told Reuters at the firm's launch of an apparel and textile park at Thulhiriya, 40 miles (65 km) northeast of the capital, Colombo.
Inflation hit 17.5 per cent in September as measured on a 12-month moving average, the highest in 13 years, which is putting pressure on wage costs.
The textile and apparel sector is Sri Lanka's highest net foreign revenue earner after remittances sent home by expatriate workers, bringing in $3 billion in earnings in 2006 compared with a gross domestic product of $26 billion.
The local rupee has depreciated by about 5.0 per cent against the dollar so far this year on top of a 5.0 per cent depreciation in 2006, in largely import-export driven related trade in an economy that runs a hefty trade deficit due mainly to costly oil imports.
"Arbitrary increases in wages can destabilise the equilibrium and make us non-competitive. So what is important is to have a stable currency," Amalean said. Amalean sees niche products like lingerie and sports wear as the industry's strongest future prospects.