industry took off immediately, mainly as a result of quota-hopping East Asian garment exporters who were attracted by the country’s liberal trade regime and relocated their already well-established garment businesses to Sri Lanka. This relocation encourage local entrepreneurs to start their own garment enterprises to exploit markets guaranteed by quotas, assisted by the liberal trade regime for importation, and subsequently, incentives granted by the Board of Investment (BOI) to selected industries.1 Paradoxically, protectionism in the form of MFA quotas helped Sri Lanka and many other developing countries to develop their export-oriented garment industries by insulating them from direct competition from established producers.
Sri Lanka did not have a well-developed export-quality textile industry base; neither did it have a base for garment industry accessories. Thus, from the very beginning, garment production was based on imported inputs and the value added remained low – close to 30 per cent. By about the early 1980s, garment exports were growing rapidly and by 1986 garments accounted for the largest share of all exports (27 per cent). By the late 1980s, garment industry in Sri Lanka was referred to as “glorified tailor shops” because, despite a decade of growth, its links with other industries remained low and the value added remained low as before.
In 1992, BOI came into operation. BOI offered an attractive incentive package to entice garment producers to move to rural areas of Sri Lanka under the so-called 200 Garment Factory Programme (GFP). A textile quota board was established in the same year to streamline the allocation of quotas for the garment industry, including those coming under the 200 GFP. This Programme enticed well-established garment producers to open a rural branch and, in addition, new enterprises with no background in garment production came into operation to make use of the quotas. Under GFP, 154 factories were in operation and 6 factories had closed down or been merged by 1996 (Heward, 1997, p. 12). By 1992, the garment industry had become the
largest foreign exchange earner in the country (US$ 400 million) – overtaking the tea
By 2002, Sri Lanka’s textile and garment sector accounted for 6 per cent of GDP, 39 per cent of industrial production, 33 per cent of manufacturing employment, 52 per cent of total exports and 67 per cent of industrial exports.