China's Labor Costs Rise

The Sri Lankan President Mahinda Rajapaksa said on Wednesday that rising labor costs in China have given Sri Lanka the opportunity to attract foreign companies seeking low-cost alternative production bases. Sri Lanka is located in South Asia.

Rajapaksa, who is attending the UN General Assembly in New York, told The Wall Street Journal that Sri Lanka, which had suffered war, has experienced a period of peace for 15 months. During this period, his government was committed to fighting in the northern part of the war. Rebuilding roads and railways in the east, increasing electricity and clean water supplies, and providing houses.

He said that Sri Lanka has educated people, relatively low labor costs, and a large number of trained accountants, and is attracting the interest of outsourcing companies, including the desire to expand the business to large Indian business process outsourcing companies outside of India. The wages of employees in Indian companies have also been rising.

Rajapaksa added that European and American retail companies are increasingly using Sri Lanka to produce clothing because the cost of the country is lower than that of China. He also said that as a result of this interest, the garment industry in Sri Lanka is facing a labor shortage.

Ashroff Omar, chief executive of apparel exporter BrandixLanka Ltd., said that currently hiring a “skilled” garment worker in Sri Lanka costs about US$150 per month, compared with US$400 in China. He said that in a few years, the cost of employment in China will be about 600 US dollars, Sri Lanka will be around 200 US dollars.

Omar and some 20 business leaders and government ministers accompanied President Rajapaksa to the United States.

Rajapaksa said that tourism in the country is developing, Indian tourists are attracted to peaceful Sri Lanka, and interest from European tourists, especially from Scandinavia, has risen. Agriculture and fishery are the main driving forces for the country’s economic development.

President Rajapaksa acknowledged that Sri Lanka is still being crowded out because people think it is a war zone. However, the country has not been fighting for more than a year, and foreign governments have generally cancelled their advice to warn tourists to leave Sri Lanka.

According to Fitch Ratings data, Sri Lanka’s economy grew 8.5% in the second quarter compared to the same period last year, compared with a growth of 7.1% in the first quarter. Rajapaksa said that the current inflation rate is slightly lower than 6% and has been controlled. The International Monetary Fund recently stated that the interest rate cut by the Central Bank of Sri Lanka is appropriate, and it is expected that the inflation rate will still be single digit this year.

Rajapaksa said that when Sri Lanka hopes to be among Asia’s unprecedented economic growth, he is most worried about “protectionism” in other Asian countries.

Sri Lanka has a population of 20 million. After the government defeated the Tamil Tigers, the country ended its 30-year civil war in May 2009.