Deep Investigation | Economic Impact Analysis
Sri Lanka’s apparel industry stands at a critical turning point as the country prepares to meet its 2026 export revenue ambitions amid rising production costs, factory closures and increasing pressure on foreign exchange earnings.
For decades, apparel has been one of Sri Lanka’s strongest economic pillars, providing billions of dollars in export income while supporting hundreds of thousands of direct and indirect jobs. However, the recent collapse of Hela Apparel Holdings PLC has revealed growing risks that could weaken one of the nation’s most important export sectors.
The Hela crisis highlights the financial challenges facing manufacturers operating in an increasingly competitive global market. The company entered liquidation after facing severe liquidity problems, declining profitability and an unsustainable debt burden. Its financial position deteriorated sharply, with losses reaching Rs. 7.59 billion during the nine months ending December 2025, accumulated losses rising to Rs. 31.6 billion and borrowings reaching Rs. 31 billion.
The consequences extend beyond one company.
Sri Lanka has witnessed a series of manufacturing setbacks. NEXT Manufacturing’s Katunayake FTZ closure resulted in around 1,500 job losses, while MAS Holdings’ Methliya facility closure affected approximately 2,200 employees. Smaller manufacturers have also struggled, with regional factory closures impacting thousands of workers.
These developments raise concerns about the sector’s ability to sustain export growth while protecting employment and foreign currency inflows.
The apparel industry remains a major contributor to Sri Lanka’s economy, generating approximately USD 4.7 billion in apparel exports and more than USD 5 billion when textiles are included. The sector employs nearly one million people through more than 350 factories and related supply networks.
Recent export performance has provided some optimism. Apparel shipments recorded around 5% year-on-year growth despite international pricing pressures. Exports to the United States increased by approximately 5.23%, while exports to the United Kingdom grew by 7.65%.
However, maintaining this growth trajectory until 2026 will require overcoming major economic challenges.
The biggest threat is Sri Lanka’s cost disadvantage. Higher electricity prices, labour expenses, financing costs, taxation pressures and imported raw material dependence have reduced manufacturers’ competitiveness. Global buyers are increasingly demanding lower prices, faster delivery and sustainable production standards, creating additional pressure on local producers.
The industry’s future depends heavily on strategic transformation. The Joint Apparel Association Forum has identified local fabric manufacturing and supply-chain development as key priorities, with initiatives such as the Eravur Textile Zone designed to improve domestic capacity and reduce import dependency.
Failure to address these challenges could create a dangerous economic chain reaction. Lower apparel exports would reduce foreign exchange earnings, increase pressure on the balance of payments, weaken employment opportunities and affect thousands of families dependent on the industry.
The apparel sector has survived previous economic shocks because of innovation, quality standards and strong global relationships. But the Hela collapse has exposed vulnerabilities that cannot be ignored.
As Sri Lanka moves toward its 2026 export targets, the challenge is no longer simply increasing sales. The real challenge is protecting the industrial foundation that generates the dollars needed to strengthen the national economy.