Sri Lanka poverty
wages: why NEXT factory closure claims don’t stack up
On the 19th of May, just four days after NEXT’s AGM approved shareholder dividends, NEXT abruptly shut down its only directly- owned factory with a recognised trade union. 1416 workers were fired, via whatapp, from NEXT Manufacturing Ltd Katunayake in Sri Lanka, without proper notice and without consultation. Our new briefing untangles the economic argument NEXT have tried to make for this closure – and finds it lacking.
Next Manufacturing Ltd Katunayake plant is one of several manufacturing sites the retailer owns and operates in Sri Lanka. It is, however, the only unionised one with a formal trade union recognition agreement between NEXT and the Free Trade Zones & General Services Employees Union (FTZ & GSEU).
Shortly after announcing a record-breaking profit performance for the past year at its company AGM, NEXT took the shocking decision to shut down precisely this facility, citing increasing operating costs.
Our new briefing uses data and analysis, including from a forthcoming study from ILR Global Labour Institute to investigate the validity of that claim and situate it in the broader context of continuing poverty wage levels for garment workers in Sri Lanka.
Sri Lanka’s garment industry workers are paid some of the lowest minimum wages in the South and South East Asia region. The minimum wage is less than a fifth of what is estimated a sufficient living wage. Additionally, wages are not revised on a regular basis, leading to long periods of wage stagnation. Combined with catastrophic inflation rates in recent years, this has resulted in a dire economic outlook for the vast majority of garment workers in the country.
The official union recognition at the Katunayake factory ensured steps were being made towards decent pay.
NEXT, as both the buyer and the supplier at NEXT Manufacturing Limited, set the parameters for what it defines as profitable. If the company chooses to put its orders through other facilities in the area without unions, where workers are paid comparatively less and experience more exploitative conditions, they are choosing to ensure the ‘profit’ made by their own facility is curtailed.
Briefing Insights
Sri Lanka’s economy has been unstable, and its economic crisis in 2022 saw hyperinflation of almost 50% cut deeply into the living standards of low-wage workers in Sri Lanka. Despite wage increases, the real wage value has barely increased at all since 2015, and workers suffered an extreme period of poverty 2022-23.
Conversely, for employers and buyers, this resulted in opportunity. The dollar value of wages in Sri Lanka declined, making Sri Lanka in fact an inexpensive sourcing destination. Although this has recovered through wage increases, figure 2 shows that the dollar value of minimum wages in Sri Lanka has only increased to meet 2010 levels and the real value of minimum wages for apparel workers has in fact declined.
NEXT are claiming that the cost of labour has become uncompetitive at the supplier, but this very much depends what they are comparing the pricing to – other suppliers nationally who provide excessively low and exploitative wages, or other international sourcing locations? In all instances, we know that minimum wages are not enough to allow workers to live with dignity – a situation that NEXT has committed to address. Yet it continues to undermine living wages and fair pay at every turn, dispensing of its values in the face of profit opportunity.
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