Industry sources suggest that as a directly owned plant of NEXT, the Katunayake factory faced unique pressures, including activism in the UK demanding higher wages, leading to operational costs exceeding those of competitors in other countries.

Workers at a NEXT Manufacturing, a Sri Lankan subsidiary of a UK-based group, are demanding immediate consultation with labor authorities and a comprehensive explanation for the sudden closure of their Katunayake Free Trade Zone factory. The firm, a pioneering foreign investment in Sri Lanka’s late 1970s export industrialization drive, ceased operations on Friday, May 19, leaving hundreds of employees uncertain about their future.

Anto Marcus, Secretary General of the Free Trade Zones and General Services Employees Union, confirmed that the company failed to consult workers as mandated by their collective agreement. “The management called worker representatives on Friday, May 19, and informed them that the company was shut and will not re-open, over rising costs,” Marcus stated. “They did not give an explanation over what the excessive costs are.”

Marcus highlighted the substantial benefits the Board of Investment had extended to NEXT Manufacturing. “The Board of Investment had given them multiple benefits. So, if they said the costs within the zone were high they should explain what they were. We want to know what they are. Also, they had not informed the Labour Commissioner before closing the factory.” The union has since requested an urgent meeting with the Commissioner of Labour to address these concerns.

In a statement, NEXT acknowledged the closure of its Katunayake facility while affirming the continued operation of its two other plants in Andigama and Nawgaththegama. David Reay, Director at NEXT, described the decision as “very difficult” and taken “after exploring all alternative options.” He attributed the closure primarily to “the increasingly high operating cost of the Katunayake Manufacturing Plant.”

Severe impact

However, trade unionists challenged the blanket assertion of high costs, particularly regarding salaries in the Western Province compared to other regions with higher unemployment. They pointed out that certain benefits provided to workers in the free trade zones, such as subsidized meals and company-provided transport (a practice initiated under former President Ranasinghe Premadasa), were not common in rural factories where workers typically commuted from their homes. He also noted that the Katunayake factory was air-conditioned, a detail some in management had cited.

The impact of the closure is particularly severe for long-serving employees. “Some of the workers had been working for over 20 years and they had dependents,” Marcus lamented. “What will happen to them? If this factory is allowed to close, all other factories will also close in the future, saying it was due to President Trump’s tariff problem.”

Industry sources suggest that as a directly owned plant of NEXT, the Katunayake factory faced unique pressures, including activism in the UK demanding higher wages, leading to operational costs exceeding those of competitors in other countries. This dynamic reportedly made it challenging for other apparel factory investors to acquire the operation as a contract manufacturing venture, ultimately forcing the closure.

The broader apparel industry in Sri Lanka has recently sounded alarms about operating under extremely thin margins. They have warned of potential factory closures if a proposed 44 percent “Trump tariff” were to take effect, especially when competing countries face tariffs in the 20s to 30s percentage range.

Delicate Balance

NEXT, for its part, has stated it will provide compensation to long-service employees, ranging up to 2.5 million rupees under Sri Lanka’s Termination of Employees Act, with additional payments of two to seven months based on service.

Historically, Sri Lankan exporters in the 1980s often sought currency depreciation when the central bank’s open market operations and other policies fuelled inflation, subsequently leading to higher wages through a wage indexing scheme tied to the consumer price index. Sri Lanka established free trade zones in the late 1970s, a period when “Great Inflation” led to widespread labor unrest in the West and beyond, with only Germany and Japan successfully controlling inflation through deflationary policies. While Sri Lanka also experienced depreciation and social and labor unrest in the 1980s, trade union activity was notably banned within the free trade zones at that time.

The current situation at NEXT Manufacturing underscores the delicate balance between operational costs, worker rights, and the broader economic pressures facing Sri Lanka’s vital apparel industry. As workers await a meeting with the Labour Commissioner, the focus remains on securing fair treatment and understanding the true financial rationale behind this abrupt closure.