‘We have to focus on sustainability garment industry’

Endorsement of the ‘Trade Facilitation and Trade Enforcement Bill’ by the US Senate on December 9 has paved the way for duty-free-quota-free access of Nepali readymadegarments, pashmina, and leather products into the world’s largest economy. The latest Bill, which will now require the US President’s seal to transform it into an Act, is expected to give a new lease of life to the readymade garment industry, which is on the verge of collapse since the expiry of the Multi Fibre Agreement, popularly known as quota phase out, in January 2005. Garment entrepreneurs have sought a favourable industrial environment in the country for the revival of the garment industry in a bid to capitalise on the facility going to be extended by the US government. Pushpa Raj Acharya of

The Himalayan Times caught up with Chandi Prasad Aryal, Acting President of Garment Association Nepal to know more about the preparations being made by garment entrepreneurs to reap benefits from the facility.

Nepal has once again received an opportunity to boost exports of readymade garments as the US Senate recently endorsed the Bill that gives duty-free-quota-free (DFQF) facility for Nepali garments in the US market. What steps should entrepreneurs immediately take to reap benefits from this facility?

First of all I would like to express my sincere thanks to all the Senators of the US Congress who played a vital role for this development and especially California Senator Dianne Feinstein, who introduced the Bill. It would be a great favour for a least developed country like Nepal to strengthen its weakening economy. Now, we have to focus on improving the industrial and investment climate to attract investment (both foreign and domestic) to expand the production volume in a bid to capitalise on the facility going to be extended by the US government. We have already started talking to local and foreign investors. The United States used to be the biggest market for Nepali readymade garments until the Multi Fibre Agreement (MFA) was phased out in 2005. More than 80 per cent of garment factories were forced to shut down after the quota system was phased out as they lost the US market. We are trying to bring them back in the business. Momento Apparels and Cotton Comforts, which were at one time Nepal’s largest garment exporters, are keen to come back to the business along with the assurance of the market in the US. We are also urging the government to create a favourable investment environment in the country.

You mean the duty free facility will lure foreign investors to Nepal particularly in production of apparels?

Duty free facility alone is not enough to lure investors to Nepal. We need to create a conducive environment for investment that includes political stability, cordial labour-employer relations, abundant supply of power, and borrowing facility at lower rates from banks and financial institutions, among others. In a meeting with some of the Senators during my visit to the US a few months back they were apprehensive about whether Nepal would be able to take advantage of this facility citing political instability, load-shedding and labour unrest. I convinced them that the situation in Nepal would improve and this facility would be instrumental for our country to stimulate economic growth and generate employment. Garment and its ancillary industries create jobs exclusively suitable for females, which will also support in the inclusive growth of the economy. By utilising the duty free facility we can compete with major exporters of Asia like Bangladesh and Cambodia. Our products are comparatively more expensive than those manufactured in Bangladesh and Cambodia because we are not linked to any sea port; so our transportation costs are high. On the production side too our labour cost, expenses on power and interest rates are higher compared to theirs. However, we think we can make up for all these costs through the duty free facility and compete with them in the US market. The US levies about 17 per cent tariff on readymade garments at present. But we need to be careful because we will not be able to tap the opportunity if political instability and labour unrest continue.

The US will extend this facility for next 10 years till 2025, which means there is a possibility of us witnessing the same scenario that we are doing at present once the facility is phased out like in 2005. What do you have to say?

To avoid such a situation we have to focus on the sustainability of the garment industry in the country. We have to be able to bring investment from the US and other countries too and maintain cordial relations with buyers by delivering orders on schedule and at competitive rates. I don’t think the buyer will seek alternatives if the rate of apparels increases by $0.25 to $0.75 per piece even after the facility expires if we are able to supply quality products in a timely manner. I think there is room for extension of the facility if we are able to do an impressive job. We have to import raw materials in the initial period but we can attract investment for factories that manufacture required raw materials. Ancillary industries that deal with dyeing, washing and packaging, for example, will also create substantial employment in the country. There is over 70 per cent value addition in readymade garments, so if we start producing raw materials in the country itself, the garment sector would be sustainable in the long run. Even after the phase-out of the MFA, Nepal has been exporting garments worth Rs five billion every year to European countries and the US, among others. Australia has also granted duty free facility for Nepali garments, but we have not even tried to find buyers there. I think the facility to be provided by the US government will support us in creating strong relations with buyers there. If we are able to maintain good relations with buyers like Wal-Mart, Kmart, Target, JCPenny, Sears, Variety Wholesalers Inc and others, they will continue buying from Nepal despite a marginal rate hike after the expiry of the duty-free facility in December 2025. If we get support from the government, we will approach the above mentioned buyers in the US to invest in garment production in Nepal.

What type of support are you seeking from the government to bring US investors in Nepal?

We all know the garment sector had created direct employment for over 450,000 individuals during peak time from 1995 to 2002. There were more than 400 factories with total investment of Rs six billion back then. In fiscal 2001-02, country had exported garments worth Rs 10 billion to the US alone. But after the phase-out of the quota system many garment entrepreneurs became bankrupt. At present, there are about 50 factories, which have installed 50 to 500 machines, that are still doing well. They are surviving because of good relations with buyers. When we talk about exports, the relation with the buyers plays a significant role. So, for the revival of the garment sector, which will have a larger contribution in the country’s economy we have requested the government to approach investors from developed countries to lure them to Nepal through the diplomatic missions. Secondly, government needs to announce an incentive package. We have already submitted our recommendations on how garment sector could be revived to Ministry of Finance, Ministry of Industry, and Ministry of Commerce and Supplies. We feel the government should announce 10 per cent incentive on exports, corporate income tax exemption for garment factories for at least five years, and value added tax exemption on diesel to operate generators. We are also hopeful the ‘hire and fire’ provision in the Labour Bill, which is going to be tabled in the parliament in the future, will be endorsed. Besides that, we also seek commitment from all political parties to stop organising bandhs and strikes. If government implements our recommendations and political parties make a commitment to stop organising bandhs and strikes, then we will be able to bring in more investment and the garment sector will revive again.