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Nepal:RMG and textile industry to battle
for survival – post MFA era |
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2004-12-29
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The country has made significant export gains through textile quotas but not much has been achieved due to lack of resources and poor technological advancement in the field of garment and textile industry.
The ready-made garment (RMG) sector however, has grown as the second largest export category in terms of foreign exchange earning during the 1970s that spurred export oriented industries and increased employment opportunities. During the period 1999/2000, this industry contributed 48 per cent to the total exports, 3.8 per cent to the GDP and 22 per cent to the earning of convertible foreign exchange.
Though the industry falls under private sector, it has been able to attract direct foreign investment also. Catering to major markets of the USA, Canada, Germany, France, the Netherlands, UK, Switzerland, Spain, Italy and Australia, the industry exports coats, jackets, jumpers, jump suits, shirts, blouses, skirts and trousers, slacks and shorts, quilted jackets and waistcoats etc made from cotton or rayon. The garments, ranging from loom fabrics to mill fabrics are made and exported as per buyers’ order, are both traditional or fashionable.
Now, with the textile quota regime being dismantled effective January 2005, Nepal’s textile industry is facing plethora of problems like quota redundancy, high production costs, dependency on foreign labour, workers problems, buyer dependency, poor logistics, unsupportive government policies, and poor research and development support.
Past nine month have shown continuous fall in exports of readymade garments to the United States, except for October when exports showed marginal rise. Terming the situation ‘critical’ some Nepali garment exporters expect a whopping 40 to 45 per cent drop in readymade garments and textiles exports in the days to come.
Now, with the phase out of the Multi Fiber Agreement (MFA) in January 2005, which entails removal of restrictions for trade in textiles and clothing, offers a formidable challenge to the least developed countries like Nepal and Bangladesh on the globalization front. There have been three phases of textile and clothing quota elimination so far since 1995, and the last remnants of the quota regime will crumble and phase out end by December 2004.
The potential impact in Nepal where about one hundred thousand people are engaged in this sector; providing livelihood to about 4 million people with an investment of about six billion rupees particularly for the RMG sector is likely to be enormous. As majority of the garments industries have availed loans from financial institutions their inability to repay will create alarming figures of Non Performing Assets in the banking sector.
Ending of quotas after 30 years, on January 1, 2005, will witness the garment industry swing eastward directly to China. Though early, its impact on the industry and economy is yet to be felt or ascertained, but portent signals are not encouraging.
Nepal failed to fully exploit its duty free and quota free access to the EU. It lost on beneficial presence of foreign investors unlike Cambodia and Sri Lanka to enhance market access. Primarily, the RMG industry in Nepal is a CMT (Cut, Make and Trim) business similar to its geographical neighbours, albeit on a smaller scale. A recent Asian Development Bank study indicates that if Nepal’s garment industry continues to compete in the low value market, it will lose market shares to larger, more efficient and better capitalised garment manufacturers in India, Bangladesh and China. It has to move up to the higher-value garments sector positioning its flexibility to meet smaller orders as an advantage. The industry calls for appropriate and value-add restructuring to remain afloat in the competitive international garments industry in the coming years.
In a global market place when LDC countries like Nepal and Bangladesh have to compete vis-à-vis Sub Saharan & Caribbean Basin countries, with tariff rates on textiles and clothing in developed countries markets remaining at very high levels of 20-30 per cent, it will be a battle of survival, and a tough one at that. Because they (Sub Saharan & Caribbean Basin countries) have bargained for the Zero tariff provision already, a comparatively disadvantageous situation at that stage for LDCs. In short, there is hope provided LDCs gain zero tariff access of the RMG products from importing countries that may accord Nepal and other countries a chance to survive and absorb the potential adverse impact of the MFA phase-out. |
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