Garment Industry on Verge of Collapse Exports Down by 80pc

Exports of readymade garment to the US plunged by more than 80 percent in August as compared to the figure of same period last year, pushing the country´s once largest foreign currency spinning industry on the verge of collapse.

Nepal managed to export garments worth a mere $134,749 to the US during the month, lowest in over a decade as manufacturers reeled under labor problems and buyers shift to the cheaper suppliers.

According to the Garment Association Nepal (GAN), readymade garment exports to the largest apparel market dropped to $4.28 million over the first eight months of 2009. The figure was almost half of what the country exported during the first eight months last year. Moreover, exports for the period stood at mere seven percent as compared to the exports recorded in the same period in 2004.

Nepali readymade garment industry has witnessed a sharp drop in exports since the elimination of quota in the global apparel trading in 2005. Exporters attribute the drop to reasons such as eroding competitiveness in the international market, rise of labor stir and bandas that affected productions as well as timely delivery of orders.

While the internal problems of the industry still remain the same, exporters said present global economic slowdown and decline in consumption by the US consumers had added extra pressure on the industry.

Garment industry first started to suffer in 2002, when the US pledged duty-free market access to its competitors in sub-Saharan and Caribbean countries. The facility made the productions of those countries cheaper than that of Nepal by over 17 percent.

Contrary to the need of slashing cost to fight off looming crisis, labor stir and general strike added cost of doing production for domestic manufacturers. As a result, the country witnessed a massive closure of the manufacturing units, shrinking the number of industry to about a dozen from over 250 units. During the process, more than 75,000 workers -- majority of which were women -- lost their job.

GAN, meanwhile, has made clear that only three measures can revive the industry -- establishment of Garment Processing Zone (the idea has been pushed since 1999) that lowers production cost; an order-based hiring system (sought since 2007) that frees manufacturers from undue labor liability; and duty-free-entry facility for Nepali garments in the United States (lobbied for since 2005).

Given the political instability and weak government, entrepreneurs doubt the fulfillment of former two measures. They are, however, hopeful of positive result on their third prescription, especially as US senators have tabled a bill that promises duty-free market access for 14 least developed countries, including Nepal.