Saturday, May 17, 2008

Partial respite for the Nepali garment sector

The Nepali garment, which has been on decline especially after the end of MFA in January 2005, has finally got a market, India. More here.Yes, yes, India borders Nepal but the latter has not been able to realize the huge market potential there. Now, as abroad market is being taken over by competitors from Bangladesh, Sri Lanka, Cambodia, and Vietnam, Nepal has focused on catering to the nearby Indian market. This is a classic case of comparative advantage in labor (labor cost in Nepal is 30% cheaper than in India). India is one of the countries who have been eating up Nepali garment market in the US and the EU. Despite having cheaper labor, Nepali garment market is lagging behind because of high transportation cost. Nepal is landlocked and freights have to be transported via road to the nearest India port. In terms of markets abroad, India has a comparative advantage.

However, in terms of satisfying Indian domestic market, Nepal has a comparative advantage because the transportation cost (plus taxes) is lower if Nepali producers focus exclusively in the Indian market. Making customized products that are consistent with the purchasing power of the emerging Indian middle class and lower middle class would help Nepali garment sector to once again resurrect and contribute foreign exchange as it had done before 2005.

At a time when Nepal's worldwide garment exports are experiencing a massive downturn, India has emerged as one of its largest buyers with an import volume almost matching that of the USA, the number one customer.

Due to comparative advantages in terms of production costs and geographical proximity besides a vast market, the export of Nepali garments to India has shot up in recent months despite a 30 percent fall in overall exports during the first four month of the current fiscal year.

Prashanta Pokhrel, president of the Garment Association of Nepal (GAN), said exports to the southern neighbor had surged with major Indian retail chains outsourcing and placing orders for more Nepal-made apparels.

“We estimate that garment exports to India in the last four months of 2008 are in the same quantity as our shipments to the US which imported clothes worth around US$ around US$ 7 million during the period,” Pokhrel told the Post.

“India has become a lifeline for Nepal's garment industry which would have collapsed hadn't it emerged as an alternative to the US market,” he added.

No comments:

Post a Comment