Friday, July 11, 2008

Nepali garment sector in troubled waters

What happens when the largest exporters in an industry have a single major customer, which goes bankrupt without paying outstanding dues of imports, of another country? Well, the whole industry plunges in troubled waters, putting the survival of the industry at stake. This is happening to Nepali garment sector recently. Four big firms' production and exports are in limbo as its buyer Stephen Berry has sought protection under US Chapter 11 bankruptcy law, which suspends or delays payments of outstanding debts. More misery for the already troubled industry...a result of poor industrial policy!

Knowledgeable people in the industry said it's not only a question of delay. Since the buyer has declared bankruptcy exporters will lose at least a chunk of the payments due.

Stephen Berry, known for dealing in cheap university labels in the US, has been importing a substantial volume of garments from Nepal over the last half decade.

In the latest deal, it placed orders worth US$ 5.25 million with the four Nepali manufacturers in January. Of that, the exporters said they have received payment of only US$ 400,000. While they are yet to dispatch last consignments worth US$ 850,000, they

are also supposed to have received payment of $ 4 million for consignments already dispatched.

According to exporters, the Stephen Berry bankruptcy is bad news for the four exporters and for the Nepali garment industry as a whole. As chances of the US economy going into recession are heightening, exporters warned that more such cases can surface in the days to come.

Delay in payment, which they said is the best case scenario in the Stephen Berry deal, would still affect timely release of bank guarantees, freeze assets, subject them to fines and affect future operations, unless the banks came to the rescue.

"If the court refuses Stephen Berry's appeal, the company will have to go into liquidation, which will be a disaster for Nepali manufacturers," said an official at the Garment Association of Nepal, requesting not to be named.

More here.