Tuesday, August 19, 2008

Times up for garment industry

That's the title of my latest Op-Ed published in The Kathmandu Post. This piece's main point: don't foster ailing industries by seeking preferential treatment in the international market. In Nepal's case, it is the garment and textile industry, which once was the largest foreign currency earning exportable commodity. Now, it has lost almost 80% of jobs and 98% of firms. Why? Because of its inability to withstand competition in the international market, especially after the end of Multi-Fiber Agreement (MFA) in 2005. Interestingly, for Nepal, the year 2005 can also be labeled as 'the Great Garment Depression of 2005'.I favor market competition, which probably is the best way to induce incentives among individuals and firms.

In light of these widely known reasons but scarcely mentioned by the bureaucrats, a new high level delegation, composed of Commerce Secretary and FNCCI and GAN members, is heading to the United States to lobby for preferential treatment of or duty free access to Nepali garments in the US market, which is the largest importer of readymade garments made in Nepal. What surprises me the most is the fact that our leaders and garment sector entrepreneurs have not yet realized the value of competition and the stark truth that the Nepali garment sector cannot simply compete with the big producers, who continue to take an advantage of agglomeration economies, from Cambodia, China, India, Vietnam, and Mexico, at least not in the current situation.

Instead of rectifying defective economic policies considering the changed circumstances in the market brought about by globalization, the bureaucrats are too bogged down and intent on getting the preferential treatment in the US market. It shows how misguided our economic priorities are and how ignorant and unyielding our policymakers are to change the course of economic policy for good.

The prevailing illusionary notion among the policy-makers and garment sector entrepreneurs -- who are already battered hard by the depression in the garment sector -- is that the industry can recoup lost jobs and revenues if they are able to secure special treatment in the US market.

However, what is hard to swallow is the fact that no such recouping would occur and greater revenue generation would just be a dream, unless a miracle happens in favor of Nepali products in the international market. After the end of the MFA, Nepal already has lost market pie to big producers from China, India, Cambodia, and Vietnam, among others.

Read the full Op-Ed here. Here is a previous post about carpet industry, preferential treatment, and poverty reduction (in reality, it is a modern day myth!). Related to this post is this news piece about "carpet exports roll down by 14%" this fiscal year.

Also, this time there is a pic of mine with my Op-Ed. Below is an embedded link of how the Op-Ed page looks like on the actual print version (what could be a better way to advertise myself than this! How much of rationality and selfishness is in question here?)

Links of Interest

Poverty in Focus: Cash Transfers : Lessons from Africa and Latin America (good edition on all you need to know about CCTs, its effectiveness, complicated issues related to exit strategies, and challenges.

Are Matlhus's Predicted 1798 Food Shortage Coming True? (Jeffrey Sachs says we still don't know for sure).

Ethiopia's new famine: 'A ticking time bomb' (Ethiopia faces a 'toxic cocktail': drought, global inflation, armed conflict and assorted plagues).

Economic costs of cheating on a spouse differ for men and women 

(Hmm... this is interesting: Men are 7 percent more likely to cheat than women)

According to lead author Bruce Elmslie, professor of economics at the UNH Whittemore School of Business and Economics and co-author Edinaldo Tebaldi, assistant professor of economics at Bryant University, the behaviour of men and women toward infidelity differs substantially, as men and women respond differently to the perceived costs and benefits of an affair.

For women, biological and socio-economic factors like men who are good candidates to father a child and who have the education and financial stability to provide for a family are significant factors women consider when deciding to have an affair. These factors do not come into play for men who, overall, are 7 percent more likely to cheat than women.

The likelihood of a man having had an affair increases with age and reaches a peak when a man is about 55 years old. It then decreases with age. For women, the peak is 45 years old, which the authors say is logical when considering the biological reasons why women cheat.

Globalization and health: Importing Competition

Carpets, duty free treatment, and poverty reduction-- a modern day myth!

Here is call for duty-free treatment of carpet made in Nepal for the sake of poverty reduction. Again, a call for inefficiency!

Nepal needs duty-free treatment of carpets and shirts in India, China, Europe and the US.

It should be noted that almost 98% of the garment and textile firms have gone out of business, especially after the end of MFA in 2005. And, over 80% of the jobs are already lost. Why? Because Nepali exporters never learnt how competition works and were always smug with duty free access in the West. Neither the government nor the entrepreneurs looked into enhancing our industry's capacity, competitiveness,quality, and market access. After all quota restrictions were phased out in 2005, big producers, who enjoy large agglomeration economies and offer cheaper products of the same quality, from China, India, Cambodia, and Vietnam took over the Nepali market pie in the West.

Given this reality, why would Nepal still need duty-free treatment in the West? Nepal is not going to recoup the market pie already lost the its international competitors. Also, the dream of poverty reduction through duty-free treatment is just a myth because already over 80% of the workers are out of jobs! The developing countries like Nepal were already given ample time to enhance their competitiveness in this sector; the first phase out began in 1995 and since then it is more than a decade-- ten years is a lot of time to enhance competitiveness of this sector by increasing investment in capital, quality, marketing, labor skills, etc. No such step was taken, hence this sorry fate! No regrets!

Forget about aiding this sector. It is high time Nepal prioritized other sectors like tourism and hydropower.