Monday, July 2, 2012

Currency depreciation and carpet exports

So, carpet exporters are benefiting from depreciation of Nepali currency against the US dollar. Analysts have doubted if Nepal will ever benefit from weak rupee because almost 60 percent of trade gets pretty much unaffected by it, thanks to the pegged exchange rate. With respect to exports to EU, the economic mess there is lowering demand. But, the strong US dollar meant that it is relatively cheaper for them to purchase Nepali goods. Our exporters are expected to benefit from it. But, the irony is that in order to take advantage of falling rupee, we need to have sufficient inventory to supply as and when needed. Unfortunately, Nepal doesn’t have it. So, the inability to take benefit from falling rupee. However, carper exports seem to be rising even when volume of exports has declined.

Excerpts from a news story in Republica:

Despite the drop in volume of exports, Nepali hand-knotted carpet exporters enjoyed 40 percent rise in their income over the first ten months of 2011/12, thanks to strengthening of the US dollar.

Owing to almost 25 percent depreciation of Nepali rupee, Nepali exporters during the period received on average Rs 8,018 per square meter of hand-knotted carpet. They were receiving on average just Rs 5,103 per sq meter and Rs 5,669 per sq meter in the same period of 2009/10 and 2010/11 respectively.

"Thanks to the exchange rate gain, hand-knotted carpet fetched a total of Rs 4.84 billion over the first ten months of 2011/12, even though the export volume remained low at 603,631 sq meters," reads a report of Trade and Export Promotion Center (TEPC).

During the same period last year, Nepal had exported 698,517 square meters of carpet that fetched foreign currency worth Rs 3.96 billion only. In the same period of 2009/10, Nepal had exported 652,517 sq meters of woolen carpets earning Rs 3.33 billion.

TEPC data shows that Nepali exporters mainly received a blow from European markets as demand there shrank in the wake of Euro zone crisis. But exporters found new markets in the US, which for the first time emerged as the biggest single importing country of Nepali carpets.

Now, calculating the export value in US dollar terms will give us a rough figure of the contribution depreciation to boosting earnings in Nepali rupee.