Opportunity in the land of opportunity

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Opportunity in the land of opportunity

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Nepal’s Export to the US have seen a massive downturn in the past 15 years: what used to be a staggering annual figure of $229.5 million in export in the year 2000 declined to a paltry $86.6 million in 2015. And with the annual inflation rate of 12.1 per cent in Nepal, the $86.6 million in 2015 actually represents a steeper dip than the figures indicate.

But perhaps that will change now: The American president, Barack Obama, recently signed the ‘Trade Facilitation and Enforcement Bill’ on February 25, which grants duty-free access and quota-free benefits in the American market for the next ten years to 66 different types of Nepali products, including carpets, headgear, shawls and scarves. The bill was first introduced by US Senator Dianne Feinstein in January 2015, and later lobbied for by the Nepali caucus, represented in part by Dr Shanker Prasad Sharma, the then ambassador to the US, following the Great Quake in April. After being endorsed by the US senate in the second week of December, the bill now has been passed, although it will have to go through a few more administrative steps to come into full effect.

Such favourable trade preferences can only have positive implications for Nepal and for Nepali businesses. 


Time to look up

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“This is a tremendous opportunity for Nepali businesses to expand their imports to US markets,” reads a statement published by the US Embassy in Nepal. Indeed, the news comes as a shot in the arm for the Nepali textile, clothing and garment industries—which have declined alarmingly over the past decade. Garment exports from Nepal to the US dropped from Rs 13 billion in 2001 to Rs 5.28 billion in 2015, and this new bill should help the industry get back on its feet and move forward.

In 2005, the garment companies, and factories in particular, were left in tatters when the quota system for Nepali readymade garments ended. Reports suggest that there are currently around 50 businesses in the Nepali garment industry, a drastic decline from around 400 in 2001. Needless to say, importers and retailers in the US who had been importing from Nepal were compelled to look elsewhere when these companies and factories dropped out; now, with the right resources and with the new legislation in place, old and new garment companies can start exporting within a few months.

The garment industry has proven itself in the past: they garnered decent market shares in the US, with products that sold at high profit margins.


Staying above the competition

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If done right, Nepali products can enjoy a huge advantage over the products of countries such as India and China—who are the big players in the garment market—as well as Bangladesh—who can produce garments at low costs. However, these countries have to pay a tariff of 17 per cent on the goods. Nepal also had to pay the same tariff rate earlier. Now, once the bill kicks in, Nepal will be exempt from any tariff, which means that if we are able to produce garments at the same rate as India, China, or Bangladesh, we can sell them at a cheaper price in the US. This price advantage can help the Nepali garment industry recover its lost market share. That said, sub-Saharan countries and Afghanistan also enjoy duty-free export, which might pit Nepal in a stiff competition between market leaders and niche players. In order to beat the competition, the government and businesses must work closely and play their cards wisely.


Not in Dubai or in Qatar, but right here in Nepal 

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Employment opportunities that were once available in the garment and textile industries in Nepal will now be re-created here, as the number of garment businesses will obviously see an increase. The organisation South Asia Watch on Trade, Economics, and Environment (SAWTEE) had reported that there were around 20,000 employees in the manufacturing segment of the Nepali garment industry in 2001 alone—totaling around 50,000 employees in the overall garment and textile sector. A significant number of them were women. Former ambassador to the US, Dr Sharma estimates that 1.5 million Nepalis can benefit from the new bill, both directly and indirectly. 


A golden goose for investors

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When the bill comes into effect, both Nepali and international investors will have many a great precedence to draw encouragement from. The garment industry has proven itself in the past: they garnered decent market shares in the US, with products that sold at high profit margins. Now that that the rules have been written anew in our favour, Nepali companies, both old and new, can grab a good-sized share of the US market, as the Nepali garment and textile brand gets a facelift in the international market.


A much-needed parachute

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The bill presents an opportunity for Nepal to moderately improve its trade-deficit accounts, which has alarmingly more than doubled from Rs 331.84 billion in 2009/10 to Rs 689.37 billion in 2014/15. The trade deficit figure is, in fact, greater than Nepal’s annual budget for 2014/15, which stood at Rs 618.10 billion; and while the new bill is not guaranteed to turn things around drastically, it should surely help bridge some of that gap.


Beyond the horizon

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Although the recently passed bill has great potential to bring positive changes in Nepal, and the US government has pledged to help build the capacity of the government and private sector to carry out trade immediately, we still have much ground to cover. The government should immediately get a team ready to negotiate with the US team that will be heading here to work out the kinks in the bill.

It must also be noted that while the tariff is free, shipping costs are not. The government should thus look to offset shipping costs by minimising the tax imposed on the importing of raw materials, or by providing subsidies to businesses. Only if the government is actively involved in the garment and textile industry, will investors also look to inject money into the sector.

The bill presents an opportunity for both small and large garment players, as well for innovative startup ones that can lange into the US market. It is also important for us to innovate in order to create goods that other countries will not be able to replicate—cheaply—that will allow us to enjoy benefits in the long term, beyond the trade-preference period. The future of the Nepali garment export industry, which has seen the darkest of days, now looks exceedingly bright.

* First published in M&SVMAG 




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Guest Monday, 19 March 2018