Carpet slowdown creates deep concern

Post Report

KATHMANDU, May 2 - Slumping exports of Nepalese woolen carpets, that captures almost a third of the total overseas exports, has brought renewed question over sustainable development of the export oriented industries.

The total export volume of carpets in the first nine months of current fiscal year has plunged by over 7 per cent to touch 1.68 million square meter, down from 1.80 million square meters in the corresponding period last year. Woolen carpet exports in the first nine months the year before stood at 1.86 million square meters.

A G Sherpa, President of Central Carpet Industries Association (CCIA), blames the lack of government’s long-term policy and commitment for the promotion and development of the carpet industry as the primary cause behind the export fall.

"Continued political instability and frequent portfolio changes have greatly dampened the efforts of CCIA to bring out a sustainable policy," he said.

"Due to landlockedness, Nepal has to bear an extra overhead cost of around 7 per cent, which has been one of the major causes for the decay in Nepal’s competitiveness. At the same time competitors export oriented industries in India, the main competitor, enjoy various extra privileges from the government," said Sherpa.

Jafer Ahmed, Former President of CCIA, opined that lack of long-term supportive policies of the government is a major detrimental factor. "The government should have introduced a supportive policy when carpet export was at its peak in 1992/93."

Along with the slump in the carpet exports, wool imports during the period also declined to 7298 tons against 7335 tons and 8188 tons recorded in the same period of last year and previous year respectively.

Since the domestic wool production is negligible compared to the demand of carpet industry, Nepal imports wool from New Zealand and Tibet and blends them in the required ratio to make woolen yarn.

Other issue of concern to carpet entrepreneurs is the international market for Nepali carpets. Though the need of market diversification has been sought for many years, the continued heavy export dependency on the German market, albeit declining slowly, is another major problem of the Nepalese carpet. Germany alone absorbs over 70 per cent of the total export.

Experts argue that such huge dependency on a single market is very risky as any volatility in the dependent market can devastate the entire carpet market. US markets absorbs 12 per cent of the total carpet exports.

In addition, entrepreneurs also expressed dissatisfaction over the unequal treatment of the government on foreign currency earning industries. While tourism related industries are enjoying various privileges including the duty-free vehicle import facility, why is the government is reluctant in providing some priveleges to other dollar earning industries, complain entrepreneurs.

Furthermore, entrepreneurs have expressed grave concern over the current Labor Act that has heavily empowered the labors. Sherpa underlined an urgent need to amending the Labor Act to ensure sustainable growth of carpet industry by attracting more investment.

"The Act has put obstacles in the smooth development of export oriented industries," he said. "We should be allowed to hire and fire labors on a contract basis since our production and earnings completely depend upon the overseas order," Sherpa said.

Regarding the government plan to reallocating valley based industries, including carpet industries, most of the leading industrialist retereiated thier stand that they are ready to cooperate with the government in curbing deteriorating environmental problem of the valley.

However, there is a unanimity among the entrepreneurs that the government should come up with concrete long-term plans acceptable for the private sector. Sherpa said that such precipitated decisions aimed at gathering cheap admiration of the environmentalists has deeply disturbed the investment environment.

He urged the government to be serious before making such decisions. The announcement has jeopardized billions of rupees investment of the past two decades made on physical infrastructure.

"Such short-slighted announcements, on one hand substantially erodes the value of physical assets owned by the carpet industries, while on the other it terminates future investment resulting decline in output and quality," he said.