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January, 2005 |
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Interview |
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"We still haven't given up hope" Kiran Prakash Saakha, the President of the Garment Association -Nepal (GAN), gives an overview of the situation facing the Nepali garment industry in the quota-free regime starting January 2005.
How is the Nepali Garment industry readjusting to face challenges when the quota system in textile will be removed? The private sector alone is not capable of overcoming the challenges. The government has a big role to play. This is not an issue only for our country; more than 50 countries from around the world are in the same position. The governments of all these countries as well as international agencies are keenly analysing the situation to find a solution. As we were aware of the situation that would arise, we therefore had asked the government to find out possible solutions in time three years ago, but there were no concrete steps taken. We had suggested that establishing a Dry Port and a Garment Processing Zone (GPZ) would reduce transit costs. Though the Dry Port is now set up, GPZ is still not there. In order to set up a GPZ, land has to be acquired which can be done only by the government. Similarly, we had also indicated the economy of scale that the factories to be established in the GPZ had to follow. We had also made suggestions about modernising the factories and their machinery to make them as per the international standards to face the new challenges. Though that could not be achieved overnight, the government could not initiate anything that could be completed even in the long run. In addition to this, we had asked for the simplification of exporting procedures. Likewise, we had appealed to the government to lobby for duty free access to the US market. The government was simply reluctant. So, the future for the Nepali garment industry is really very bleak. What is the rate of factory closure? How many workers are being rendered jobless? Garment entrepreneurs have still not given up hope. Businessmen wait till the last moment. In our record, about 250 factories are still open. Of them only 15-20 percent are operating. Very limited orders are received and those who have very good relations with the buyers are sustaining their business. There is still a ray of hope that things might improve one day. But the majority of the factories will have no option other than to close down very soon if we are not able to fight the price war with the rest of the world. This industry provides direct employment to more than 60,000 people and indirect employment to about 30,000 people. Thus, about 300,000 people, the family members of the workers included, depend on this sector. If only around 20 percent of the units are to remain in production, nearly 240,000 people will lose their livelihood. What other impacts are there in the other areas? This quota phase out is a disaster for the nation as a whole. The money invested in these factories, which is as much as Rs. 6 billion, is the nation's money. When they close, the machinery will just be metal heaps. They have to be sold not as machinery but as scrap metal. The banks that have lent to these units will have nowhere to lodge their complaints at. Moreover, does the country have alternatives for those people likely to be rendered jobless? 35-40 percent of the nation's foreign exchange earning is coming from this sector. This too will be lost. Therefore not only the entrepreneurs, but also the government, labourers and banks will be badly affected. Why aren't the garment entrepreneurs changing their businesses? This is not easy. Garment entrepreneurs are mostly dependant on loans and many of them have not yet paid back their loans. Where would they get the money form if they want to start in another sector? Those who earned money from this business have invested most of their earnings in updating their machinery and factory set up. In the last five years, the world trend in this sector has changed a lot. When I had started this business, a factory could be started with an investment of about Rs. 100,000 on machinery. But now we need more than 50 machines that cost Rs. 100,000 each. Some eight years ago we could operate with cheap Indian machines, but now we need computerised machines that are very costly. With time, various sophisticated machines were introduced. For enhancing the quality of our products, we had to use the latest machines which were very expensive. So, if one thinks of a garment factory, it is an investment of around Rs. 30 million or more depending upon the size of the set up. Entrepreneurs cannot just forsake such a huge investment. How have the banks and financial institutions responded? They are equally scared. They are putting pressure on the entrepreneurs for payment of loans. Even those entrepreneurs who are trying their best in this business are facing hassles from the banks. On the one hand, the entrepreneurs are battered by the declining business; on the other hand, they have to handle such pressure from the banks. It was heard that the garment entrepreneurs were also asking for government permission to sell their machinery abroad as it was difficult for them to continue with the business. How is the progress in this? We have not put forward any such demand as yet, but there might be a time when we will have to do that. The question is: who will buy them? India? Nepal's bilateral trade treaty with India does not allow this. Moreover, the Indian factory owners have to be ready to buy them. In fact, today no garment factory thinks of buying second hand machines. Factories in those countries that are going to benefit from the post MFA era will likely go for brand new machines if they need to expand. If we look at this year's data, China alone purchased 75 percent of the new garment machinery sold in the world. Countries like Bangladesh are themselves facing similar fate as ours. They might be planning to sell their own machines. Yes, we have sold some old machines as scraps or donated them to the villagers.
What is the situation about the effort to lobby in US Congress asking for special status for Nepali garments there? This is one area that can provide us with an instant cushion if we are able to convince the US Congress to allow duty free access to Nepali garments in the US. This would help us survive till we can implement other solutions. This is something that is possible to achieve. We have been lobbying for this for the last two years. Now another hurdle has come in our way in this regard. Panda Energy International has lobbied the US Congress to not pass the US Trade Bill that would grant special facility to Nepali garments until the Nepal Electricity Authority paid USD 3.3 million to Bhote Koshi Power Company, a subsidiary of Panda. We have received assurance from Republican Senators that if this problem be fixed, they would help us pass the bill. We have come to know that the Minister as well as the Secretary of Foreign Affairs have received the same response. Panda Energy is now ready to negotiate on the amount of money. So the amount might come down to around USD 2.5 million. And that is not a big amount. If we get duty free access for our garments in the US, we will earn that amount of money in less than four months, as per our analysis. Why not resolve that issue then? The whole nation benefits from this. But maybe the government has not regarded this as a priority issue. One reason behind this can be the government's instability. How is the progress in the movement of the Istanbul Alliance? This alliance has been very actively taking part for safeguarding the textile and apparel manufacturers from countries other than those that are likely to benefit from the changed scenario post 2005 January. It has filed a petition asking the WTO for solutions to this imminent economic catastrophe. WTO is holding World Textile Summit during January 25 - 27 to discuss upon this issue. Are there any efforts by Nepali garment industry to change the product line and search for niche markets? Are not there any possibilities of tapping new markets like Europe, Australia and other SE Asian Markets? We have been facing allegations that we are not trying to find a new market other than the US. But it is easier said than done. It is very difficult to divert the market to other places. We have to make different types of garments to cater to different markets and the factories we have are designed to manufacture for the US market. Moreover, other markets, including the European market, are comparatively much smaller. If we set up new factories to manufacture apparel for these small markets, our cost of production is going to be still higher. However, we are trying our best to find alternative markets and we are improving. Today, we have a share in the European market and the share is increasing with time. For tapping a market in Japan or Australia, setting up of advanced factories is necessary; but it is not economically feasible for us. Until the businessmen are guaranteed of a decent return, they hesitate to invest. Talking about changing the product line, I don't understand what it means. Is it a trouser without pockets? I don't know where I can sell a trouser without pockets. The crux of the matter is that America is the most appropriate market that will help us to survive at this juncture. When there still are possibilities to open this market incurring some little costs, why not try to open it rather than trying to find a new market which we are sure is not going to be big enough. Trying to search a new market at this juncture is like selling the son and hiring a servant to take his place. Why didn't the garment entrepreneurs think of alternates earlier as they already knew that the MFA was going to expire on this particular date and the government was not so cooperative? We were of the hope that the government would provide us full cooperation in this regard. And as it is not so easy to entirely change the business line, we tried our best to survive in this sector itself. Of the three important things in this business - quality, delivery and price, there is no problem for us on the first two. But the problem is with the price. To survive the constantly lowering prices of clothing in the global market, we have lowered our prices to a level which is just enough for us to break even. From the experience of last 15 years, we now know very well where we get the cheapest inputs. We have brought about 100% change in our production technique. We have made several representations to the government for addressing the issues that only the government can address, such as operationalisation of the dry port and change in a number of government policies and rules. But all our voices have received a deaf ear. We have left no stone unturned in reducing the cost of production of our garments even when the government has not done anything in this regard. We are fighting till the last moment to try to survive in this business itself. If Nepal's Garment Industry is to get through this crisis, what are five critical areas that we need to work on to improve competitiveness? Whatever we could do, we have already done. If we talk about what the government can do together with us they would be (1) starting the export business from the dry port as soon as possible, (2) setting up of a GPZ, (3) modernizing the factories, (4) simplifying the government rules and regulations related to this sector and also lowering the domestic taxes levied on them and (5) reforming labor laws to make them compatible with the garment industry as has already been done in the case of tea sector. As China and India are going to be the biggest beneficiaries due to the expiry of the MFA, are not there some ways for Nepal to benefit by piggybacking on the garment industries of these two countries? I do not see any such ways. But some other hopes have emerged as the US has filed a petition in WTO to impose safeguard measures in some of the categories of Chinese garments fearing the damage that the Chinese invasion might inflict on the US market. The decision on this issue might come some time in February. This now gives a thin hope that we might be able to tap some benefits provided the Chinese garment industry will have to face some restrictions. If India also faces the same action, opportunities for us will be even higher. But even for this we will have to fight with other countries, like Bangladesh, Cambodia, Mongolia etc. So it is still not an easy job. Though a landlocked country like Nepal, Mongolia has attracted a lot of foreign investment from countries like England in garment. So, even Mongolia is becoming a formidable force for Nepal to take on in the international market. What about the possibility of reorienting the Nepali garment industry with a view to cater to the specialized needs of the Chinese and Indian markets as Surya Nepal has started doing? We cannot follow that model. Being a subsidiary of India's corporate giant ITC, Surya Nepal has the advantage of a readymade market access throughout India through the ITC network. In India, there is a craze for foreign garments and Surya Nepal is making garments from imported fabrics to cater to this demand. As the fabrics imported into India from countries like Italy or Hong Kong are expensive, Surya Nepal is taking the advantage with ITC's support. Other manufacturers do not have that advantage. |
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