The construction of Nepal’s first garment processing zone is expected to be complete in April. The Rs2.5-billion facility in Simara, Bara will be spread over 300 bighas. According to the Garment Association Nepal, the garment processing zone will facilitate exports of Nepali readymade clothes and minimise the cost of production, enabling Nepali garments to compete in the international market.

“There are many problems in the readymade garment industry in Nepal. One is the price factor,” said Chandi Prasad Aryal, president of the association. “The price of Nepali readymade garment increases 15-20 percent when they reach the international markets,” he said.

The government provides a 3-percent cash incentive to readymade garment exporters, but it is not sufficient to make Nepali products more competitive in the global garment markets, Aryal said. “The government should give a cash incentive of at least 10 percent on garment exports,” he said, adding that a growth in readymade garment production could minimise Nepal’s ballooning trade deficit.

According to him, the production costs of Nepali readymade garments are high due to the high cost of raw materials. The cost of raw material or fibre of a garment that costs $10 to make is $3. The raw materials are imported mainly from India and China.

According to Nepal Rastra Bank, the country exported readymade garments worth Rs2.27 billion in the first six months of the current fiscal year, against Rs2.29 billion in the same period in the last fiscal year. Nepal’s garment exports totalled Rs5.9 billion in the last fiscal year. The garment association said they were getting more orders for Nepali readymade garments from the domestic market this year.

Aryal said that both Nepal and Bangladesh started exporting garments in the 1980s, but Nepal had fallen way behind. Bangladesh currently exports readymade garments worth $32 billion annually, which is more than Nepal’s gross domestic product. Nepal’s readymade garment industry collapsed after the expiry of the Multi Fibre Agreement in January 2005, which provided duty-free access for Nepali garments to the US. The country was exporting garments valued at Rs12 billion before the agreement and providing jobs to 500,000 people. More than 85 percent of the garment factories have shut down since then.

According to the association, Nepal was shipping 87 percent of its readymade garment production to the US till 2002. Following the fall in exports to the US market, Europe has emerged as a major buyer of Nepali readymade garments. Europe’s share of Nepal’s garment exports swelled from 18.14 percent in 2005-06 to 60 percent today, Aryal said.

According to the association, there are 52 readymade garment factories operating in the country with an annual production capacity of 6-7 million pieces. The total investment in the industry is Rs6 billion.