Monday, January 14, 2013

Power, politics put export prospects in peril

Power shortage, political instability and economic slowdown in overseas markets blamed for falling exports
Talk to any exporter of pashmina, readymade garments or woolen carpets in the country and phrases like economic slowdown in Europe and the US, lengthy power outages and deepening political crisis are most likely to shower upon you.

Talk to them further and they will tell you these problems are eating away significant chunk of their revenue, pushing them to the verge of collapse.

Then they pose a question: "When are we turning the corner?"

Exports of pashmina, readymade garments (RMGs) and woolen carpets were once key sources of foreign income for Nepal. During late 1990s and early 2000 when situation in the international market was favorable and load-shedding problem was not severe in the country, sales of these products in overseas markets minted billions of rupees for the country every year.

But as Maoist insurgency intensified in early 2000, problems started cropping up.

In 2006, the move made by the Maoists to join the mainstream politics was expected to remove barriers. But soon fresh problems of continuous power outages, deepening political crisis and slowdown in overseas markets started hitting exporters.

Since then the government has repeatedly promised to create favorable investment environment, but these pledges have turned out to be no more than rhetoric.

"No one knows when the situation will improve given the roadblocks for exporters," said Rajesh Udas, proprietor of Ami Apparel, which is among a handful of RMG exporters that has survived.

Presently, exporters are particularly worried as international buyers have started cutting down on Nepali RMG orders, questioning Nepali traders´ ability to meet the delivery deadline.

"As of now, exporters should have been busy taking orders from international buyers to cater to the demand of summer season. But we are not in a position to ensure timely delivery given power shortage and political uncertainty," said Udas, who is exporting garments mainly to India.

To beat the problem of power shortage, few exporters are now resorting to alternative energy sources to run their factories. But this has raised their production cost, which, in turn, is eroding competitiveness of their goods in the international market.

Such developments do not bode well for Nepali exporters, especially at a time when Indian and Bangladeshi manufacturers are churning out products at relatively cheaper prices.

"Power deficit has driven up prices of our products by around 5-6 percent in the Indian market compared with similar products manufactured in Bangladesh," Udas said. "Considering the economic crisis in Europe--the major market for Nepali RMGs--where austerity measures have forced many to cut down on expenses, overpriced items are definitely not going to be entertained."

Worse, even small-scale importers in Europe have started reducing their orders.

"They say they are facing tough time selling products given the weakening purchasing power of consumers due to economic slowdown," said Yagya Pokhrel, a trader who exports garments to Europe.

If the situation continues more than 25 percent of small-scale Nepali exporters will be out of business by the end of this year, said Pokhrel, proprietor of Thamel-based United Fashion.

"Given the adverse situation, it is estimated that exports of RMG to Europe in coming summer season will go down by at least 40 percent," Pokhrel added.

Overall exports of RMG to different destinations fell by 30 percent in the first four months of the current fiscal year as against that of same period last year.

Data compiled by the Trade and Export Promotion Center (TEPC) shows that 3.91 million units of garments worth Rs 1.3 billion were exported from Nepal in the four-month period to mid-November 2012.

Garment is not the only product that is facing challenges.

Exports of carpet also fell by a whopping 19.5 percent in the first four months of the current fiscal year.

"We are in a wait-and-see mode on whether to continue business, as demand for Nepali carpets is fast shrinking in Europe. Our credibility to supply products on time has also taken a beating given the political uncertainty," said Gopal Krishna Joshi, former president of the Central Carpet Association.

Worse, even the Chinese market, which was expanding for last couple of years, has started levying excess duty, weakening the competitive edge of Nepali carpets. This means Chinese market is also shrinking for Nepali carpets.

Small wonder Nepal´s carpet export fell to Rs 18 billion in the first four months of the current fiscal year, as against Rs 22.35 billion recorded in the same period last year.

Now, most of the carpet exporters are waiting for the response from international buyers participating in the Demotext-international textile trade fair, scheduled to begin in German City of Hannover on January 12.

Pashmina exports are also facing similar fate.

During the first four months of the current fiscal year, Pashmina exports dipped by 11.7 percent to Rs 709.8 million despite joint efforts from entrepreneurs and the government to promote exports.

Pashmina is one of the 19 products selected by the government for export promotion under the Nepal Trade Integration Strategy (NTIS).

The government has already registered the trademark of Chyangra Pashmina to pave way for its international promotion. Traders have also registered the trademark in more than three dozen countries.

"Though we faced double digit decline in Pashmina exports this year, we are hopeful about boosting overseas sales by launching promotional activities with the support of the International Trade Center (ITC)," said Pushpa Man Shrestha, president of Nepal Pashmina Industries Association (NPIA).

Although Shrestha is hopeful about turning the corner, other traders are not that optimistic considering the situation in the country.

Published on 2013-01-11 03:00:41

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