KATHMANDU, November 1 2014: Unnerved by falling exports and fearing for their survival, garment manufacturers on Friday asked the government for more cash incentives and cheaper loans.
Nepalâ€™s garment industry has recovered to some extent from a prolonged slump thanks to market diversification, but export levels are still a far cry from the glory days of a decade ago. Garment export earnings in the last fiscal 2013-14 were down to Rs 5.6 billion from a high of Rs 12 billion in 2000, said the Trade and Export Promotion Centre (TEPC).
Shipments went into a downward spiral after the US, the largest market for Nepali readymade garments, ended the quota system in 2005.
Officials of the Garment Association of Nepal (GAN) have asked the government to ramp up cash incentives on garment exports to 5 percent from the current 1 percent. The cash incentive will help to boost exports as production costs are 7 percent higher in Nepal due to its landlocked situation, they said.
â€œOther countries are providing cash incentives in the double digits, and 5 percent is a must for Nepalâ€™s garment sector,â€ said GAN General Secretary Ashok Agrawal.
Likewise, GAN has asked for loans at a lower rate of interest and on easier terms. The association complained that garment factories were finding it difficult to obtain credit.
â€œMost of the time, we have to go through a lengthy process to get loans. Some banks have even refused to lend money showing different reasons,â€ said Agrawal. â€œThere is a need for policy from the government to ensure that banks direct a certain portion of their lending to export-based industries,â€ he added.
Nepal Rastra Bank currently offers a refinancing facility under which the garment sector can borrow capital at 4.5-6.5 percent interest. However, exporters complain that getting the soft loan is a tremendous hassle.
Commercial banks have been providing this type of credit to exporters based on their working capital and purchase orders. â€œHowever, the provision has discouraged new investors and entrepreneurs wanting to upgrade their production plants,â€ said Agrawal, adding that the soft loan should also be made available for expanding factory infrastructure.
Similarly, GAN has demanded that the 15 percent tax levied on raw material imports on top of the customs duty and value added tax be removed. The industryâ€™s major raw material imports are textiles.
The association has also asked the government to provide funding to operate a training centre to address a labour shortage. The training centre which GAN and the TEPC had been jointly operating for over a year closed in mid-June after funding dried up.
Among other demands, garment exporters have asked for the enforcement of a flexible labour policy allowing a hire and fire system, provision of subsidies for garment traders participating in international trade fairs and smooth supply of electricity to garment factories.