phased out & stiched up: state of the readymade garment sector in nepal

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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal

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PHASED OUT AND STITCHED UPState of the Readymade Garment Sector in Nepal

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Printed at National Printing Press, Bangalore

on behalf ofSolidaridad Regional Expertise Centre for South & SE Asia43, 2nd Cross, Ramaya LayoutSt. Thomas Town PostKammanahalliBangalore 560 084, Indiawww.prakruthi.org

Published byPrakruthi

ISBN: 978-81-908155-2-9

© 2009, Edition - first

PHASED OUT AND STITCHED UPState of the Readymade Garment Sector in Nepal

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TABLE OF CONTENTS

I. Acknowledgments 7

II. Executive Summary 9

1. Introduction 11

1.1 Objectives 12

1.2 Methodology 12

1.3 Sample selection 12

1.4 Research process 14

1.5 Limitations 14

2. Garment Scenario in Nepal 15

3. Analysis and Findings 17

3.1 Export by regions 17

3.2 Source of raw materials 19

3.3 Saless 19

3.4 Employee concern 20

3.5 Needle guard policy 22

3.6 Environment concerns 22

3.7 Trade union membership 22

3.8 Factors affecting export of Nepali RMG 23

3.9 Possible future of RMG units 24

3.10 Trade Union perspective 25

4. Conclusion and Recommendations 30

4.1 Conclusion 30

4.2 Recommendations 31

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5. References 34

6. Annexure 35

6.1 Annexure 1: List of people met 35

6.2 Annexure 2: List of participants in draft reportdissemination workshop 37

6.3 Annexure 3: Structured questionnaire 39

6.4 Annexure 4: Unstructured questionnaire 44

6.5 Annexure 5: Unstructured questionnaire totrade union 44

III. List of Tables

Table 1: Share of apparel in overseas export and totalexport (value in ‘000 NRs.) 16

Table 2: Export of readymade garment as per majorregions, 2008 18

Table 3: Full time employee data for 17 RMG units 20

Table 4: Number of garment workers in differenttrade unions 26

IV. List of Figures

Figure 1: Export trend of readymade garment of Nepal 15

Figure 2: Export of Nepali RMG by region 17

Figure 3 : Source of raw materials 19

Figure 4 : Sales of Nepali RMG units 19

Figure 5: Benefits provided to employees 21

Figure 6: Trade Union in RMG units 22

Figure 7: Key Stakeholders in Nepali garment industry 26

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Acknowledgments

June 2009 Prakruthi Team

We would like to express our sincere gratitude to Solidaridad forengaging us to conduct the study the status of the readymade garmentsector of Nepal. We thank the Solidaridad team, especiallyDr. Shatadru Chattopadhayay, Director, South & South East Asia andMr. Gagan Mehta, Senior Program Officer.

We acknowledge the support provided by Garment Association -Nepal (GAN) in collecting the relevant information. We appreciatethe inputs of Mr. Prashant Kumar Pokhrel, President, GAN, Mr. UdayRaj Pandey, Vice President, GAN and other executive memberstowards the development of this report.

We thank all engage in the garment industry including tradeunions who, despite their busy schedule, spared their time andthoughts to finalised this report. We are also thankful to allparticipants at the stakeholders meeting held on 12th June 2009 fortheir contribution.

Finally, we thank Mr. Neeraj Nepali, Study Team Leader,Ms. Reema Shrestha and Mr. Kumar Ale, Research Associates, forsuccessfully completing the study. We also thank the team at ECCANepal for support provided during the process of conducting thestudy and preparing this report.

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Acronyms

ATC Agreement on Textiles and Clothing

ECCA Environmental Camps forConservation and Awareness

GAN Garment Association - Nepal

GEFONT General Federation of Nepalese TradeUnions

GPZ Garment Processing Zone

NRs Nepalese Rupees

NTUC Nepal Trade Union Congress

RMG Readymade Garment

SAWTEE South Asian Watch on Trade,Economics and Environment

SEZ Special Economic Zone

USD United States Dollars

US United States

WTO World Trade Organization

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Executive Summary

The readymade garment (RMG) industry was the biggest exportoriented manufacturing industry of Nepal in between 2000 and2003. The export of RMG started decreasing drastically since2004.

One of the main reasons for the decrease in export was thephasing out of all textiles and clothing quotas as on 31 December2004 according to the Agreement on Textiles and Clothing (ATC)under World Trade Organization (WTO)Agreement.

17 RMG units were interviewed for the study – nine of themwere Garment Association – Nepal (GAN) members and eightwere not registered under GAN.

Most of the RMG units exporting solely to the US are closed. In2003-04, Nepali Rupees (NRs). 7.4 billion worth of RMG wasexported to the US, which declined to NRs. 1.3 billion in2007-08.

The Nepali RMG industry employed more than 100,000employees (direct) when it was in the peak period and 2,705employees from 17 RMG units were covered in this study.

Out of the 17 units visited, 14 exported to Europe while only 8exported to the USA. The main source of raw materials for RMGunits is India and China. The maximum export for any RMGunit for the year 2008-09 was NRs 250 million.

Out of the total respondents, majority of the RMG units hadprovision for sick and casual leave (82% – 14 out of 17 units) andDashain bonus (100 % – 17 out of 17 units). Only 7 out of 17 RMGunits had provident fund schemes .

The factors affecting export of Nepali RMG were phasing out oftextiles and clothing quota, political instability, labor disputesand load shedding. These factors combined with increased cost

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of production resulted in loss of competitive edge against RMGpowerhouses like Bangladesh, China and Cambodia.

The respondents felt that the industry can be revived if

The US provides duty free access to Nepali RMG

Government declares a RMG as priority industry

A garment processing zone is established

If government policies are framed for a conduciveatmosphere for the garment industries.

Direct export to other potential countries such as India orEurope is explored.

The revival of RMG industry will require continuoussupport from the government and other stakeholders likethe suppliers, service providers, trade unions, etc. asreadymade garment export still remains one the majorforeign currency earning industries in Nepal.

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The readymade garment (RMG) industry in Nepal experiencedrapid growth since 1980s. The sudden rise of the industry was firstlydue to the quota facility provided by industrialized countries suchas the United States. Secondly, the labor costs in other garmentexporting countries were rising. Due to these two factors, theproducers were looking for alternative, cheaper locations for garmentproduction. Hence, Nepal emerged as a relocation site, especially forIndian producers who had already hit the quota ceiling. Indianproducers started establishing their RMG units in Nepal to utilizethe quota constraint imposed by the US during the late 1970s.

The RMG industry was the biggest export oriented manufacturingindustry of Nepal between 2000 and 2003 contributing to around45% of total overseas export. The industry employed more than100,000 direct employees between 2000 and 2003. Of late, the industryis facing stiff competition in the global market and is struggling tosurvive. The export is readymade garments has started decreasingdrastically since 2004. The main reason for the decrease in exportwas the World Trade Organization (WTO) decision to phase out alltextiles and clothing quotas as on 31 December 2004 under theAgreement on Textiles and Clothing (ATC). Additionally, a decade –long violent conflict in the country (conflict ended in November 2006)did little to support and increase exports.

The RMG industry is labor intense, with low capital base andoffers jobs to many people especially women. The phase out of quotasystem and the unstable political situation in the country have notonly reduced the RMG export leading to closure of manufacturingunits but has also created unemployment. The trend of Nepali youthmigrating to other countries is increasing due to unemployment.1

1. Introduction

1 http://www.nepaldemocracy.org/institutions/current_tu_situation.htm

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RMG industry has made significant contribution to Nepal’seconomy by generating foreign income. Therefore, to know the presentstatus of the RMG industry in Nepal, ECCA Nepal and Solidaridadconducted a study on the “State of Nepali Readymade GarmentIndustry.”

1.1 Objectives

The objectives of the study were to:

- understand the economic, social and environment status ofreadymade garment industry in Nepal.

- study the possibilities of reviving the Nepali readymadegarment sector.

1.2 Methodology

The methodology for this study required three approaches:

Desk Research

The desk research included review of existing publicationson readymade garment sector in Nepal and other garmentproducing countries.

Interviews

Interviews were conducted with garment manufacturers,employees and trade unions. The team developed a semi-structured questionnaire to interview manufacturers.Additionally, a structured questionnaire was sent to themanufacturers to fill and return. Separate questionnaire wasdeveloped for the trade union representatives.

Stakeholders’ Workshop

A multi-stakeholders’ workshop was organized on 12 June2009 at Hotel Himalaya in Kathmandu to share and validatethe findings of the draft report. The workshop includedparticipants from private sector, government, unions anddevelopment field. The comments and suggestions on thedraft report were later incorporated to finalize the report.

1.3 Sample Selection

The total sample size for the study was 17 RMG units. The studyeam used a random sampling method to select the RMG units. Both

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the Garment Association of Nepal (GAN) as well as non-GANmembers were interviewed for the study. Nine out of 17 RMG unitswere registered under GAN whereas eight were not.

Other units were reluctant to meet the study team because ofongoing labor disputes in the industries. As the sample size wouldbe very small, the study team decided to include non-GAN membersas well for the study.

Almost all the RMG units in Nepal are located in Kathmandu, thecapital of Nepal, and Biratnagar, a major industrial zone of Nepal.Out of the 17 units three of them were located in Biratnagar and restin Kathmandu.

Garment Association of Nepal:

Garment Association of Nepal (GAN) is an apexorganization of readymade garment manufacturers andexporters. The objectives of GAN are to disseminaterelevant information to member institutions and tosafeguard the interests of the garment sector throughinteraction & assistance with the government.

GAN participates in consultative and advisorycommittees constituted by the government & national levelapex body of private sector i.e. FNCCI for interaction innational policy formulation. It organizes seminars andworkshop for enhancement of the garment industry.(www.ganasso.org)

Industries exporting readymade garments to the USneeds to register with GAN. They are also registered atCottage and Small Industries Development Board (CSIDB)under Ministry of Industry.

Non-GAN

There are RMG units in Nepal, which functionindependently from GAN. These non-GAN members arethose RMG units who operate in small scale and export toEuropean market only. Their target market in Europe isthe flea markets. Most of these units have a sales outlet inThamel area (tourist area) targeting the local tourist. TheseRMG units are less organized as compared to GANmembers. The size of these units start from 10 to 200

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workers. As per GAN, “there are more than 100 such units butsince they are not part of a formal association it is difficult to find outthe exact number.”

Some of these units are members of Export Council ofNepal (ECON) and they have diverse business within asame organization such as handicraft, garment, accessoriesetc. They are registered at Department of Cottage and SmallIndustries.

1.4 Research Process

The research team carried out the following processes to examinethe different objectives of the study:

Reviewed the RMG industry trend in Nepal from variousreports and interactions with industry stakeholders.

Carried out internet research to analyze different news aboutNepali RMG industry.

The study team interviewed RMG manufacturers to know theirstatus. Trade unions were interviewed to know about theirperspectives on RMG industry.

The study team then analyzed the findings of the above andcame up with the recommendations for this report.

The study team presented the draft report in workshop attenedby representatives of the RMG manufacturers, Governmentbodies, labor unions, washing units and the development sector.The suggestions and comments on the findings of the workshopwere then incorporated in this final report.

1.5 Limitations

The study team has limited its analysis to available secondarydata from the review of literature and primary data tointerviews with 17 RMG units. Most of the RMG units in thecountry are closed and some of those, which are still operating,were having labor disputes because of which they were notwilling to participate in interviews.

The respondents were not willing to disclose some of theinformation asked for such as their annual sales and annualturnover. Because of their reluctance to part with informations,it was difficult to acquire all the crucial information.

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2. Garment Scenario in Nepal

The Nepali readymade garment had occupied the first position interms of overseas export in between year 2000 to 2003. The quotaphase-out under ATC began in 1995 but its impact on the Nepalieconomy was not immediate. This was because the RMG exportsfrom Nepal were concentrated on a few products (mainly cottoncasual wear) which were not under quota restrictions until the lastphase of the Agreement. The RMG sector, in fact, continued to growduring the first five years of the quota phase out and the share of theRMG industry in the manufacturing sector rose from 26 percent in1994/95 to 37 percent in 2000/01.

The export trend of last five years shows that it has declineddrastically from NRs.10.2 billion to 3.3 billion (USD 129 million to42 million).2 (See Figure 1)

Figure 1: Export trend of readymade garment from Nepal

Source: Trade and Export Promotion Centre, 2008.

In financial year 2007-08, while looking at the export of majorcommodities of Nepal, RMG has been able to get only 5.66 percent ofshareof total export as compared to 18.94 per cent in 2003-04.

2 US dollar converted at May 10 2009 rate is USD1 = NRs.79

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Similarly, financial year 2007-08 RMG has been able to get only 14.24per cent of share of total export excluding India as compared to 41.40percent in 2003/04.

Table 1: Share of apparel in overseas export and total export (value in ‘000 NRs.)

Source: Trade and Export Promotion Centre, 2008.

Fiscal Year Total Total Share Total Apparel Shareexport Apparel of Export export of(NRs.) export apparel excluding excluding apparel

(NRs.) in India India exporttotal (NRs.) (NRs.) excluding

export India(%) (%)

F.Y. 2003/04 53949414 10219390 18.94 23172314 9592690 41.40

F.Y. 2004/05 58443821 6721489 11.50 19526921 6355589 32.55

F.Y. 2005/06 59776874 6580388 11.01 19062174 5443088 28.55

F.Y. 2006/07 58927097 4712490 8.00 17198297 3947490 22.95

F.Y. 2007/08 58545059 3315402 5.66 19918659 2837302 14.24

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This section of the report includes analysis of the interviews andinformation collected from the RMG units and reviews of differentsecondary publications.

In 1995, the number of RMG units registered with GAN was 1067.The number started declining drastically after quotas was phasedout in 2004. In 2008, only 51 garment RMG units re-registered asmembers of GAN.3 According to GAN, “even though 51 RMG units aremembers of GAN less than 20 manufacturing units are in operation as of April2009.” Of the 20 or less operating units, nine of them have beeninterviewed.

3.1 Export by Regions

Out of the total respondents (17), 14 of them exported to Europe,8 to the US, 5 to domestic market, 4 to Asia Pacific (including Japan,Taiwan and Korea) and only 1 to India. (See figure).

Figure 2: Export of Nepali RMG by Region

Table 2 shows that the major export region for RMG is the US asper value.4 In 2003-04, NRs. 7.4 billion worth exported to the US,

3. Analysis and Findings

3 Those RMG units, who export to US, have to be a member of GAN. Thiscriterion is not applicable for exporting to Europe or Asia Pacific market.

4 Includes export to Canada as well.

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which declined to NRs. 1.3 billion in 2007-08. However, exports toEurope, Japan and India have not declined so drastically as comparedto the US.5

Table 2: Export of readymade garment as per major regions, 2008

Source: Trade and Export Promotion Centre, 2008

WTO has framed rules to phase out all textiles and clothing quotaswhich led to the closure of RMG units run by Indians. According tothe discussions, two reasons were stated for closure of units. Firstly,India and China with their superior technical know-how combinedwith low cost labour have managed to establish their units in theirrespective countries and had the advantage to capture a major chunkof the global market, Whereas countries like Nepal could not sustaindue to factors like high cost of labour and increase of prices in rawmaterials thereby making their products costlier compared to others.

Secondly, labor disputes in the garment industry startedincreasing. The pressures from both labor unions and political partieswere increasing. They were demanding opportunities for more people,especially people supporting political parties, permanent contractsand higher wages, all at once which the RMG units could not fulfilldue to decreased garment orders. All these resulted in closure of mostof the RMG units, even those who had survived the quota phase out.

US Canada Europe Japan India Others Total

F.Y. 2003/04 7,220,727 208,855 1,700,742 96,416 626,700 365,950 10,219,390

71% 2% 17% 1% 6% 4%

F.Y. 2004/05 4,741,948 205,190 1,036,512 91,520 365,900 280,419 6,721,489

71% 3% 15% 1% 5% 4%

F.Y. 2005/06 3,630,200 211,612 1,193,989 87,306 1,137,300 319,981 6,580,388

55% 3% 18% 1% 17% 5%

F.Y. 2006/07 2,276,707 162,413 1,006,086 84,852 765,000 417,432 4,712,490

48% 3% 21% 2% 16% 9%

F.Y. 2007/08 1,137,533 229,159 1,113,665 89,968 478,100 266,977 3,315,402

34% 7% 34% 3% 14% 8%

Value in ‘000 NRs.

5 The respondents has informed that they export to more than one regions andalso procure raw materials from more than one region.

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3.2 Source of Raw Materials

Most of the units procured their raw materials from India. Of the17 units visited, 10 procured materials from India. Raw materialsfrom local market were also used, two of them were buying exclusivelyfrom the local market only. China was third on the list for procuringraw materials.

Figure 3 : Source of Raw Materials

3.3 Sales

The sales volume of different units varied. Among the GANmembers it ranged from 250 million to 17.5 million whereas themaximum and the minimum for non-GAN members were 40 and1 million respectively. Average sales per company were 250 millionfor GAN members while it was 40 for non-GAN members.

Figure 4 : Sales of Nepali RMG units

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3.4 Employee Concern

The Nepali RMG industry employed more than 100,000 employees(direct) when it was at its peak.6 The study conducted by SAWTEEon “Impact of Textiles and Clothing Quota Phase out on Nepal” in2007, approximately 4,450 people were employed in the industry.

3.4.1 Male Female Ratio

The 17 RMG units employed 2,705 people. This included bothmanagement as well as non-management categories of workers. Thetotal number of males was 1,983 (73%) and females was 722 (27%).

Table 3: Full time employee data for 17 RMG units

3.4.2 Age

In all 17 RMGs minimum age of an employee was 23 years and themaximum was 45 years.

3.4.3 Salary

The average salary for the employees was around NRs. 6,000 andmaximum salary was around NRs.23,000 per month.

3.4.4 Appointment

The workers of the RMG are mostly from the Terai (plains) regionof Nepal especially in stitching department. They are hired on piece-rate basis payment system. The respondents informed that 6 percentof the workers were on time bound contracts, 59 per cent were onoral appointment, and rest 35 perecent received appointment letters.

Category Number Percentage

Male 1,983 73

Female 722 27

Total 2,705

6 As per the interaction with GAN members

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3.4.5 Benefits

Out of the total respondents, majority of the RMG units hadprovision for sick and casual leave (82%, 14 out of 17) and dashain7

bonus (100%, 17 out of 17). Only 65 percent (7 out of 17) of RMG unitshave provident fund and 24 percent had dormitory facility. Canteenfacility was available in one RMG unit only. When the benefitsprovided to workers were compared between the GAN and non GANmembers, the following figure was obtained.

Figure 5: Benefits Provided to Employees

The graph also shows that while dashain bonus, provident fundand sick leave are provided by most units, other facilities likedormitory and medical services are scarce.

3.4.6 Safety Equipment Orientation

Only 35 per cent of the units said that they have workers’ safetyequipment orientation. When asked further about the frequency ofsuch programs, 33 per cent said monthly, 50 per cent said yearly and17 per cent said only at the time of hiring.

While looking at the workplace policies and facilities in RMG units,those units that used to export to big buyers such as Wal-Mart andGAP Inc. had better facilities. The standards set by these big buyersas mentioned above on labor and workplace policy are higher. Nowdue to decrease in the RMG orders by these buyers the manufacturers

7 Dashain is the biggest festival of Nepal. One month extra salary is paid asdashain bonus

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have also reduced their facilities to workers only. If a buyer demandscertain minimum standards will the RMG units follow them.

In terms of workplace policies and facilities to workers, non-GANmembers are less organized. Most of them are not even following theminimum wage standards set by the Nepal Government. Themanufacturers informed that sustaining in the business is their firstpriority and once they get better orders only can they can give morefacilities to workers.

3.5 Needle Guard Policy

Units supplying goods to big buyers like GAP, Walmart, Steveand Berry have needle guard policy. 29% had this policy in theirmanufacturing units while 53% did not have Needle Guard policy.

3.6 Environment Concerns

Among the GAN members three units had washing facility. Nonon GAN member had its own washing unit. Besides these threeunits, all units outsourced their RMG to local washing units such as‘My Shop.’ Those who had washing facilities informed that they alsohave wastewater treatment facility. All the respondents informedthat they sell their solid waste (fabric, paper) to garbage collectors.

3.7 Trade Union Membership

The total respondents only 41 per cent had a politically affiliatedtrade union in their RMG units. Some units had only one trade unionwhereas some had more than one. When asked about theirrelationships with the unions the RMG unit owners said that theyhave good relationship with them in terms of solving disputesthrough dialogue.

Figure 6: Trade Union in RMG units

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The units which did not have any formal trade unions,it isascertained, that any disputes between the management and theworkers were settled between themselves. They neither had anyinternal employee committee of sorts in their units.

3.8 Factors affecting Export of Nepali RMG

The Nepali RMG is on a verge of collapse. The total number ofRMG units registered with GAN has decreased drastically. The totalnumber of RMG units in operation, who are members of GAN atpresent, is below 20. The main reasons for the fall in Nepali readymadegarment industry were cited as follows:

3.8.1 Phase-out of Textiles and Clothing Quota

Mr. Prashant Kumar Pokharel, president of GAN said, “There areseveral assumptions about quota phase-out being the major cause in the declinein Nepali RMG export to the US, but I think it is not the major cause but only oneof the causes.” He further said that other South Asian countries such asSri Lanka, Pakistan, India and Bangladesh were also affected buttheir export has not been affected. In fact their exports registered agrowth of 20-25 per cent.8 Nepali RMG industry never prepared itselffor life after quota phase out. It was dependent on only one market,the US, which was giving preferential treatment. On average, the UShad been buying more than 85 per cent of the total RMG produced inNepal every year. However, compared to other major South Asiancountries, Nepal shared less than one per cent of the total the USimports. The industry was not proactive enough in terms ofdeveloping innovative products, Nepali RMG brand, or to invest infinding new markets. Before quota phased out Nepali RMG gained ashare in the US market only because of high tariff Indian and Chinesegoods. Once it was over Nepali RMG could not compete with cheaperand better quality of RMG from these two countries.

3.8.2 Political Instability

The other factor that affected the overall manufacturing industryof Nepal was the uncertain political situation. Frequent roadblocksand strikes delayed import of raw materials as well as export ofRMG. RMG units could not afford the extra cost as well as meetconsignment deadlines.

8 Interview to The Himalayan Times, a daily newspaper not very clear.

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3.8.3 Labor Disputes

Some of the units that survived the post-quota phase could notsurvive the demands and pressure of the trade unions. Since 2006,the interference from trade unions associated with political partiesincreased. The resistance to these unions led to closure of many RMGunits.

3.8.4 Load Shedding

The year 2008 and 2009 faced heavy load shedding9 in the country.There were up to 16 hours power cuts every day. Due to this, theindustry mostly depended on diesel generators. The supply of dieselwas also low in Kathmandu valley because of the conflict in Terairegions. Therefore, load shedding added to the cost of productionand the delivery of RMG got delayed.

Hence, political instability, labor disputes and load shedding canbe increased attributed to the cost of production and hence NepaliRMG units have lost its competitive edge.

For those who survived, the main reason attributed for survivalare their target market and the export volume. They are targetingmarkets in Europe, Canada and India where they sell in small volumesto niche market.

3.9 Possible Future of RMG Units

Even though less than 20 RMG units are in operation there arestill some units, which are waiting for favorable conditions to starttheir operations. While discussing with the RMG units the followingwere identified as some factors that could revive the industry.

3.9.1 Duty Free Access to the US

The Nepali RMG industry was enjoying preferential treatmenton export of their RMG to the US till 2004. The US was the majorbuyer of Nepali RMG, with 80 per cent of RMG exported there.Currently, Nepali RMG is paying 17 per cent as duty charge to exportcotton garments to the US. If Nepali RMG units can have duty freeaccess to the US, then those who used to export to the US can revive

9 Load shedding is a last resort measure used by an electricity utility companyin order to avoid a total blackout of the power system. http://en.wikipedia.org/wiki/Rolling_blackout

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their units. The Nepal government should continue to lobby withthe US government for duty free access.

3.9.2 Declare as Priority Industry

The RMG units want Nepal Government to declare the RMGindustry as a priority industry. All the facilities provided to priorityindustry should be available to Nepali RMG industry such as long-term and short-term loans and relief packages. They feel that NepaliRMG industry can survive only if government supports it throughrelief packages such as decrease in electricity demand charge, dutydraw back,10 cash incentives and minimum interest loans. The RMGunits are also advocating with the government for a total rebate ofincome tax on foreign currency earnings.

3.9.3 Garment Processing Zone

Nepal is a landlocked country and has to depend on Indian portsfor its export. Regular roadblocks and poor transportation hasaffected the efficiency in terms of cost and delivery time. Themanufacturers feel that Garment Processing Zone (GPZ) is anotheroption by which the industry can revive. Facilities such as regularpower, water facilities, and quick access to Calcutta harbor shouldbe available in GPZ. If Nepal Government establishes a GPZ closer tothe Inland Container Depot at Birgunj (within proposed ExportPromotion Zone), then it may contribute to revive the industry.

3.9.4 Market Expansion

The duty free access to Europe can be exploited more to increaseNepali RMG export. Capacity development on market researchamong the units might be able to expand outreach to other regions.This would also reduce disputes with workers in terms of the industrybeing seasonal, a year long working capacity would certainly benefitall parties.

3.10 Trade Union Perspective:

The unionism in Nepali RMG remains around 40% spread overthree major unions11 and few others.

10 Duty draw back is a refund of all or part of any import duty paid in respect ofgoods exported, www.ugrevenue.com/regulations/dutydraw.doc

11 Nepal Trade Union Congress, General Federation of Nepalese Trade Unionsand All Nepal Trade Union Federation

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S. N. Trade Union Garment Workers

1 GEFONT 1200

2 NTUC 2400

Table 4: Number of garment workers in different trade unions

Another major Trade Union is the All Nepal Trade UnionFederation.(ANTUF)

The following perspectives are according to the interview thatthe study team had with the following two trade union leaders:

Nepal Independent Garment Workers Union - unit of GeneralFederation of Nepalese Trade Union (GEFONT); and

Nepal Garment Workers Union – unit of Nepal Trade UnionCongress (NTUC)

The trade unions referred the quota phase out as the main reasonfor the downfall of the RMG sector. They further added that theunstable political situation was the second reason.

The union leaders mentioned that in those RMG units who haveto maintain the standards set by the internationally renownedbuyers, the social conditions are better. However, the social conditionsin non-GAN members RMG units are not good, as some of them donot comply with the law of providing minimum wages, givingcontracts, working condition or working hour policy. Non-GANmembers are less organized as compared to GAN members.

Figure 7: Key Stakeholders in Nepali Garment Industry:

The major stakeholders if the Nepalese garment industries are

Government of Nepal:

a. Ministry of Finance

b. Ministry of Commerce

c. Ministry of Labor.

d. Ministry of Industry·

Nepalese Embassy in the various Nepalese garmentimporting countries

Department of Cottage and Small Industries

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Trade ad Export Promotion Centre

The Trade Unions

Associations

a. Federation of Nepalese Chamber of Commerce andIndustries

b. Garment Association Nepal

Suppliers

Service Providers like Washing Units, Dying Units

Export Council of Nepal

The role these stakeholders are playing and are capable ofplaying are as follows.

The Government has been lobbying with the US diplomats toput forward the bill to persuade the US government to provideduty free access to the 14 Least Developed Countries includingNepal. Supporting both the labor and Industrialist and thecommunity requires good coordination between various ministries.Ministry of Finance, Ministry of Commerce, Ministry of Industryand Ministry of Labor all play a significant role in the revival andgrowth of RMG industry by providing favorable policies.

Department of Cottage and Small Industries:

Department of Cottage and Small Industries(DCSI) have beenconstituted under Ministry of Industry, Commerce and Supplies(MOICS) in 1973 (B.S. 2030) to promote and foster various kinds ofcottage and small industries enhancing their industrial productivityincrement along with making congenial environment for industrialinvestment in accordance with policy execution for contributingnational economy . All RMG units are registered under Departmentof Cottage and Small Industries.

Trade and Export Promotion Centre:

The Government of Nepal has established “Trade and ExportPromotion Centre”, a national trade promotion organization of thecountry in November 2006, as a focal point, with the objective ofpromoting foreign trade in general and export trade in particularof the country.

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The Trade Unions:

Trade unions play an important role in facilitating disputesbetween the employer and the employee. They have been ensuringthe rights of the workers and smooth functioning of troubled units.

Associations:

Federation of Nepalese Chamber of Commerce andIndustries.

The Federation of Nepalese Chambers of Commerce andIndustry (FNCCI) is an umbrella organisation of the Nepaleseprivate sector. It was established in 1965 with the aim ofpromoting business and industry while protecting the rightsand interests of business and industrial communities. FNCCIhas been playing a key role in promoting business andindustry in the country. It provides, inter alia, information,advisory, consultative, promotional and representativeservices to business and government and organizes training/ workshop / seminar on a regular basis. It represents privatesector at various national and international levels andadvocates for favorable policy for the private sector tooperate smoothly and grow.·

Garment Association Nepal:

Garment Association – Nepal (GAN) is the apex organizationof the garment industries manufacturer & exporter of readymadegarments. Presently GAN comprises of about 200 memberinstitutions. The principle objectives of GAN are the promotion ofthe interests of member institutions through co-ordinateddissemination of relevant information, and encouragement andsafeguarding the interests of the garment sector throughinteraction & assistance with the government.

Suppliers: the suppliers include the suppliers of good and rawmaterial like textiles, machines zippers, buttons, like BhaktapurTraditional Cotton Textiles, Lubhu Textiles, etc

Service Providers: The service providers include the washingand dying units as well as exporters like My Shop Dry Cleaners.

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Export Council of Nepal:

The Export Council of Nepal (ECON) is a council of the NepaleseTrading firms (Traditional Garment, handicraft and woolen good’sexporters) which was established in 1996. It is a non - profit makingassociation for the promotion of export trade in overseas countriesand other countries.

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4.1 Conclusion

The RMG industry has played a significant role in the Nepalieconomy. The industry contributed nearly 45 percent in the totalexport of Nepal during late 1990s. Around the year 2000, the RMGindustry provided direct employment to 100,000 people12, includinga significant number of women. As RMG employs a huge number ofworkers, it is an important sector for the development of Nepalieconomy. Since 2005, the industry export has been decreasingdrastically. Now, the RMG contribution to Nepali economy is only17 percent (2007/08) of total export to overseas countries. Thus, therevival of this sector is important if Nepal wants to generateemployment to its people, especially women and increase foreigncurrency earning.

The present trend in the export of Nepali RMG is decreasing. NepalRMG is loosing its competitiveness when compared with India andChina. The cost of production for Nepali RMG is increasing. Firstly,the minimum wage for workers has increased by 80 percent13 in last5 years. Secondly, the regular strikes and roadblocks have delayedprocurement of raw materials and forced some RMG manufacturersto send product through air adding to the unit cost of production.Thirdly, sixteen hours of load shedding has forced RMG units to runon diesel generators, which in turn has increased the cost ofproduction and delayed in delivery of Nepali RMG.

Most of the RMG units comply with the Minimum Wage Act ofNepal. The units interviewed reported no Child Labor in theirpremises and none was seen during the factory visits. With the global

4. Conclusion and Recommendations

12 SAWTEE and ActionAid Nepal, Impact of Textiles and Clothing quota phaseout of Nepal, 2007

13 In 2003 the minimum salary for unskilled workers was NRs 2,560 and in 2008it was NRs 4,600 www.gefont.org/common/

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economic turndown, even the good ones seem to be paying lessattention to employee welfare activities due to reduced demand frombuyers. The social security of workers did not exist in most RMGunits with limited provision for provident funds or health insurance.

The health and safety status of GAN members workforce weredefinitely better than that of Non- GAN members. The state ofmachines and workplace was less safe in most RMG units notaffiliated to GAN, with limited provision for safe drinking water,ventilation and working space.

Despite distinct advantage of relatively low labor cost in theNepali RMG, the low labor productivity remains obstacle tocompetitiveness. As one of the studies shows, except for Bangladesh,the per hour labor cost in garment industry in China and India ishigher than in Nepal, but the productivity of Nepalese worker islower by more than half of the Chinese or Indian workers, who aresupposed to be competitive in the changed context.14 Trained workforce is essential to compete in the international market. The RMGunits still depends on Indian workforce for high skilled jobs such ascutting masters. Therefore, skill enhancement training to workers isimportant.

To revive the RMG industry, Nepal Government has to supportthe industry by provisioning special packages such as decrease inelectricity consumption charge, duty draw back15, cash incentivesand minimum interest loan.

4.2 Recommendations

The recommendations are targeted for government, private andother stakeholders of the RMG

Nepal Government

The Nepal Government should continue to lobby with the USgovernment for a duty free access of Nepali RMG to the US.

14 Bijendra Man Shakya, Sustaining Nepalese garment industry after quotaabolition, 2005

15 Duty draw back is a refund of all or part of any import duty paid in respect ofgoods exported, www.ugrevenue.com/regulations/dutydraw.doc

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The government should consider establishment of GarmentProcessing Zone under Special Economic Zone16 near inlandcontainer depot in Birgunj so that the transportation cost canbe reduced and delivery time to Indian harbor for export can bereduced.

The government should assist the RMG sector in upgrading thetechnology and productivity. Trainings should be provided toRMG on new technology in partnership with GAN. It can alsoactivate the existing textile-training center under theDepartment of Cottage & Small Industry so that it can supportin developing skilled work force.

A separate labor policy needs to be developed for garment sectoras it is a labor-intensive industry addressing the needs of boththe labor and employers.

The Nepal Government should develop alternative provisionsto provide uninterrupted and cheaper power supply to NepaliRMG Industries to make the production cost competitive.

Ensuring profit to Industrialist, protecting the rights of workersand benefit to the country’s economy is a complicated affair;coordination that is more effective is required among variousministries to ensure benefit to the Industrialist, workers andthe country’s economy.

Private Sector

The private sector should invest in training for new productdevelopment suitable to the changing taste of market, qualityimprovement and to identify niche markets for special NepaliRMG products of high value.

The RMG units have to start marketing itself and look foralternative market other than the US such as Europe, Canada,Asia Pacific and India. As there is duty free access to Europe theindustry should also take benefit from these markets. The RMG

16 Special Economic Zone (SEZ) is a tax free zone with industries and tradinghouses specially geared towards export.It combines both trade andmanufacturing. The essence of SEZ is the establishment of modernmanufacturing units in the related industrial estate by providing suitable packageof incentives to foreign and local investors in beaurocracy hassle freeenvironment. http://seznepal.gov.np/sez_birgunj.htm

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units should invest on market research and development sothat they can expand itself beyond the USA.

Development of professionalism, business management systemswhich is lacking in most units, could certainly give the unitsmore chances of growing, survival and revival.

RMGs should invest in skill development of its workforce toincrease labor productivity.

The Nepali RMG industry should respect and comply with thelegal regulations. It should be more responsible towards itsstakeholders such as employee, suppliers, buyers andenvironment.

Other Stakeholders

The Garment Association of Nepal (GAN) should try toincorporate non-GAN manufacturers in their members list sothat it can lobby with the government for the benefit of theindustry with a bigger voice. Such membership will also assistthe non-GAN member to be more organized.

The NGOs can support the RMG industry by provide trainingsin the area of social compliance and environmental issues andthereby facilitating networking of Nepali RMG withinternational buyers.

Trade union should also have congenial industrial relationswith the RMG industry. As this industry is a labor intensiveindustry trade union can support by developing betterunderstanding of employer and vice-versa.

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Shakya Bijendra Man, Sustaining Nepalese garment industry after quotaabolition, 2005

Sapkota Chandan, The WTO, post era and the Nepalese garmentindustry, 2008

Garment Association of Nepal, member’s directory, 2004

Ministry of Finance, Economic survey, 2007

Nepal Rastra Bank, quarterly economic bulletin, various issues

Pokharel Prashant Kumar, speech on 19th annual general meeting, 2009

SAWTEE and ActionAid Nepal, Impact of Textiles and Clothing quotaphase out of Nepal, 2007

Singh Rajendra, Trade and Export Promotion Board, Study on thepotential of readymade garments market in New Delhi andBangalore, India, 2008

Solidaridad and Partners in Change, Knitted together – Multi-stakeholderperspectives on economic, social and environmental issues inthe Tirupur garment cluster, 2006

Trade and Export Promotion Centre, Nepal overseas trade statistics,various issues

Trade and Export Promotion Centre, A glimpse of Nepal’s foreign trade,2008

Upadhya Shizu, Allured by America: The Garment Industry and Ruraland Urban Livelihoods in Nepal

Upadhyaya Umesh, paper presented on world solidarity forum forgarment workers in LDCs, Workers in the Textile and Garmentsector in Nepal, 2003

5. References

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S. N. Name Designation Organization

1 Prashant K Pokhrel Executive Director Ami Apparels(President of GAN)

2 Ram Kaji Thapa Factory Manager Ami Apparels

3 Umesh Pokhrel Manager Ami Apparels

4 Rajani Thapa Managing Director Creative Touch

5 Bizu Shrestha Managing Director Delima CraftsCreation

6 Kedar Prasad Poudel General Secretary GAN

7 Matrika Dahal Senior Officer GAN

8 Udaya Raj Pandey First Vice President GAN

9 Keshab Duwadi President - Garment GEFONTWorkers Union

10 Sanjay Agrawal Executive Director Heritage Fashion

11 Harish Todi Executive Director JD Apparels

12 Rahul Man Shakya Managing Director Kathmandu StarFashion

13 Jimmy Timilsina Marketing Manager Natural Fiber

14 Bishwa Nath Neupane Managing Director Nepalese Clothing

15 Janak Lal Shrestha Managing Director New Rose/RoseBoutique

16 Nawaraj Pandey Managing Director New Snowline

17 Shivaram Pandey Executive Director Rejoice Wears

18 Pradeep Man Shakya Managing Director Shraman Apparels

6. Annexure

6.1 Annexure 1: List of People Met

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19 Chhavi Lal Silwal Executive Director SiddharthaHandicrafts andGarments

20 Janak Raj Pandey Executive Director Surya NepalFashion Limited

21 Sri Raaj Factory Manager Surya Nepal Pvt Ltd- Garment

22 A K Jha HR Manager Surya Nepal Pvt Ltd- Garment

23 Krishna Prasad Pandey Executive Director Trance Trip

24 Prakash Jha Textile Engineer Wild Fiber

25 Yuvraj Karki President- Nepal Nepal Trade UnionGarment workers CongressUnion

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6.2 Annexure 2: List of Participants in Draft ReportDissemination Workshop

Government Gokul Prasad Department of Director Body Dhital Cottage and Small General

Industries

Rajendra Singh Trade and Export SectionPromotion Centre Officer

Dr. Suman Kumar Trade and Export DirectorRegmi Promotion Centre

Trade Union Keshab Duwadi General Federation President-of Nepalese Trade GarmentUnion Sector

Yuvraj Karki Nepal Trade President-Union Congress Garment

Sector

Association Uday Raj Pandey Garment 1st ViceAssociation Nepal President

RMG Chhote Lal Adam & Eve ED Industries Rauniyar

NS Jain Bindavasini Garment ED

Bizu Shrestha Delima Crafts ED

Monica Agrawal Heritage Fashion

Kannad Shakya Kathmandu ManagementStar Fashion Team

Rahul Man Shakya Kathmandu EDStar Fashion

Kedar Acharya Rejoice Wears ED

Shiva Ram Kandel Rejoice Wears ED

Mr. Rajiv Jasuja Surya Nepal ManagerPvt. Ltd

Chhabi Lal Silwal Siddhartha EDHandicraft andGarment

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Textiles and Prakash Jha Wild Fibre and Textile Dry Cleaners Bhaktapur Engineer

Traditional CottonTextile

Prem Niraula My ShopDry Cleaners

ECCA-Nepal Kumar Ale ECCA - Nepal EI officer

Neeraj Nepali ECCA - Nepal EI Director

Pratibha Duwal ECCA - Nepal Counselor

Reema Shrestha ECCA - Nepal EI Manager

Sagun Ranjitkar ECCA - Nepal Volunteer

Suchita Shrestha ECCA - Nepal Counselor

Solidaridad Gagan Mehta Solidaridad - SeniorSouth and South ProgramEast Asia Officer

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6.3 Annexure 3: Structured Questionnaire

Section A:

1. Company Name: …………………………………………………………

2. Name: ………………………………………………….…………………

3. Designation: ………………………………………………………………

4. Address: ……………………………………………………………………

5. When was your company established? ………………………………

6. What is the legal status of your company?

Private Limited Proprietorship Partnership

Others ………….

7. If partnership, how many partners have you got?

………………………………………………………………………………

8. What kind of garments do you mostly produce?

Readymade Knitwear Both

Others……………..

9. How many machines do you have in your factory?

………………………………………………………………………………

10. Who are the main buyers of your company?

Domestic market India Europe

America Asia Others ……………

Suppliers

11. Where do you get the raw materials required for your product?

Local market Different parts of Nepal India

China Others……………….

12. How do you procure raw materials from the suppliers?

………………………………………………………………………………

………………………………………………………………………………

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13. Do you inspect the operational unit/workshop of the raw materialsupplier?

Yes No

14. If yes, how do you inspect such facility?

………………………………………………………………………………

Economic

15. What is your company’s annual turnover?

………………………………………………………………………………

16. What is your company’s annual sales?

………………………………………………………………………………

17. What has been your company’s profit and loss trend in last fiveyears?

2004 (2060 – 2061) ……………………………………

2005 (2061 – 2062) ……………………………………

2006 (2062 - 2063) ……………………………………

2007 (2063 – 2064) ……………………………………

2008 (2064 – 2065) ……………………………………

18. Has the financial audit been done in your company for the fiscalyear 2064/65?

Yes No

Section B:

19. Please provide information on the number of people employed inyour organization

Production Management Total

Number of Male Employees

Number of Female Employees

Total Number of Employees

20. Do you have marginalized/destitute people working in yourcompany? Do they identify people in such category?

Yes No

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21. Which marginalized / destitute group or community do they belong to?

………………………………………………………………………………

22. If yes how many are employed?

Male ________

Female ________

23. Do you have disabled people working in your company?

………………………………………………………………………………

24. If yes, how many are employed?

Male ________

Female ________

25. Please provide the age of the youngest and eldest employee in yourcompany.

Age of the youngest employee

Age of the oldest employee

26. Please provide the existing salary range of your employees.

Minimum salary amount

Maximum salary amount

27. What is the working hours for the employees? ………………..

28. Is there an overtime-working hour policy?

Yes No

29. If yes, please explain it

………………………………………………………………………………

30. What is the process of appointment in your organization

Time bound contract ________

Verbal confirmation ________

Appointment letter ________

Others (please mention) ________

31. Please provide the reason for the type of appointment confirmationmostly practiced in your company

………………………………………………………………………………

………………………………………………………………………………

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32. Please tick ( ) on the benefits your company is providing to differentcategories of employees.

Benefits

Provident Fund

Gratuity Fund

Dashain Bonus

Bonus on net profit

Transportation facility

Subsidized Canteen

Provision of sick leave, casual leave

Health / Medical Insurance

Maternity leave

Dormitory facility

Doctor facility

Child care centre

Others

33. Do you have workers safety equipment orientation?

Yes No

34. If yes how frequently do you have it?

Monthly Quarterly

Semi Annually Yearly

35. Do you have needle guard policy?

………………………………………………………………………………

36. Do you have equipment maintenance records?

………………………………………………………………………………

37. Do you have an employee committee in your organization?

Yes No

38. How does the employee committee function in your company?

………………………………………………………………………………

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39. Is your worker part of any union?

Yes No

40. If yes which one?

………………………………………………………………………………

………………………………………………………………………………

41. How often do you interact with the employee committee?

Weekly Monthly Quarterly

Yearly On need basis Others…………………..

42. Are there grievances/ suggestions from the employees?

Yes No

43. If yes what are those?

………………………………………………………………………………

………………………………………………………………………………

Section C:

44. Does your company have a washing facility?

Yes No

45. If yes, do you have a wastewater treatment facility?

Yes No

46. How do your treat the solid waste of your company?

Sell it Recycle Dispatch in

municipality waste Others ……………………….

47. Are you involved in any kind of greenery maintenance in yourfactory?

………………………………………………………………………………

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6.4 Annexure 4: Unstructured Questionnaire

1. How is the economic status of the garment industry in Nepal?

2. What do you think about the future of garment industry in Nepal?

3. How can the Nepal garment industry be revived?

4. Who has the main role in reviving this industry?

What kind of support are the factories looking for at present torevive the industry?

5. Are you a member of the Garment Association of Nepal?

6. In your opinion is there any garment factory, which did not haveany down fall?

7. Are you willing to work in partnership with the development sector?If yes, how and in which area?

6.5 Annexure 5: Unstructured Questionnaire to Trade Union

1. Union: ………………………………………………………………………

2. Name: ………………………………………………………………………

3. Designation: ………………………………………………………………

4. How many members are there in your Union (whole Nepal)

5. How many garment sectors workers are parts of your union?

6. How do you see the future of the garment sector?

7. How do you see the future of the workers in garment sector? How isthe relationship between workers and employers

8. How has been the garment sector trend in your opinion in last fiveyears? Economic

9. What is the social and environment condition in a garment factory?

10. What is the main reason for the garment sector downfall?

11. How do you think the garment sector can be revived?

12. Whose role is most important in reviving the garment sector? Govt.,private, ngos, labour, union, association

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phased out & stiched up: state of the readymade garment sector in nepal

Documents

readymade garment sector

export of readymade

garment scenario

nepali garment industry

garment association

number of garment workers

export of nepali rmg

sales of nepali rmg