If garments develop, the rest of our value chain will automatically align itself.

--BY CHETAN GADIA

Much has been said about the fated demise of the clothing and textile industry in Nepal after the implementation of the current budget. This is because the industry is going through a very difficult phase. The government recently revoked its VAT refund policy that enabled the textile industry to compete with Indian and Chinese fabrics. Indian and Chinese fabrics are produced at much lower costs as compared to Nepal as textiles enjoy a lot of benefits in these countries. Also, trafficking of textiles and an incorrect value declaration at the customs is very common in Nepal which essentially means that a fabric produced at a lower cost can be imported into Nepal with minimal expenses. However, there are multiple thoughts and challenges on how the clothing value chain must be promoted in Nepal. To dive a little deeper into this topic one needs to first understand the entire value chain. 

Garments we wear or use at our homes, workplaces or outdoors are made from fabrics. These fabrics are produced from threads we call yarns and the yarns are produced from fibers. Fibers may be natural or manmade. Natural fibers such as cotton, silk, wool etc. come from plants, animals or minerals whereas manmade fibers such as polyester, nylon, acrylic etc. are mostly petroleum derivatives. Some fibers such as rayon, viscose, modal, lyocell etc. are extracted from plants and trees but are not found naturally like cotton or wool. For technical purposes we call them manmade fibers. In this entire value chain, a fiber which is available at Rs 75-80 / kg can create a value addition of Rs 1,000 or more in the form of a garment. Additionally, while from fiber to fabric the value addition is only 100 percent or more, from a fabric to garment the value addition can be much greater. In the process, it creates a lot of jobs and opportunities for skilled and un-skilled manpower.

It is difficult for one country to gain a competitive advantage across the value chain as it depends on multiple factors such as location (where the fiber is found or made), cost of labour and other inputs, government policies regarding a specific item in the value chain, and the overall availability of capital in the country. Nepal being a land locked country has a natural advantage in very few fibers. Wool is one of them. Wool is produced at a very rudimentary scale in the upper Himalayan regions of Mustang. The government has taken necessary steps to promote the industry but most of it is in the marketing of these goods and not enhancing the breeding, shearing or processing technology. Nepal has abundant fresh water resources which can help in vegetation and extraction of tree based ones like bamboo viscose. However, such scale based projects that can impact the grass roots levels have not yet been initiated. Then how is it possible for us to develop the industry? What aspects of the industry should be developed?

Before we talk about how to promote the industry, we need to be clear of the objectives. Is the objective to fulfill the domestic demand of textiles and become self-sufficient or to develop capabilities to export it someday? Do we wish to develop the entire value chain all the way to fashion or only a specific aspect of it? Considering the varieties and number of application of fabrics, it is impossible for any country to become entirely self-sufficient. Countries like India adopted policies to develop the beginning of the value chain. 

Since India has a natural advantage in cotton due to an abundance of black soil, one of the key pre-requisites to farm cotton, it chose to develop its cotton industry. Similarly, it invested hugely in the development of polyester from extraction of the fiber to the creation of yarn. This strategy has paid off well primarily because India has a huge demand of its own and it is open from 3 sides which makes shipping of goods to the outside world easier. 

Bangladesh on the other had had a situation very similar to ours. It is a small country with minimal domestic consumption and very few trade routes. Hence, given its scale Bangladesh chose to start from the end of value chain, i.e. garments, and so far has been extremely successful at it. Gradually, the industry developed itself and now fabric and yarn production is also at a peak. Another notable approach by Bangladesh has been to develop a market for knit wear more than woven which resonated well with the overall direction in which the fashion industry has been moving. One similar example is Sri Lanka which decided its play is in knits but not of cotton. It has played in polyester and its blends in knit wear fabrics which are mostly used in inner wear or by sports persons as performance fabrics. There are many more similar examples farther away from home but the most we can learn is from sub-continent economies with similar socio-political and economic conditions. 

There is an iterative but the government also needs to take a similar path. We need to start from the end of the value chain. Development of garments and export promotion policies to support the garments must be the first and foremost priority of the government. If garments develop, the rest of our value chain will automatically align itself. As per the data recorded by the Garments Association of Nepal, a total of approximately 1100 crores worth of readymade garments were exported out of the country in the year 2000-01. This number in nominal value terms has fallen to a mere Rs 500 crores in 2017-18. Assuming inflation doubles the value of goods every 8-10 years, Rs 500 crores worth of sales today would essentially mean only 125 crores worth of exports if we compare it with Rs 1,100 crores in the year 2000-01. That is a staggering 9-fold reduction in exports from the year 2000. The last 15 years of political turmoil and lack of economic intent from the leadership has led us to this stage. It is unbelievable to think that we have actually de-grown in one of the most basic aspects of human life i.e. clothing. ILO (International Labor Organization) famously classifies the anti-industry stance of the Nepal government as “Pre-mature De-industrialization”.

If it is well accepted that development of garments is the way forward, we must evaluate how we will enable the garments to prosper. To my mind, it is about 4 key things viz. raw materials, availability of skilled and unskilled labour, technology, and exposure to international markets. Let us briefly elaborate on each item. 

Raw material, quality and availability: Fabric makes up for more than 95 percent of any garment. Availability of quality fabric is easily the most critical and important aspect in the development of garments. It is not practical to assume that the domestic woven and knit fabric industry will be able to fulfill the demand for all kinds of quality fabrics. Hence, the second set of objectives need to be more granular to the level of what kind of fabrics will we produce ourselves and what kinds will we let the garment manufacturers import. 

Apart from being classified into woven and knits, fabrics can also be classified on the basis of their application. For example, performance textiles like sports-wear, technical textiles like airbags, parachutes, non-woven for filters etc., casual and work wears and others. In it also there can be classifications based on the type used for construction. An exhaustive exercise to find out intersections by various types of classifications and subsequently identifying our strength areas will help us determine fabrics we wish to make and those that we are happy importing. 

For instance, while highly technical textile fabrics used for making adventure gear in extreme high altitude areas may not be feasible to make in Nepal, at the same time we must have an option to import these fabrics at almost zero duty so we can fulfill the domestic demand and also brand it such that it can be bought in other areas of the world. A US based brand called Sherpa that is popular for adventure gear and apparel for men and women is one of a very few producing in Nepal. There are over 910 workers working for the company in the form of small knitting co-operatives that are particularly comprised of women. 55 percent of their total production is currently being produced in Nepal. We need to promote such brands and provide them the support to manufacture more in Nepal. Fairly non-technical fabrics such as work wear, casual wear, upholstery, etc. can all be produced in Nepal and garments must be encouraged to promote the use of local fabrics. The government must make efforts to develop the infrastructure to support allied industries related to spinning, weaving, knitting, processing etc.

Skill development and availability of labour: According to the ILO Country Office in Nepal, there has been a six-fold increase in migration of labourers from the year 2000-01 to the year 2016-17. Of this an overwhelming 78 percent is in unskilled and semi-skilled jobs. Of these about 6.5 percent is in the manufacturing sector majorly contributed by workers in the fashion and textile oriented industries. This would be about 50,000 workers who migrated to countries like India, Bangladesh and Middle East working in the clothing industry. If there was a way we could retain this workforce and leverage it to develop and army of clothing industry workers, it would become a major contributor to the national income. 

There are two key areas in which labour skill development needs to take place. First is in the designing and planning of clothing and fashion and second is in the execution. The government needs to invest heavily in international tie-ups and educational institutions that impart education and training in textile technologies and fashion designing. Similarly, for unskilled or semi-skilled jobs like garment manufacturing, washing, grading etc. vocational education must be promoted. The onus is on the government to establish vocational training centres in which people from multiple locations, backgrounds and ethnicities can be taught these basic tasks. 

Technology: Garmenting has now become a fairly technical exercise. There a 4 key aspects in the process of garment creation viz. Preparatory – the act of preparing fabric for cutting, cutting of fabric and making lots for it to be stitched; Stitching – the act of putting together all the cut fabrics; Post stitch processing – washing, finishing, giving desired effects on the surface of garment, and finally, Grading and packing – Quality assessment of garment and packing as per the needs of the customer. 

In each of these aspects, technology has seeped in deeply. Advanced software now helps producers in the optimisation of the design and the amount of fabric required for stitching to save on cost. There are robotic based laser cutting machines that automatically lay the fabric on the table and cut it using laser technology. Similar interventions are also available in stitching, processing, grading and packing of the garments. If use of these technologies is promoted in the production of garments, our cost of production will match the world, productivity of our labour will increase thereby also helping the labour wage rates to increase. 

Exposure to international markets: Nepal’s presence in the international garment and fabric fairs and exhibitions is almost zero. Except for a very few niche suppliers of woolens and traditional textiles we do not have any presence in the international market. It would be good to see the government take the initiative to organise road shows and events in the international arena showcasing our garments and designs. Most of the brands today look forward to these events as their procurement managers are happy to choose unique designs created by garments that they can brand as their own and market. 

Clothing and fashion today is one of the most competitive industries in the world where large fishes dominate and thrive on scale. However, there is something unique about Nepal and it needs to be leveraged to its fullest. This article is just an earnest effort to put together an independent thinking on how we can achieve success. There may be a completely different path that may be better but unless we make an effort to identify key areas and focus on them, we will be labelled as the economy that went into “Premature De-industrialization”.

The author is Director at Noble Textiles Pvt Ltd.