Through this period, carpet exports crossed the Rs 8 billion mark, investment in the sector reached Rs 10 billion, and the industry employed at least half a million people.
But then the millennium rolled around, and since then, this prime Nepali export product has failed to retain buyers. Today, fewer customers are taking the product into their drawing rooms and even fewer orders have greeted the industry. Today, exports have dropped to less than half of what was recorded in the mid-1990s, the number of factories has gone down sharply, the employment figures for the industry have plunged to less than 50,000, and investment has shifted away from the sector.
“We failed on numerous fronts over this decade, whereas countries like India and China developed their industries to become more competitive,” says Kavindra Nath Thakur of the Nepal Carpet Exporters Association (NCEA). The main reason for this state of affairs--on the surface, at least--appears to lie with the international buyers, but the reality is that its roots lie deep within the country itself.
The foremost reason that the Nepali carpet industry has witnessed this downturn is that exporters have not been delivering their orders on time. Deemed largely a variable that´s beyond the industry´s control, this failure on the Nepali exporters´ part to make good on their deals by deadline is actually a result of the general strikes and bandas that have mired the country over the decade of political instability and conflict.
And as the culture of bandas continues, the fate of the carpet industry, which has not changed for the better in recent months, hangs in a precipitous balance.
The second reason is related to the price factor. “At the present supply rates, Nepali carpet is 40 percent more expensive than Indian ones,” says Thakur. And this higher price is attributed to i) the land-locked geography of the country, ii) the longer transit time and higher transportation costs the Nepali manufacturers have to put up with, iii) the duty and tax imposed on carpets by the government and iv) higher labor liability.
“The government here imposes duty and taxes of 21 percent on the industry, whereas such tax liability in India is almost nil,” says Thakur. Add to that the latest load-shedding problem, which has affected production and cost, and it´s no wonder that the carpet industry is languishing.
As if that weren´t enough, the rigid labor law does not allow carpet companies, who operate on the basis of orders they receive from overseas buyers, to “right size” their staff on basis of the business they have on hand. The companies need to shoulder the liability of maintaining workers at full strength, even when the companies have only lean orders.
And the third major factor is related to labor stir--which is again linked to the workers´ demands for extra perks and benefits and to the competition among rival trade unions affiliated to different political parties.
Because of all these factors, key importers are pledging fewer orders to Nepali companies. Just over the past one year alone, buyers such as Bishonbatch, Kibdkeptich and the Atlas Group, who used to account for at least 70 percent of Nepal´s total carpet exports--have shifted their orders to India.
As a result, the quantity of exports to Germany, the largest consumer of Nepali hand-knotted woolen carpets, has slipped by more than 20 percent over the first nine months of the current fiscal year, compared to the same period last year. Exports to the United States, the second largest importer, also shrank by a quarter compared to what was exported in the same period last year.
But despite all the odds, exporters believe that Nepal can still sustain its carpet trade if the government were to take just three steps. First, according to the NCEA, the government must allow companies to recruit and lay off workers as per the order flow. Second, the unnecessary closure of industries and of highway bandas should be restricted. And third, the government should support highland farmers in rearing sheep for wool.
All these three steps are implementable. If they are implemented, say exporters, hand-knotted carpets will continue to create huge employment opportunities in and earn much foreign currency for Nepal.
milan@myrepublica.com
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