Phased out and Stitched 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 Up: State of the Readymade Garment Sector in Nepal
PHASED OUT AND STITCHED 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 PHASED OUT AND STITCHED UP State of the Readymade Garment Sector in Nepal
ISBN: 978-81-908155-2-9 Š 2009, Edition - first
Published by
Prakruthi on behalf of Solidaridad Regional Expertise Centre for South & SE Asia 43, 2nd Cross, Ramaya Layout St. Thomas Town Post Kammanahalli Bangalore 560 084, India www.prakruthi.org
Printed at National Printing Press, Bangalore 4
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
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
Conclusion and Recommendations
30
4.1 Conclusion
30
4.2 Recommendations
31
4.
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
5.
References
34
6.
Annexure
35
6.1 Annexure 1: List of people met
35
6.2 Annexure 2: List of participants in draft report dissemination workshop
37
6.3 Annexure 3: Structured questionnaire
39
6.4 Annexure 4: Unstructured questionnaire
44
6.5 Annexure 5: Unstructured questionnaire to trade union
44
III. List of Tables
IV.
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Table 1: Share of apparel in overseas export and total export (value in ‘000 NRs.)
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Table 2: Export of readymade garment as per major regions, 2008
18
Table 3: Full time employee data for 17 RMG units
20
Table 4: Number of garment workers in different trade unions
26
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
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
Acknowledgments We would like to express our sincere gratitude to Solidaridad for engaging us to conduct the study the status of the readymade garment sector of Nepal. We thank the Solidaridad team, especially Dr. Shatadru Chattopadhayay, Director, South & South East Asia and Mr. Gagan Mehta, Senior Program Officer. We acknowledge the support provided by Garment Association Nepal (GAN) in collecting the relevant information. We appreciate the inputs of Mr. Prashant Kumar Pokhrel, President, GAN, Mr. Uday Raj Pandey, Vice President, GAN and other executive members towards the development of this report. We thank all engage in the garment industry including trade unions who, despite their busy schedule, spared their time and thoughts to finalised this report. We are also thankful to all participants at the stakeholders meeting held on 12th June 2009 for their contribution. Finally, we thank Mr. Neeraj Nepali, Study Team Leader, Ms. Reema Shrestha and Mr. Kumar Ale, Research Associates, for successfully completing the study. We also thank the team at ECCA Nepal for support provided during the process of conducting the study and preparing this report.
June 2009
Prakruthi Team
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
Acronyms
8
ATC
Agreement on Textiles and Clothing
ECCA
Environmental Camps for Conservation and Awareness
GAN
Garment Association - Nepal
GEFONT
General Federation of Nepalese Trade Unions
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
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
Executive Summary The readymade garment (RMG) industry was the biggest export oriented manufacturing industry of Nepal in between 2000 and 2003. The export of RMG started decreasing drastically since 2004. One of the main reasons for the decrease in export was the phasing out of all textiles and clothing quotas as on 31 December 2004 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 them were Garment Association – Nepal (GAN) members and eight were not registered under GAN. Most of the RMG units exporting solely to the US are closed. In 2003-04, Nepali Rupees (NRs). 7.4 billion worth of RMG was exported to the US, which declined to NRs. 1.3 billion in 2007-08. The Nepali RMG industry employed more than 100,000 employees (direct) when it was in the peak period and 2,705 employees from 17 RMG units were covered in this study. Out of the 17 units visited, 14 exported to Europe while only 8 exported to the USA. The main source of raw materials for RMG units is India and China. The maximum export for any RMG unit for the year 2008-09 was NRs 250 million. Out of the total respondents, majority of the RMG units had provision for sick and casual leave (82% – 14 out of 17 units) and Dashain bonus (100 % – 17 out of 17 units). Only 7 out of 17 RMG units had provident fund schemes . The factors affecting export of Nepali RMG were phasing out of textiles and clothing quota, political instability, labor disputes and load shedding. These factors combined with increased cost 9
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
of production resulted in loss of competitive edge against RMG powerhouses 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 conducive atmosphere for the garment industries. Direct export to other potential countries such as India or Europe is explored. The revival of RMG industry will require continuous support from the government and other stakeholders like the suppliers, service providers, trade unions, etc. as readymade garment export still remains one the major foreign currency earning industries in Nepal.
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
1. Introduction The readymade garment (RMG) industry in Nepal experienced rapid growth since 1980s. The sudden rise of the industry was firstly due to the quota facility provided by industrialized countries such as the United States. Secondly, the labor costs in other garment exporting countries were rising. Due to these two factors, the producers were looking for alternative, cheaper locations for garment production. Hence, Nepal emerged as a relocation site, especially for Indian producers who had already hit the quota ceiling. Indian producers started establishing their RMG units in Nepal to utilize the quota constraint imposed by the US during the late 1970s. The RMG industry was the biggest export oriented manufacturing industry of Nepal between 2000 and 2003 contributing to around 45% of total overseas export. The industry employed more than 100,000 direct employees between 2000 and 2003. Of late, the industry is facing stiff competition in the global market and is struggling to survive. The export is readymade garments has started decreasing drastically since 2004. The main reason for the decrease in export was the World Trade Organization (WTO) decision to phase out all textiles and clothing quotas as on 31 December 2004 under the Agreement 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 and offers jobs to many people especially women. The phase out of quota system and the unstable political situation in the country have not only reduced the RMG export leading to closure of manufacturing units but has also created unemployment. The trend of Nepali youth migrating to other countries is increasing due to unemployment.1
1
http://www.nepaldemocracy.org/institutions/current_tu_situation.htm
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
RMG industry has made significant contribution to Nepal’s economy by generating foreign income. Therefore, to know the present status of the RMG industry in Nepal, ECCA Nepal and Solidaridad conducted a study on the “State of Nepali Readymade Garment Industry.”
1.1 Objectives The objectives of the study were to: - understand the economic, social and environment status of readymade garment industry in Nepal. - study the possibilities of reviving the Nepali readymade garment sector.
1.2 Methodology The methodology for this study required three approaches: Desk Research The desk research included review of existing publications on readymade garment sector in Nepal and other garment producing countries. Interviews Interviews were conducted with garment manufacturers, employees and trade unions. The team developed a semistructured questionnaire to interview manufacturers. Additionally, a structured questionnaire was sent to the manufacturers to fill and return. Separate questionnaire was developed for the trade union representatives. Stakeholders’ Workshop A multi-stakeholders’ workshop was organized on 12 June 2009 at Hotel Himalaya in Kathmandu to share and validate the findings of the draft report. The workshop included participants from private sector, government, unions and development field. The comments and suggestions on the draft report were later incorporated to finalize the report.
1.3 Sample Selection The total sample size for the study was 17 RMG units. The study eam used a random sampling method to select the RMG units. Both 12
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
the Garment Association of Nepal (GAN) as well as non-GAN members were interviewed for the study. Nine out of 17 RMG units were registered under GAN whereas eight were not. Other units were reluctant to meet the study team because of ongoing labor disputes in the industries. As the sample size would be very small, the study team decided to include non-GAN members as well for the study. Almost all the RMG units in Nepal are located in Kathmandu, the capital of Nepal, and Biratnagar, a major industrial zone of Nepal. Out of the 17 units three of them were located in Biratnagar and rest in Kathmandu.
Garment Association of Nepal: Garment Association of Nepal (GAN) is an apex organization of readymade garment manufacturers and exporters. The objectives of GAN are to disseminate relevant information to member institutions and to safeguard the interests of the garment sector through interaction & assistance with the government. GAN participates in consultative and advisory committees constituted by the government & national level apex body of private sector i.e. FNCCI for interaction in national policy formulation. It organizes seminars and workshop for enhancement of the garment industry. (www.ganasso.org) Industries exporting readymade garments to the US needs to register with GAN. They are also registered at Cottage and Small Industries Development Board (CSIDB) under Ministry of Industry.
Non-GAN There are RMG units in Nepal, which function independently from GAN. These non-GAN members are those RMG units who operate in small scale and export to European market only. Their target market in Europe is the flea markets. Most of these units have a sales outlet in Thamel area (tourist area) targeting the local tourist. These RMG units are less organized as compared to GAN members. The size of these units start from 10 to 200 13
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
workers. As per GAN, “there are more than 100 such units but since they are not part of a formal association it is difficult to find out the exact number.� Some of these units are members of Export Council of Nepal (ECON) and they have diverse business within a same organization such as handicraft, garment, accessories etc. They are registered at Department of Cottage and Small Industries.
1.4 Research Process The research team carried out the following processes to examine the different objectives of the study: Reviewed the RMG industry trend in Nepal from various reports and interactions with industry stakeholders. Carried out internet research to analyze different news about Nepali RMG industry. The study team interviewed RMG manufacturers to know their status. Trade unions were interviewed to know about their perspectives on RMG industry. The study team then analyzed the findings of the above and came up with the recommendations for this report. The study team presented the draft report in workshop attened by representatives of the RMG manufacturers, Government bodies, labor unions, washing units and the development sector. The suggestions and comments on the findings of the workshop were then incorporated in this final report.
1.5 Limitations The study team has limited its analysis to available secondary data from the review of literature and primary data to interviews with 17 RMG units. Most of the RMG units in the country are closed and some of those, which are still operating, were having labor disputes because of which they were not willing to participate in interviews. The respondents were not willing to disclose some of the information asked for such as their annual sales and annual turnover. Because of their reluctance to part with informations, it was difficult to acquire all the crucial information. 14
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
2. Garment Scenario in Nepal The Nepali readymade garment had occupied the first position in terms of overseas export in between year 2000 to 2003. The quota phase-out under ATC began in 1995 but its impact on the Nepali economy was not immediate. This was because the RMG exports from Nepal were concentrated on a few products (mainly cotton casual wear) which were not under quota restrictions until the last phase of the Agreement. The RMG sector, in fact, continued to grow during the first five years of the quota phase out and the share of the RMG industry in the manufacturing sector rose from 26 percent in 1994/95 to 37 percent in 2000/01. The export trend of last five years shows that it has declined drastically from NRs.10.2 billion to 3.3 billion (USD 129 million to 42 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 major commodities of Nepal, RMG has been able to get only 5.66 percent of shareof 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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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
Similarly, financial year 2007-08 RMG has been able to get only 14.24 per cent of share of total export excluding India as compared to 41.40 percent in 2003/04. Table 1: Share of apparel in overseas export and total export (value in ‘000 NRs.) Fiscal Year
Total export (NRs.)
Total Share Apparel of export apparel (NRs.) in total export (%)
Total Export excluding India (NRs.)
Apparel Share export of excluding apparel India export (NRs.) excluding 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
Source: Trade and Export Promotion Centre, 2008.
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
3. Analysis and Findings This section of the report includes analysis of the interviews and information collected from the RMG units and reviews of different secondary publications. In 1995, the number of RMG units registered with GAN was 1067. The number started declining drastically after quotas was phased out in 2004. In 2008, only 51 garment RMG units re-registered as members of GAN.3 According to GAN, “even though 51 RMG units are members of GAN less than 20 manufacturing units are in operation as of April 2009.� Of the 20 or less operating units, nine of them have been interviewed.
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 as per value.4 In 2003-04, NRs. 7.4 billion worth exported to the US, 3
4
Those RMG units, who export to US, have to be a member of GAN. This criterion is not applicable for exporting to Europe or Asia Pacific market. Includes export to Canada as well.
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
which declined to NRs. 1.3 billion in 2007-08. However, exports to Europe, Japan and India have not declined so drastically as compared to the US.5 Table 2: Export of readymade garment as per major regions, 2008 Value in ‘000 NRs. US F.Y. 2003/04
7,220,727
F.Y. 2004/05
4,741,948
71%
Canada
Europe
Japan
India
Others
Total
208,855 1,700,742
96,416
626,700
365,950
10,219,390
2%
17%
205,190 1,036,512
1%
6%
4%
91,520
365,900
280,419
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
3%
18%
F.Y. 2006/07
2,276,707
55%
48% F.Y. 2007/08
1,137,533 34%
162,413 1,006,086 3%
21%
229,159 1,113,665 7%
34%
1%
17%
5%
84,852
765,000
417,432
2%
16%
9%
89,968
478,100
266,977
3%
14%
8%
6,721,489
6,580,388
4,712,490
3,315,402
Source: Trade and Export Promotion Centre, 2008
WTO has framed rules to phase out all textiles and clothing quotas which led to the closure of RMG units run by Indians. According to the discussions, two reasons were stated for closure of units. Firstly, India and China with their superior technical know-how combined with low cost labour have managed to establish their units in their respective countries and had the advantage to capture a major chunk of the global market, Whereas countries like Nepal could not sustain due to factors like high cost of labour and increase of prices in raw materials thereby making their products costlier compared to others. Secondly, labor disputes in the garment industry started increasing. The pressures from both labor unions and political parties were increasing. They were demanding opportunities for more people, especially people supporting political parties, permanent contracts and higher wages, all at once which the RMG units could not fulfill due to decreased garment orders. All these resulted in closure of most of the RMG units, even those who had survived the quota phase out.
5
18
The respondents has informed that they export to more than one regions and also procure raw materials from more than one region.
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
3.2 Source of Raw Materials Most of the units procured their raw materials from India. Of the 17 units visited, 10 procured materials from India. Raw materials from local market were also used, two of them were buying exclusively from the local market only. China was third on the list for procuring raw materials.
Figure 3 : Source of Raw Materials
3.3 Sales The sales volume of different units varied. Among the GAN members it ranged from 250 million to 17.5 million whereas the maximum and the minimum for non-GAN members were 40 and 1 million respectively. Average sales per company were 250 million for GAN members while it was 40 for non-GAN members.
Figure 4 : Sales of Nepali RMG units
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
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 SAWTEE on “Impact of Textiles and Clothing Quota Phase out on Nepal� in 2007, 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 both management as well as non-management categories of workers. The total 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
Category
Number
Percentage
Male
1,983
73
Female
722
27
Total
2,705
Age
In all 17 RMGs minimum age of an employee was 23 years and the maximum was 45 years.
3.4.3
Salary
The average salary for the employees was around NRs. 6,000 and maximum salary was around NRs.23,000 per month.
3.4.4
Appointment
The workers of the RMG are mostly from the Terai (plains) region of Nepal especially in stitching department. They are hired on piecerate basis payment system. The respondents informed that 6 percent of the workers were on time bound contracts, 59 per cent were on oral appointment, and rest 35 perecent received appointment letters.
6
20
As per the interaction with GAN members
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
3.4.5
Benefits
Out of the total respondents, majority of the RMG units had provision 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 units have provident fund and 24 percent had dormitory facility. Canteen facility was available in one RMG unit only. When the benefits provided to workers were compared between the GAN and non GAN members, the following figure was obtained.
Figure 5: Benefits Provided to Employees
The graph also shows that while dashain bonus, provident fund and sick leave are provided by most units, other facilities like dormitory and medical services are scarce.
3.4.6
Safety Equipment Orientation
Only 35 per cent of the units said that they have workers’ safety equipment orientation. When asked further about the frequency of such programs, 33 per cent said monthly, 50 per cent said yearly and 17 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 and GAP Inc. had better facilities. The standards set by these big buyers as mentioned above on labor and workplace policy are higher. Now due 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 as dashain bonus
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
have also reduced their facilities to workers only. If a buyer demands certain minimum standards will the RMG units follow them. In terms of workplace policies and facilities to workers, non-GAN members are less organized. Most of them are not even following the minimum wage standards set by the Nepal Government. The manufacturers informed that sustaining in the business is their first priority and once they get better orders only can they can give more facilities to workers.
3.5 Needle Guard Policy Units supplying goods to big buyers like GAP, Walmart, Steve and Berry have needle guard policy. 29% had this policy in their manufacturing units while 53% did not have Needle Guard policy.
3.6 Environment Concerns Among the GAN members three units had washing facility. No non GAN member had its own washing unit. Besides these three units, all units outsourced their RMG to local washing units such as ‘My Shop.’ Those who had washing facilities informed that they also have wastewater treatment facility. All the respondents informed that 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 affiliated trade union in their RMG units. Some units had only one trade union whereas some had more than one. When asked about their relationships with the unions the RMG unit owners said that they have good relationship with them in terms of solving disputes through dialogue.
Figure 6: Trade Union in RMG units
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
The units which did not have any formal trade unions,it is ascertained, that any disputes between the management and the workers were settled between themselves. They neither had any internal 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 of RMG units registered with GAN has decreased drastically. The total number of RMG units in operation, who are members of GAN at present, is below 20. The main reasons for the fall in Nepali readymade garment industry were cited as follows:
3.8.1
Phase-out of Textiles and Clothing Quota
Mr. Prashant Kumar Pokharel, president of GAN said, “There are several assumptions about quota phase-out being the major cause in the decline in Nepali RMG export to the US, but I think it is not the major cause but only one of the causes.� He further said that other South Asian countries such as Sri Lanka, Pakistan, India and Bangladesh were also affected but their export has not been affected. In fact their exports registered a growth of 20-25 per cent.8 Nepali RMG industry never prepared itself for life after quota phase out. It was dependent on only one market, the US, which was giving preferential treatment. On average, the US had been buying more than 85 per cent of the total RMG produced in Nepal every year. However, compared to other major South Asian countries, Nepal shared less than one per cent of the total the US imports. The industry was not proactive enough in terms of developing innovative products, Nepali RMG brand, or to invest in finding new markets. Before quota phased out Nepali RMG gained a share in the US market only because of high tariff Indian and Chinese goods. Once it was over Nepali RMG could not compete with cheaper and better quality of RMG from these two countries.
3.8.2
Political Instability
The other factor that affected the overall manufacturing industry of Nepal was the uncertain political situation. Frequent roadblocks and strikes delayed import of raw materials as well as export of RMG. RMG units could not afford the extra cost as well as meet consignment deadlines. 8
Interview to The Himalayan Times, a daily newspaper not very clear.
23
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
3.8.3
Labor Disputes
Some of the units that survived the post-quota phase could not survive the demands and pressure of the trade unions. Since 2006, the interference from trade unions associated with political parties increased. The resistance to these unions led to closure of many RMG units.
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, the industry mostly depended on diesel generators. The supply of diesel was also low in Kathmandu valley because of the conflict in Terai regions. Therefore, load shedding added to the cost of production and the delivery of RMG got delayed. Hence, political instability, labor disputes and load shedding can be increased attributed to the cost of production and hence Nepali RMG units have lost its competitive edge. For those who survived, the main reason attributed for survival are their target market and the export volume. They are targeting markets in Europe, Canada and India where they sell in small volumes to niche market.
3.9 Possible Future of RMG Units Even though less than 20 RMG units are in operation there are still some units, which are waiting for favorable conditions to start their operations. While discussing with the RMG units the following were 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 treatment on export of their RMG to the US till 2004. The US was the major buyer of Nepali RMG, with 80 per cent of RMG exported there. Currently, Nepali RMG is paying 17 per cent as duty charge to export cotton garments to the US. If Nepali RMG units can have duty free access to the US, then those who used to export to the US can revive 9
24
Load shedding is a last resort measure used by an electricity utility company in order to avoid a total blackout of the power system. http://en.wikipedia.org/ wiki/Rolling_blackout
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
their units. The Nepal government should continue to lobby with the US government for duty free access.
3.9.2
Declare as Priority Industry
The RMG units want Nepal Government to declare the RMG industry as a priority industry. All the facilities provided to priority industry should be available to Nepali RMG industry such as longterm and short-term loans and relief packages. They feel that Nepali RMG industry can survive only if government supports it through relief packages such as decrease in electricity demand charge, duty draw back,10 cash incentives and minimum interest loans. The RMG units are also advocating with the government for a total rebate of income tax on foreign currency earnings.
3.9.3
Garment Processing Zone
Nepal is a landlocked country and has to depend on Indian ports for its export. Regular roadblocks and poor transportation has affected the efficiency in terms of cost and delivery time. The manufacturers feel that Garment Processing Zone (GPZ) is another option by which the industry can revive. Facilities such as regular power, water facilities, and quick access to Calcutta harbor should be available in GPZ. If Nepal Government establishes a GPZ closer to the Inland Container Depot at Birgunj (within proposed Export Promotion 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 increase Nepali RMG export. Capacity development on market research among the units might be able to expand outreach to other regions. This would also reduce disputes with workers in terms of the industry being seasonal, a year long working capacity would certainly benefit all parties.
3.10 Trade Union Perspective: The unionism in Nepali RMG remains around 40% spread over three major unions11 and few others. 10
Duty draw back is a refund of all or part of any import duty paid in respect of goods exported, www.ugrevenue.com/regulations/dutydraw.doc
11
Nepal Trade Union Congress, General Federation of Nepalese Trade Unions and All Nepal Trade Union Federation
25
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal Table 4: Number of garment workers in different trade unions S. N.
Trade Union
Garment Workers
1
GEFONT
1200
2
NTUC
2400
Another major Trade Union is the All Nepal Trade Union Federation.(ANTUF) The following perspectives are according to the interview that the study team had with the following two trade union leaders: Nepal Independent Garment Workers Union - unit of General Federation of Nepalese Trade Union (GEFONT); and Nepal Garment Workers Union – unit of Nepal Trade Union Congress (NTUC) The trade unions referred the quota phase out as the main reason for the downfall of the RMG sector. They further added that the unstable political situation was the second reason. The union leaders mentioned that in those RMG units who have to maintain the standards set by the internationally renowned buyers, the social conditions are better. However, the social conditions in non-GAN members RMG units are not good, as some of them do not comply with the law of providing minimum wages, giving contracts, working condition or working hour policy. Non-GAN members 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 garment importing countries Department of Cottage and Small Industries 26
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
Trade ad Export Promotion Centre The Trade Unions Associations a. Federation of Nepalese Chamber of Commerce and Industries 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 of playing are as follows. The Government has been lobbying with the US diplomats to put forward the bill to persuade the US government to provide duty free access to the 14 Least Developed Countries including Nepal. Supporting both the labor and Industrialist and the community requires good coordination between various ministries. Ministry of Finance, Ministry of Commerce, Ministry of Industry and Ministry of Labor all play a significant role in the revival and growth of RMG industry by providing favorable policies. Department of Cottage and Small Industries: Department of Cottage and Small Industries(DCSI) have been constituted under Ministry of Industry, Commerce and Supplies (MOICS) in 1973 (B.S. 2030) to promote and foster various kinds of cottage and small industries enhancing their industrial productivity increment along with making congenial environment for industrial investment in accordance with policy execution for contributing national economy . All RMG units are registered under Department of Cottage and Small Industries. Trade and Export Promotion Centre: The Government of Nepal has established “Trade and Export Promotion Centre�, a national trade promotion organization of the country in November 2006, as a focal point, with the objective of promoting foreign trade in general and export trade in particular of the country. 27
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
The Trade Unions: Trade unions play an important role in facilitating disputes between the employer and the employee. They have been ensuring the rights of the workers and smooth functioning of troubled units. Associations: Federation of Nepalese Chamber of Commerce and Industries. The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) is an umbrella organisation of the Nepalese private sector. It was established in 1965 with the aim of promoting business and industry while protecting the rights and interests of business and industrial communities. FNCCI has been playing a key role in promoting business and industry in the country. It provides, inter alia, information, advisory, consultative, promotional and representative services to business and government and organizes training / workshop / seminar on a regular basis. It represents private sector at various national and international levels and advocates for favorable policy for the private sector to operate smoothly and grow.¡ Garment Association Nepal: Garment Association – Nepal (GAN) is the apex organization of the garment industries manufacturer & exporter of readymade garments. Presently GAN comprises of about 200 member institutions. The principle objectives of GAN are the promotion of the interests of member institutions through co-ordinated dissemination of relevant information, and encouragement and safeguarding the interests of the garment sector through interaction & assistance with the government. Suppliers: the suppliers include the suppliers of good and raw material like textiles, machines zippers, buttons, like Bhaktapur Traditional Cotton Textiles, Lubhu Textiles, etc Service Providers: The service providers include the washing and dying units as well as exporters like My Shop Dry Cleaners.
28
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
Export Council of Nepal: The Export Council of Nepal (ECON) is a council of the Nepalese Trading firms (Traditional Garment, handicraft and woolen good’s exporters) which was established in 1996. It is a non - profit making association for the promotion of export trade in overseas countries and other countries.
29
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
4. Conclusion and Recommendations 4.1 Conclusion The RMG industry has played a significant role in the Nepali economy. The industry contributed nearly 45 percent in the total export of Nepal during late 1990s. Around the year 2000, the RMG industry provided direct employment to 100,000 people12, including a significant number of women. As RMG employs a huge number of workers, it is an important sector for the development of Nepali economy. Since 2005, the industry export has been decreasing drastically. Now, the RMG contribution to Nepali economy is only 17 percent (2007/08) of total export to overseas countries. Thus, the revival of this sector is important if Nepal wants to generate employment to its people, especially women and increase foreign currency earning. The present trend in the export of Nepali RMG is decreasing. Nepal RMG is loosing its competitiveness when compared with India and China. The cost of production for Nepali RMG is increasing. Firstly, the minimum wage for workers has increased by 80 percent13 in last 5 years. Secondly, the regular strikes and roadblocks have delayed procurement of raw materials and forced some RMG manufacturers to send product through air adding to the unit cost of production. Thirdly, sixteen hours of load shedding has forced RMG units to run on diesel generators, which in turn has increased the cost of production and delayed in delivery of Nepali RMG. Most of the RMG units comply with the Minimum Wage Act of Nepal. The units interviewed reported no Child Labor in their premises and none was seen during the factory visits. With the global 12
SAWTEE and ActionAid Nepal, Impact of Textiles and Clothing quota phase out of Nepal, 2007
13
In 2003 the minimum salary for unskilled workers was NRs 2,560 and in 2008 it was NRs 4,600 www.gefont.org/common/
30
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
economic turndown, even the good ones seem to be paying less attention to employee welfare activities due to reduced demand from buyers. The social security of workers did not exist in most RMG units with limited provision for provident funds or health insurance. The health and safety status of GAN members workforce were definitely better than that of Non- GAN members. The state of machines and workplace was less safe in most RMG units not affiliated to GAN, with limited provision for safe drinking water, ventilation and working space. Despite distinct advantage of relatively low labor cost in the Nepali RMG, the low labor productivity remains obstacle to competitiveness. As one of the studies shows, except for Bangladesh, the per hour labor cost in garment industry in China and India is higher than in Nepal, but the productivity of Nepalese worker is lower by more than half of the Chinese or Indian workers, who are supposed to be competitive in the changed context.14 Trained work force is essential to compete in the international market. The RMG units still depends on Indian workforce for high skilled jobs such as cutting masters. Therefore, skill enhancement training to workers is important. To revive the RMG industry, Nepal Government has to support the industry by provisioning special packages such as decrease in electricity consumption charge, duty draw back15, cash incentives and minimum interest loan.
4.2 Recommendations The recommendations are targeted for government, private and other stakeholders of the RMG Nepal Government The Nepal Government should continue to lobby with the US government for a duty free access of Nepali RMG to the US.
14
Bijendra Man Shakya, Sustaining Nepalese garment industry after quota abolition, 2005
15
Duty draw back is a refund of all or part of any import duty paid in respect of goods exported, www.ugrevenue.com/regulations/dutydraw.doc
31
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The government should consider establishment of Garment Processing Zone under Special Economic Zone16 near inland container depot in Birgunj so that the transportation cost can be reduced and delivery time to Indian harbor for export can be reduced. The government should assist the RMG sector in upgrading the technology and productivity. Trainings should be provided to RMG on new technology in partnership with GAN. It can also activate the existing textile-training center under the Department of Cottage & Small Industry so that it can support in developing skilled work force. A separate labor policy needs to be developed for garment sector as it is a labor-intensive industry addressing the needs of both the labor and employers. The Nepal Government should develop alternative provisions to provide uninterrupted and cheaper power supply to Nepali RMG Industries to make the production cost competitive. Ensuring profit to Industrialist, protecting the rights of workers and benefit to the country’s economy is a complicated affair; coordination that is more effective is required among various ministries to ensure benefit to the Industrialist, workers and the country’s economy. Private Sector The private sector should invest in training for new product development suitable to the changing taste of market, quality improvement and to identify niche markets for special Nepali RMG products of high value. The RMG units have to start marketing itself and look for alternative market other than the US such as Europe, Canada, Asia Pacific and India. As there is duty free access to Europe the industry should also take benefit from these markets. The RMG 16
32
Special Economic Zone (SEZ) is a tax free zone with industries and trading houses specially geared towards export.It combines both trade and manufacturing. The essence of SEZ is the establishment of modern manufacturing units in the related industrial estate by providing suitable package of incentives to foreign and local investors in beaurocracy hassle free environment. http://seznepal.gov.np/sez_birgunj.htm
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
units should invest on market research and development so that they can expand itself beyond the USA. Development of professionalism, business management systems which is lacking in most units, could certainly give the units more chances of growing, survival and revival. RMGs should invest in skill development of its workforce to increase labor productivity. The Nepali RMG industry should respect and comply with the legal regulations. It should be more responsible towards its stakeholders such as employee, suppliers, buyers and environment. Other Stakeholders The Garment Association of Nepal (GAN) should try to incorporate non-GAN manufacturers in their members list so that it can lobby with the government for the benefit of the industry with a bigger voice. Such membership will also assist the non-GAN member to be more organized. The NGOs can support the RMG industry by provide trainings in the area of social compliance and environmental issues and thereby facilitating networking of Nepali RMG with international buyers. Trade union should also have congenial industrial relations with the RMG industry. As this industry is a labor intensive industry trade union can support by developing better understanding of employer and vice-versa.
33
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
5. References Shakya Bijendra Man, Sustaining Nepalese garment industry after quota abolition, 2005 Sapkota Chandan, The WTO, post era and the Nepalese garment industry, 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 quota phase out of Nepal, 2007 Singh Rajendra, Trade and Export Promotion Board, Study on the potential of readymade garments market in New Delhi and Bangalore, India, 2008 Solidaridad and Partners in Change, Knitted together – Multi-stakeholder perspectives on economic, social and environmental issues in the 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 Rural and Urban Livelihoods in Nepal Upadhyaya Umesh, paper presented on world solidarity forum for garment workers in LDCs, Workers in the Textile and Garment sector in Nepal, 2003
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
6. Annexure 6.1 Annexure 1: List of People Met S. N. Name
Designation
Organization
1
Prashant K Pokhrel
Executive Director (President of GAN)
Ami Apparels
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 Crafts Creation
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 Workers Union
GEFONT
10
Sanjay Agrawal
Executive Director
Heritage Fashion
11
Harish Todi
Executive Director
JD Apparels
12
Rahul Man Shakya
Managing Director
Kathmandu Star Fashion
13
Jimmy Timilsina
Marketing Manager
Natural Fiber
14
Bishwa Nath Neupane
Managing Director
Nepalese Clothing
15
Janak Lal Shrestha
Managing Director
New Rose/Rose Boutique
16
Nawaraj Pandey
Managing Director
New Snowline
17
Shivaram Pandey
Executive Director
Rejoice Wears
18
Pradeep Man Shakya Managing Director
Shraman Apparels 35
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal 19
Chhavi Lal Silwal
Executive Director
Siddhartha Handicrafts and Garments
20
Janak Raj Pandey
Executive Director
Surya Nepal Fashion 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 Garment workers Union
Nepal Trade Union Congress
36
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
6.2 Annexure 2: List of Participants in Draft Report Dissemination Workshop Government Body
Gokul Prasad Dhital
Department of Cottage and Small Industries
Director General
Rajendra Singh
Trade and Export Promotion Centre
Section Officer
Dr. Suman Kumar Regmi
Trade and Export Promotion Centre
Director
Keshab Duwadi
General Federation of Nepalese Trade Union
PresidentGarment Sector
Yuvraj Karki
Nepal Trade Union Congress
PresidentGarment Sector
Association
Uday Raj Pandey
Garment Association Nepal
1st Vice President
RMG Industries
Chhote Lal Rauniyar
Adam & Eve
ED
NS Jain
Bindavasini Garment ED
Bizu Shrestha
Delima Crafts
Monica Agrawal
Heritage Fashion
Kannad Shakya
Kathmandu Star Fashion
Management Team
Rahul Man Shakya
Kathmandu Star Fashion
ED
Kedar Acharya
Rejoice Wears
ED
Shiva Ram Kandel
Rejoice Wears
ED
Mr. Rajiv Jasuja
Surya Nepal Pvt. Ltd
Manager
Chhabi Lal Silwal
Siddhartha Handicraft and Garment
ED
Trade Union
ED
37
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal Textiles and Dry Cleaners
ECCA-Nepal
Solidaridad
38
Prakash Jha
Wild Fibre and Bhaktapur Traditional Cotton Textile
Textile Engineer
Prem Niraula
My Shop Dry Cleaners
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
Gagan Mehta
Solidaridad South and South East Asia
Senior Program Officer
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
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 America
India Asia
Europe Others ……………
Suppliers 11.
Where do you get the raw materials required for your product? Local market China
12.
Different parts of Nepal
India
Others……………….
How do you procure raw materials from the suppliers? ……………………………………………………………………………… ………………………………………………………………………………
39
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal 13.
Do you inspect the operational unit/workshop of the raw material supplier? Yes
14.
No
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 five years? 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 fiscal year 2064/65? Yes
No
Section B: 19.
Please provide information on the number of people employed in your 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 your company? Do they identify people in such category? Yes
40
No
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal 21.
Which marginalized / destitute group or community do they belong to? ………………………………………………………………………………
22.
23.
If yes how many are employed? Male
________
Female
________
Do you have disabled people working in your company? ………………………………………………………………………………
24.
25.
If yes, how many are employed? Male
________
Female
________
Please provide the age of the youngest and eldest employee in your company. 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
29.
No
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 confirmation mostly practiced in your company ……………………………………………………………………………… ……………………………………………………………………………… 41
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal 32.
Please tick (3) on the benefits your company is providing to different categories 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
34.
35.
No
If yes how frequently do you have it? Monthly
Quarterly
Semi Annually
Yearly
Do you have needle guard policy? ………………………………………………………………………………
36.
Do you have equipment maintenance records? ………………………………………………………………………………
37.
Do you have an employee committee in your organization? Yes
38.
No
How does the employee committee function in your company? ………………………………………………………………………………
42
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal 39.
Is your worker part of any union? Yes
40.
No
If yes which one? ……………………………………………………………………………… ………………………………………………………………………………
41.
How often do you interact with the employee committee? Weekly Yearly
Monthly
Quarterly
On need basis
Others
………………….. 42.
Are there grievances/ suggestions from the employees? Yes
43.
No
If yes what are those? ……………………………………………………………………………… ………………………………………………………………………………
Section C: 44.
Does your company have a washing facility? Yes
45.
If yes, do you have a wastewater treatment facility? Yes
46.
No
How do your treat the solid waste of your company? Sell it municipality waste
47.
No
Recycle
Dispatch in
Others ……………………….
Are you involved in any kind of greenery maintenance in your factory? ………………………………………………………………………………
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Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
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 to revive 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 have any 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 is the relationship between workers and employers
8.
How has been the garment sector trend in your opinion in last five years? 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
44
Phased out and Stitched Up: State of the Readymade Garment Sector in Nepal
45