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TRADE-NEPAL: Carpet Industry Frayed at the Edges

Bhuwan Sharma

KATHMANDU, Aug 13 2010 (IPS) - It was an industry pioneer and had even proved itself successful in the export market. But these days Jawalakhel Handicraft Centre (JHC) is barely able to sustain itself on retail sales, and general manager Chimi Dorjee has been reduced to just recalling how things had been when the going was still good.

“Earlier, we used to export quite a sizeable volume of carpets to countries such as Germany and Switzerland,” says Dorjee. Now the exports of JHC, which was set up in 1960 with skilled carpet weavers who had just fled Tibet, hires are down to to almost nothing.

Unfortunately, JHC’s fate is shared by the rest of Nepal’s once thriving carpet industry. Leaders of the industry also say that it will take no less than moves from the government itself to revive their ailing businesses.

“We need export-friendly policies,” says Surendra Dhakal, executive advisor and chief executive officer of the Nepal Carpet Exporters Association (NCEA), rattling off items in his wishlist for the government. “We need carpet-processing zones. We must be given an environment where we can rest assured that we can make timely delivery of goods. The government must provide us industrial security.”

For sure, Nepal can only benefit from a revitalised carpet industry, whose products once made up a third of the Himalayan country’s exports and was its largest supplier of foreign currency.

At its peak in 1993-1994, the industry had 3,000 carpet firms in operation and employed 1.2 million people, directly and indirectly.

And even though the volume of carpet exports was down by 21 percent some six years later, it was still worth some 10.4 billion Nepali rupees (140 million U.S. dollars at current rates).

By fiscal year 2008-2009, Nepal’s carpet exports had been halved to 5.3 billion Nepali rupees (71.5 million dollars) in value. Today, only about 600 carpet firms are still in operation and the number of those whose work have something to do with the industry has skidded to 100,000.

Dhakal says there are two main reasons why Nepal’s carpet exports are no longer doing as well as before: “Almost every second person ventured into the sector, thus hindering the quality of output. The other main reason for dwindling exports was the entry of India, which offered far better rates.”

Dhakal points out that almost 500 villages in Bhadohi district of India’s Uttar Pradesh state alone are now totally dependent on carpet-making. He says that with economies of scale and with wages there far lower than here in Nepal, Indian carpets simply come out way cheaper than those made here.

“In Bhadohi, workers charge 1,500 Indian rupees (2,400 Nepali rupees or 32.3 dollars) a month, compared to at least 4,500 Nepali rupees (60 dollars) a month here in Nepal,” notes Dhakal.

There is, of course, the global recession to consider as well, which explains in part why Germany, once Nepal’s largest buyer of hand-knotted carpets, has slashed its imports of these from 6.77 billion Nepali rupees’ (91.3 million dollars) worth in 1999-2000 to just 1.45 billion Nepali rupees (19.56 million dollars) in value in 2008-2009.

The irony is that the country that economists and financial experts say caused the global recession in the first place – the United States – is now keeping the Nepali carpet industry from unraveling completely.

Carpet exports to the United States registered a meagre total of 300,005 square metres worth 1.47 billion Nepali rupees (19.7 million dollars) in 1999-2000. By 2008-2009, this had risen modestly to 348,653 square metres, with a total value of 2.18 billion Nepali rupees (29.23 million dollars).

“The reason for that is simple,” says Dhakal. “(The United States) primarily imports higher quality 80-knot carpets, compared to Germany where we used to mostly export 60-knot carpets.”

“India still has not been able to overtake Nepal in quality carpets,” he adds. “But if our government does not take urgent action, India will leave us behind in that category, too.”

The problem, though, is that Nepal’s government has been in constant crisis for more than a decade, and has been too busy trying to keep itself from falling apart to attend to anything else – including a surefire revenue-earner like the carpet industry.

Nepal witnessed a 10-year bloody Maoist insurgency from 1996 to 2006 that claimed some 16,000 lives. After the Maoists joined mainstream politics in 2006, Nepal transformed from a constitutional monarchy into a republic.

Since 2008, the country has been struggling to write a new constitution as it fights to overcome inter-party wrangling, frequent strikes, and a challenging law-and-order situation.

In the meantime, those who have been watching Nepal’s carpet industry say it is equally important to create backward linkages, not only to revive it but to sustain it.

“For example, in the last fiscal year, we imported wool worth almost 30 million Nepali rupees (402,150 dollars) primarily from New Zealand,” says Milan Mani Sharma, who has been reporting on the carpet industry in the past 10 years. “If we can rear sheep here at home, it will directly reduce our carpet costs.”

In the past, the government had tried this route as well. But, says Sharma with a wry smile, “during the insurgency, the Maoists not only disrupted the business, they slaughtered and ate all the sheep.”