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Sourcing in Nepal Could Get More Competitive With New Garment Processing Zone

The government of Nepal has initiated the construction of a 2.5 billion Nepalese rupee ($20 million) garment processing zone within the Simara Special Economic Zone, according to press reports.

The project is expected to be completed by 2019 and will lower the cost of production while increasing the scope of exports. The production cost in Nepal is considered relatively high in the region.

The services to be offered at the processing zone are expected to help make the price of Nepali products competitive in the international market.

The facility, located in Bara district, will house at least 30 production units of apparel, Nepali media quoted Chandika Prasad Bhatta, executive director of the Special Economic Zone (SEZ) development committee as saying.

Garment manufacturers can purchase the plot at the rate of 20 rupees (20 cents) per square meter with infrastructure such as electricity, drainage and other such logistics at an affordable price. Firms exporting at least 75 percent of their production can also benefit from the services, reported.

[Read more about Nepal: US Expands Duty Free Benefits for Textiles from Nepal]

“Companies with a history of being a large exporter, providing jobs to a large number of people and making large investments will be given priority to operate their production units inside the processing zone,” Bhatta said.

The garment processing zone is expected to compensate high transport and shipment costs due to Nepal’s landlocked status because the proposed zone is located near the country’s only rail-linked dry port in Birgunj.

Bhatta noted that the decision to build the processing zone was spurred by last year’s implementationof  a trade preference program for Nepal. The so called Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) will make imports of more items like shawls, scarves and travel goods duty free to the U.S.

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The Nepal Preference Program, as the deal is being called, is good for 10 years and is aimed at aiding the country’s economic recovery. The U.S. imported $41.2 million worth of textiles and apparel from Nepal for the year ended Oct. 31, a majority in wool notions products.

Nepal is among the poorest and least developed countries in the world, with roughly one-quarter of its population living below the poverty line, according to the CIA World Factbook. Agriculture is the mainstay of the economy, providing a livelihood for almost two-thirds of the population but accounting for only one-third of gross domestic product, which was about $71.82 billion in 2016. Other important areas of the economy are tourism, carpets, textiles and cement and brick production. Clothing, textiles and jute are among key exports, with India the leading export partner.