Nepal’s garment exporters are struggling to improve competitiveness as labour shortages, high turnover and inefficient logistics continue to weigh on production and delivery across the supply chain. The pressures are compounding challenges linked to buyer access and land availability, sharpening risks for the sector as Nepal approaches graduation from least developed country (LDC) status, a new survey has found.
- The study examined Nepal’s garment supply chain to map constraints, enablers and levels of firm preparedness amid changes in the global trade landscape.
- Exporters cited skills shortages and logistics costs as the most severe barriers to competitiveness, alongside difficulties in establishing and sustaining buyer contacts.
- Firms reported that unique craft and design strengths help support demand, but limited scale, land access and low productivity restrict export growth.
- If critical constraints were addressed, firms expected exports to rise by an average of 87.4 per cent over five years compared with a business-as-usual scenario.
- The diagnostic study, titled ‘Nepal’s Sources of Competitiveness, Critical Challenges, and Possible Ways Forward’, was led by South Asia Watch on Trade, Economics and Environment (SAWTEE) in collaboration with the Garment Association Nepal (GAN) and presented in Kathmandu recently.
THE STUDY: The diagnostic research examined Nepal’s garment and textile supply chain to map structural constraints and operational conditions shaping export performance. It focused on how firm characteristics, production models and supply-chain linkages affect competitiveness across different segments of the apparel industry.
- The study covered 28 garment firms, including exporters and non-exporters, spanning small, medium and large operations.
- Surveyed firms produced both woven and knitted apparel, with product lines ranging from basic garments to craft-based items.
- Researchers assessed labour availability, skills, production processes, sourcing patterns and logistics arrangements across the supply chain.
- The analysis incorporated firm-level data alongside desk research and stakeholder consultations to triangulate constraints and enablers.
- Evidence was structured to reflect differences in firm size, location and production model, including reliance on air freight and outsourced inputs.
EXPORT BOTTLENECKS: Export competitiveness in Nepal’s garment sector is shaped by a tight cluster of operational constraints that raise costs, limit scale and influence firm-level production, logistics and market-access decisions. Firm-level evidence shows labour and logistics pressures dominate production choices, while infrastructure and buyer-access gaps constrain upgrading and expansion across export-oriented operations.
- Labour-related pressures ranked highest, with firms reporting shortages of skilled and semi-skilled workers alongside persistent productivity gaps.
- Export logistics emerged as a major constraint, driven by reliance on air freight, high costs, limited carrier options and gaps in multimodal transport frameworks.
- Many firms identified difficulty in establishing and maintaining direct buyer relationships as a barrier to scaling exports beyond niche or repeat orders.
- Access to land and suitable industrial infrastructure constrained expansion, particularly for firms operating in the Kathmandu valley with limited space for growth.
- The study also noted that employment in the sector is largely informal, with a high reliance on piece-rate work and limited social security coverage, affecting labour retention and stability.
POST LDC RISKS: Graduation from least developed country status alters the trade conditions under which Nepal’s garment exporters operate, exposing firms to higher tariffs and stricter rules of origin in key markets. The study found uneven preparedness across firms, with many lacking clarity on how changes in trade preferences may affect costs, sourcing decisions and market access strategies.
- Firms anticipating tariff increases expected exports to decline on average, although a majority reported uncertainty about the scale and timing of the impact.
- Rules-of-origin requirements were flagged as a risk for exporters dependent on imported fabric, particularly where sourcing patterns may no longer qualify for preferential access.
- Exposure varied by destination, with different implications across the European Union, the United Kingdom and the United States markets.
- New trade dynamics, including reciprocal tariffs and the expansion of free trade agreements involving regional competitors, added competitive pressure.
- Some firms nevertheless identified potential upside if constraints were addressed, citing scope to adapt sourcing, pricing and market strategies under revised trade conditions.
