Global apparel brands stall Nepal's investment plans due to political instability and economic uncertainty. The recent violent protests by Gen Z activists have raised security concerns, causing international and Indian clothing brands to pause their expansion into Nepal. Pashupati Dev Pandey, president of the Garment Association of Nepal, explains that potential investors are hesitant due to the uncertain political landscape. The protests led to the burning of luxury hotels, including the Hilton Kathmandu, Hyatt Regency, and Hotel Varnavas, which has further dampened investor confidence.
The ongoing trade negotiations between India and the US are also a significant factor. If the negotiations result in reduced tariffs, international brands might opt to stay in India rather than venture into Nepal. The Indian Commerce Minister, Piyush Goyal, is quoted as saying that advanced talks with Washington could lead to a deal that sharply reduces US tariffs on Indian exports, potentially from 50% to 15%. This could make India a more attractive manufacturing hub for global brands.
Before the protests, some Nepali businesses had hoped that the heavy US tariffs on Indian goods would prompt brands like GAP, Puma, Nike, and Zara to shift part of their production to Nepal. However, the 50% tariffs on textiles, apparel, gems, leather, footwear, marine goods, chemicals, and automobile components make Nepal a more appealing alternative for apparel manufacturers. The US imposed these tariffs in retaliation for India's purchases of Russian oil, part of Trump's strategy to pressure Russia to end its war in Ukraine.
The impact of the protests and the trade negotiations is already being felt. Nepal's readymade garment exports fell by 10.22% in the first three months of the current fiscal year, and the country's exports of silver and gold jewelry have increased due to the tariff hike. Nepali manufacturers believe that if the US and India fail to reach a tariff agreement, US buyers might turn to Nepal, making it a potential beneficiary of the economic shift. However, the lack of a clear legal policy on transhipment practices in Nepal could pose challenges for investors.
