Nepal’s Textiles and Clothing Exports

This research paper by the International Institute for Sustainable Development analyzes the current state of Nepal's textiles and clothing exports, focusing on the garment and hand-knotted woollen carpet subsectors. It examines the structural constraints hindering competitiveness, the drivers that have allowed these industries to survive, and the potential risks associated with Nepal's upcoming graduation from Least Developed Country (LDC) status. The authors argue for a shift in industrial policy away from ad-valorem subsidies toward market intelligence, inter-agency coordination, and productivity improvements.

• Nepal's overall export performance has declined significantly over the last 25 years. Exports of goods and services as a percentage of GDP dropped from 26.3% in 1997 to 6.8% in 2022, with merchandise exports specifically falling from 13.1% of GDP in 1999 to 2.9% in 2022.
• Textiles and clothing remain a critical component of Nepal's merchandise exports, accounting for 31.5% in 2022. The sector is primarily composed of readymade garments and hand-knotted woollen carpets.
• Several structural constraints impede the competitiveness of the garment sector, including weak physical infrastructure, poor access to finance, and high logistics costs. Due to being landlocked and lacking direct access to western Indian ports, exporters rely on expensive air freight to meet delivery schedules. Consequently, Nepali garment unit costs are estimated to be at least 25% higher than those of competitors in Bangladesh.
• The hand-knotted woollen carpet sector maintains a 12% share of world exports by focusing on high-quality, customized products and strong brand recognition. This niche strategy allows it to compete with more efficient producers in India, despite carpet products being at least 25% more expensive than Indian alternatives.
• Nepal's graduation from LDC status poses significant risks to the clothing sector due to the potential loss of preferential market access. A SAWTEE study suggests clothing exports could face an average trade-weighted tariff hike of 6.7%, while a World Trade Organization study estimates a 13.3% drop in exports due to increased tariffs.
• Current government support mechanisms, such as Special Economic Zones (SEZs) and export subsidies, are viewed as inadequate. Operational SEZs suffer from poor infrastructure and are located too far from Kathmandu for firms reliant on air freight. Furthermore, the government's decision to potentially end export subsidies retroactively has damaged private sector trust.
• The authors recommend a policy shift from direct ad-valorem subsidies toward systemic improvements, including better market intelligence, business development services, and enhanced inter-agency coordination. They cite Ethiopia's national export coordination council committee, which met monthly and helped merchandise exports grow by 22% per annum on average between 2006 and 2012, as a successful model for monitoring and easing export bottlenecks.

APA

Kharel, P., Dahal, K., & Singh, D. (2025). Nepal’s Textiles and Clothing Exports. International Institute for Sustainable Development. https://www.iisd.org/articles/policy-analysis/nepal-textiles-clothing-exports

Chicago

Kharel, Paras, Kshitiz Dahal, and Dikshya Singh. Nepal’s Textiles and Clothing Exports. International Institute for Sustainable Development, 2025. https://www.iisd.org/articles/policy-analysis/nepal-textiles-clothing-exports.

Wikipedia

{{cite report |last1=Kharel |first1=Paras |last2=Dahal |first2=Kshitiz |last3=Singh |first3=Dikshya |title=Nepal’s Textiles and Clothing Exports |publisher=International Institute for Sustainable Development |date=8 December 2025 |url=https://www.iisd.org/articles/policy-analysis/nepal-textiles-clothing-exports |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kharel2025nepals, author = {Kharel, Paras and Dahal, Kshitiz and Singh, Dikshya}, title = {{Nepal’s Textiles and Clothing Exports}}, institution = {International Institute for Sustainable Development}, year = {2025}, month = dec, url = {https://www.iisd.org/articles/policy-analysis/nepal-textiles-clothing-exports}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }