the HRM
During a recent visit to Uzbekistan for a handicraft fair, Prachanda Shakya, President of the Federation of Handicraft Association of Nepal (FHAN), was taken aback by Uzbekistan’s impressive growth in handicraft exports. Despite having only two major handicraft products, the central Asian country managed to boost its exports eight times in just a few years, thanks to favorable policies and incentives for producers.
“In contrast, Nepal struggles to leverage its vast potential in the handicraft sector. With 42 different handicraft products, Nepal has the capacity for significant exports,” said Shakya, adding, “Although Nepal has an annual export potential of Rs 36 billion, the actual exports stand at only around Rs 7-8 billion.” According to him, this disparity needs immediate attention from the government and other stakeholders of the handicraft industry to find effective ways to tap the export potential.
Unlocking the Potential
With its long history and culture of art and craft, Nepal has been a key player in the global handicraft market, exporting a diverse range of 42 unique products to 60 countries. The demand for Nepali handicraft items has witnessed a surge with countries including China, Bhutan, India, Japan, Germany, Denmark, United States, and United Kingdom as major export markets for Nepal.
Despite the demand, the full potential of Nepal’s handicraft industry remains untapped. As the demand for such export items continues to soar globally, there is a crucial need to strategically harness the potential. “Exploring avenues to further streamline production, enhance marketing strategies, and establish robust trade partnerships will be essential to propel Nepal’s handicraft sector into a new era of sustained growth and economic prosperity,” said Shakya. According to him, despite an overwhelming demand for Nepali art and craft in China, Nepal has managed to fulfill only nine percent of the total demand in the world’s second largest economy. “The Chinese have great trust in us for our commitment to delivering high-quality and meticulously crafted products by Nepali artisans. However, the scarcity of these products has forced Chinese buyers to seek alternatives from other Asian countries,” mentioned Shakya. According to him, the challenge lies not in the lack of demand but in the need for strategic measures to meet China’s robust appetite for Nepali handicrafts, ensuring that the trust in Nepali craftsmanship translates into a more substantial share of the market.
Shakya says Nepal’s natural fiber market holds immense export potential in handicrafts. “Nonetheless, these valuable resources in rural areas are going to waste, presenting a missed economic opportunity. By efficiently utilizing these raw materials, we can generate significant economic growth and provide substantial employment opportunities, particularly for women in rural communities,” he opined. Shakya suggested the local and provincial governments take immediate action to tap into this potential. “Current efforts have been inadequate, so there is a need for collaborative strategies involving government bodies, local communities, and stakeholders,” he said.
Rescuing the Pashmina Industry
The decline of the Nepali Pashmina, which was once a revered and highly valued handicraft, is a tale that unfolded in the early 2000s. In its heyday, particularly in the late 1990s, Nepal’s Pashmina industry boasted impressive export revenues, reaching up to USD 112.7 million annually. However, the industry faced a downward spiral, marked by a series of factors that eroded Nepali Pashmina’s international appeal.
The decline can be traced back to the proliferation of low-quality Pashmina products in the market, which began to dominate exports. This surge in substandard items damaged the credibility of Nepali Pashmina, causing a significant loss of trust among consumers. As a consequence, sales plummeted over the past decades, with export revenues dropping from the peak of Rs 5.66 billion in 1999/2000 to a mere Rs 1.65 billion in 2012/13.
“The initial success triggered fierce competition among Pashmina producers, leading to a focus on quantity over quality. The race to increase production resulted in a flood of low-quality products, deteriorating the credibility and image of Nepali Pashmina in the global market,” said Vijoy Kumar Dugar, President of Nepal Pashmina Industries Association (NPIA).
Official statistics show the export of Pashmina products from Nepal has declined by four times in the last five years, dropping to a mere Rs 42 million in the last fiscal year. This decline, especially evident in European markets, shows the urgent need for the Nepali Pashmina industry to address the quality concerns and revive its standing as a premium and sought-after handicraft in the global marketplace.
According to Dugar, there is still room for Nepal to reinvigorate the Pashmina industry. “The market dynamics are gradually changing and we need to act accordingly. The introduction of Chyangra Pashmina, a collective trademark representing Nepali pashmina products, will help to rebuild Nepal’s image in the global market,” says Dugar.
Recognizing the need to address concerns about the declining quality of pashmina products, the private sector and the government collaborated to establish the Chyangra Pashmina logo. The aim of the collective trademark of Pashmina products is to guarantee consumers that strict quality standards and environmentally friendly production methods are adhered to throughout the entire manufacturing process. It assures buyers that no child labor has been employed in the creation of these luxurious products.
“The impact of the Chyangra Pashmina initiative is not limited to the domestic market; it has already gained approval from 46 countries globally. The commitment to quality, sustainability, and ethical production practices embedded in the Chyangra Pashmina logo is positioning Nepali Pashmina products as a premium choice in the international marketplace,” explained Dugar.
According to him, the decline of Nepali Pashmina is compounded by data discrepancies as the government’s classification excludes knitted Pashmina, only incorporating shawls and scarves. “Despite government data indicating a limited annual export, the actual value is Rs 4 billion,” he said.
Pashmina producers say currently, only 5 percent of the demand for raw materials is met domestically which necessitates the import of raw materials from foreign markets, leading to increased costs. To address this issue, collection centers have been established in Dolpa and Mustang districts, with a processing plant set up in Kathmandu. Despite the Chyangra (Mountain) goat population of approximately 400,000 in Nepal, which can yield 30 tons of fur annually, domestic fur production only amounts to five tons per year.
According to Dugar, encouraging farmers to engage in commercial Chyangra goat farming will help in the import substitution of raw materials by 20 percent. “However, a challenge lies in the fact that Nepali farmers currently focus on Chyangra farming for meat rather than for fur. In other countries, we can see a sheep producing up to 700 grams of fur in one cycle. To promote commercial farming, there is a need for comprehensive training programs,” said Dugar, adding, “The government’s role is pivotal in establishing collection centers, incentivizing farmers to embrace commercial farming, and providing essential training, ultimately fostering encouragement and income generation within the sector.”
Felt Products Saving Handicraft Industry
Felt handicraft products have emerged as a top export commodity in Nepal. The significant increase in exports, from Rs 1.89 billion to nearly two billion in the fiscal year 2021/2022, shows the huge potential and opportunities within the felt manufacturing and export industry.
One of the key factors contributing to this success is the predominantly small-scale and home-based nature of felt production in Nepal. According to exporters of felt products, the cost-effectiveness of the labor force compared to other countries provides Nepal a competitive edge. This cost advantage allows for the establishment of competitive prices in the global market, enhancing the appeal of Nepali felt products, they say.
Over the past five years, Nepal’s felt products industry has exhibited remarkable growth, reflected in its escalating export values. Starting at Rs 1.82 billion in FY 2018/19, the industry witnessed a consistent upward trajectory, culminating in an impressive Rs 1.90 billion in FY 2022/2023. Two years ago, the sector achieved a significant milestone by surpassing the two-billion rupee mark in exports. Currently, 250 factories produce various felt items in Nepal.
According to Sunita Sherpa, Managing Director of Felt and Yarn, the felt products industry has demonstrated substantial value addition, with an impressive 300 percent increase. “This surge in value shows the potential for growth in the export of felt goods. However, despite the positive trajectory, the current export process for handicrafts faces significant challenges due to extensive documentation requirements,” she said. According to her, exporters are obligated to obtain various documents from entities such as the Nepal Chamber of Commerce, FHAN, and other relevant authorities. “This documentation process not only adds complexity to export procedures but also poses a potential barrier to the industry’s expansion. Streamlining these bureaucratic procedures and introducing measures to simplify the export process could further unleash the full potential of the felt products sector on the global stage,” said Sherpa.
Nepal’s felt products rely heavily on materials from abroad, mainly from New Zealand. This is because local sheep farms in Nepal can’t keep up with the growing demand. Sourcing sheep fur from the hilly and mountainous areas of the country involves dealing with tough terrain, making the supply chain more complicated and expensive. Similarly, felt producers find that the cost rises significantly when transporting the raw materials from remote areas to production centers in Kathmandu. “All these logistical challenges, along with the higher expenses of getting materials locally, end up making it more expensive than importing materials. So, despite the wish to support local resources, the current economic and logistical challenges pose obstacles that need solutions for a more sustainable and affordable supply chain in Nepal’s felt products industry,” said Sherpa.
The Artisan Crunch
The Nepali handicraft industry is currently grappling with a shortage of artisans. As young members of families who have been artisans for generations are seeking opportunities abroad than traditional arts and crafts, the skills transfer has slowed which has created a severe shortage of artisans.
According to handicraft industry stakeholders, in the context of Nepal’s rich cultural heritage, preserving handicrafts and the artisans who create them has become more critical than ever. It is because Nepali artisans craft their products using special skills with minimal reliance on modern machinery and each product carries unique qualities that reflect the rich history, culture, and legacy of Nepal, they say.
According to Dharma Raj Shakya, former president of FHAN, the present scenario sees a shift in priorities among the younger generation, with a declining interest in handicraft businesses and a growing inclination to migrate to foreign countries. “This has negative consequences, like the failure to pass down essential skills to new generation people, thereby causing a substantial crunch in human resources for the handicraft industry. In the past, the demand for handicrafts was met by Nepali producers, benefitting from the involvement of up to three generations within the same family business. However, this intergenerational continuity is waning. The tradition of family members engaging in the handicraft business is fading away, leading to an inability to sustain the previous levels of production,” he says. “The migration trend is not only affecting the industry’s workforce but also hindering the transfer of valuable skills and knowledge.”
The current FHAN President Prachanda Shakya shared the likewise. “The intricate artistry and craftsmanship once passed down through generations, are now at risk of being lost. This shift poses a significant challenge to the sustainability of the handicraft sector. Efforts to revitalize interest among the younger generation and create opportunities for skill development are crucial for the industry’s survival and for preserving the rich cultural heritage associated with traditional handicrafts,” he said.
Lackluster Government Support
Besides other reasons, the Nepali handicraft industry also faces challenges due to the government’s ineffective support and policies. Despite the country’s immense potential for exporting a variety of traditional crafts, several factors have contributed to the industry’s stagnation.
“One key issue is the government’s failure to invest in branding and marketing efforts for Nepali handicrafts on the global stage. Previous initiatives that showcased products in foreign expos have been discontinued, resulting in a decline in the international visibility of Nepali crafts. The absence of such promotional activities has hindered the industry’s ability to expand its market reach,” said Dharma Raj Shakya.
Handicraft exporters also say the tax rates in Nepal have been a major hurdle for the revitalization of the industry. Taxation issues at the local level have compounded the challenges. Dharma Raj Shakya says that after the implementation of the federal system, local governments have imposed taxes on raw materials, increasing the overall cost of production. “This has added to our financial burdens ultimately making it difficult for Nepali products to compete effectively in the global market,” he said.
According to FHAN, the import taxation on raw materials, especially gold, has risen from 10 percent to 15 percent, with an additional luxury tax for values exceeding Rs one million. “This has led to a substantial 70 percent increase in raw material costs. As a result, local businesses face heightened production expenses, making it challenging to compete with products from other Asian countries,” said Prachanda Shakya.
While the government provides export subsidies of up to 5 percent, the hassle of obtaining the rebate, including sluggish paperwork, discourages exporters from fully capitalizing on the incentives. According to handicraft entrepreneurs, the bureaucratic hurdle impedes the industry’s ability to thrive and take advantage of available support.
