Global Apparel Brands Put Nepal Expansion on Hold Amid Political Unrest

KATHMANDU, Nov 4

International clothing brands that had been considering investments in Nepal have now stalled their plans, citing political instability and security concerns following the violent Gen Z protests in early September.

According to Pashupati Dev Pandey, President of the Garment Association of Nepal (GAN), potential investors — including major Indian exporters to the US, have become hesitant.

“Investors are demotivated and uncertain after the Gen Z protest,” Pandey said, adding that the recent violence has shaken confidence in Nepal’s business environment.

During the protests, several luxury hotels in Kathmandu, including the Hilton Kathmandu, Hyatt Regency, and Hotel Varnavas, were set on fire, further heightening concerns among foreign investors about the country’s stability and safety.

India–US Tariff Talks Add to Investor Caution

Pandey noted that the situation is compounded by ongoing tariff negotiations between India and the United States, which are expected to conclude this month.

“If the India–US trade talks end positively, brands operating in India may see less incentive to shift production to Nepal,” he warned.

According to Indian media reports, Commerce Minister Piyush Goyal has said that New Delhi is in the final stages of discussions with Washington. The proposed trade deal could reportedly reduce US tariffs on Indian exports from 50 percent to as low as 15 percent, a major relief for India’s textile and apparel sector.

Nepal’s Lost Opportunity

Before the protests, global apparel brands like GAP, Puma, Nike, and Zara had expressed interest in partially shifting their production lines to Nepal. The move was seen as a response to the 50 percent US tariffs imposed on Indian goods last year, a decision taken by the Trump administration to pressure India over its continued purchase of Russian oil.

Currently, goods imported from Nepal face only a 10 percent US tariff, making the country an attractive alternative manufacturing destination.

However, if the India–US deal materializes, Nepal’s cost advantage could narrow significantly, making it less appealing to international brands.

Exports Decline Amid Unrest

According to the Trade and Export Promotion Centre, Nepal’s readymade garment exports dropped by 10.22 percent to Rs 2.51 billion in the first quarter of the current fiscal year. The country exported 15.88 million pieces of garments worth Rs 8.75 billion last fiscal year.

GAN attributed the decline to reduced production during festive holidays and disruptions caused by political instability.

Still, Pandey remains cautiously optimistic.

“If the India–US tariff deal fails, US buyers may turn to Nepal, as higher tariffs will make Indian goods less competitive,” he said.

He added that the US demand for readymade garments is expected to increase by 10–15 percent following the tariff hike, prompting some domestic producers to expand production capacity.

Need for Clear Transshipment Policy

Industry leaders have also called for strict measures to prevent illegal transshipment, rerouting goods through Nepal without sufficient processing to evade tariffs, a practice that could attract heavy US penalties.
Nepal currently lacks a comprehensive legal framework on transshipment, raising the risk of misuse.

Jewellery Sector Sees Glimmers of Opportunity

The tariff situation has also sparked interest from Indian jewellery producers, who have begun exploring potential investments in Nepal.

According to Arjun Rasaili, President of the Federation of Nepal Gold and Silver Dealers Association, several Indian companies have made preliminary inquiries, though no formal agreements have been reached.

Nepal’s jewellery exports have shown promising growth this fiscal year, silver jewellery exports rose by 29.35 percent to Rs 68.41 million, while gold jewellery exports climbed 16.70 percent to Rs 10.64 million.
In the last fiscal year, Nepal exported silver jewellery worth Rs 178.71 million and gold worth Rs 47.87 million, mainly to the United States, followed by France, Germany, Italy, and Japan.