Nepal is building garment processing zones and inviting investors to submit applications to install production plants at the zones. A special economic zone (SEZ) will come up in each of the seven provinces. The product specific industrial zones are expected to make the production process cost effective and help boost exports of Nepali readymade clothes. The mandatory export provision has been reduced from 75 per cent to 60 per cent to ensure sustainability of the firms inside the SEZs while 40 per cent of their production will be allowed to be sold in the domestic market.

The country’s earnings from readymade garment exports in the eight months of the current fiscal year grew 4.6 per cent compared to the same period of the previous year. There are 52 readymade garment factories operating in Nepal with an annual production capacity of seven million pieces. Nepal was shipping 87 per cent of its readymade garment production to the US till 2002. Following a dip in exports to the US, Europe emerged as a major buyer of Nepali readymade garments. The readymade garment industry collapsed after the Multi Fiber Agreement expired in January 2005, which provided duty-free access for Nepali garments to the US. More than 85 per cent of the garment factories have shut down since then.