Bangladesh Leather sector needs attention to return on positive growth.

Leather sector

Three decades ago, rawhide from traditionally grown Bangladeshi cattle had good demand among international leather product brands, but the Leather sector export has deteriorated in recent times.

The consequences of this have begun unfolding as the country has so far achieved only one-tenth of its 2021 export target for leather and leather products, although this sector is believed to be one of the very few successors to the readymade garments (RMG) industry. 

Bangladesh Leather sector:

In the last three fiscal years, annual export of finished leather and semi-finished crust leather – the lowest-hanging target – declined to one-fifth, from $490 million to $98 million, according to the Export Promotion Bureau (EPB). 

The country’s leather industry registered a drop in exporting revenue of 6.06%, when compared to the previous fiscal year. Over the period, the leather industry recorded exports revenue of 1 019.78 million US dollars, falling short of the export target of 1 124 US dollars set by the country’s government for the period (90.73%).

Finished leather exports generated 164.62 million US dollars, down by 10.09% from the previous fiscal year. Leather goods contributed with 247.28 million US dollars, losing roughly one third of the revenue generated last year in similar period (decline of 26.58%).  On a positive note, leather footwear exports increased its value by 7.48%, generating 607.88 million US dollars over the period.

Revenue coming from exports of finished leather (91.08%) and leather products (72.73%) was below the goal set for the period, while leather footwear managed to meet the target (101.31%).

Exports of other footwear (non-leather) increased by 11.24% and closed the year at 104.43% over the target set for the period.

Bangladesh’s government has set the leather industry an export target of 1.124 billion US dollars and the industry closed below the target by 9.27%.

Why export earnings continue to fall 

Talking to Dhaka Tribune, industry people and trade analyst have blamed non-compliance in the sector through delayed establishment of central effluent treatment plant (CETP) at Savar Leather Industrial Park. 

In a move to make the sector compliant and environment-friendly, the government has forcibly moved the tanneries from Hazaribagh to Savar but construction of the new site is yet to be completed, especially the CETP.    

“We are not environmentally compliant. This is because of the absence of full-fledged operation of CETP. Moreover, the Leather Working Group (LWG) certification, which makes it easier to sell goods to the global buyers, is hard to come by for us due to the absence of a fully operational CETP,” Md Saiful Islam, managing director of PICARD Bangladesh Limited, has told Dhaka Tribune.

For lack of proper compliance, especially in environmental issues, Bangladeshi manufacturers are not getting the certificate from the LWG, which assesses environmental compliance and performance capabilities of leather manufacturers. “AS a result, export earnings from the sector saw downtrend,” he explains. 

On top of that, consumers were shifting to non-leather shoes — another reason for the negative growth in earnings of overall export from leather sector, he mentions.  

Meanwhile, tanners, the suppliers of the raw materials to the footwear industry, have observed that earnings from the processed leather and leather goods fells as the production fell due to relocation to Savar.

“Manufacturers perform better when there is enough supply of raw materials. But the tanneries are suffering as the relocation hit the production of leather processing,” Md Shakawat Ullah, general secretary of Bangladesh Tanners Association (BTA), tells Dhaka Tribune. 

“Besides, some tanneries are not yet in operation as they have not yet completed construction of building in the Savar park and it affected production capacity,” he says.

The export earnings from the leather industry were in good shape before the inception tannery relocation, he says, adding that buyers are not making orders over compliance issues, which is largely dependent on the completion of CETP, points out Shakawat, also owner of Salma Tannery Ltd. 

“However, we are hoping for a better comeback as the authorities are expecting to complete the CETP by August this year,” he says. 

How to return to positive growth

“Leather is the only sector, which earns over a billion dollar and is the second largest earners of foreign currencies after the apparel sector. It contributes 2.51% to the national exports. And the downtrend is a great concern for the economy,” former adviser to a caretaker government AB Mirza Azizul Islam tells Dhaka Tribune. 

In restoring the global buyers’ confidence and ensuring compliance, he suggests, the government has to complete the CETP as well as the whole process of the relocation. 

Beyond this, he adds, the government has to start branding of the sector to rebuild the image already tarnished by non-compliances. 

Meanwhile, manufacturers urged the government to comply with the recommendations of the LWG in completing the CETP and total waste management. 

In making the industry a compliant one as per the international standard, the government has to implement the recommendations immediately, says Saiful.

“In addition, we have to concentrate on reducing water use and making Chrome Recovery Plant to ensure hazards-free discharge of water,” he says.

He also suggests establishing cold storage instead of using salt to preserve rawhides.     

Leather sector looks for serious attention 

Bangladesh must stop open-air slaughtering as soon as possible and adopt scientific slaughtering houses, where modern methods can save rawhide from damage and reduce environmental pollution, industry experts suggested. 

A $100 million public project is on the table to build such facilities across the country, but the industry drew government attention for need-based geographic allocation of those. 

Over 60 percent of the slaughtering takes place in Dhaka and Chattogram cities and they need a concentration of modern slaughtering houses, said Shaheen Ahmed. 

“The services of the facilities must be affordable. Otherwise people will keep continuing the existing unwanted slaughtering practices,” he said.  

Leather industry insiders also demanded a rapid government response to help the tannery village in Savar transform to a globally compliant hub. 

Alongside the ineffective and mismanaged CETP idea, the government must allow tanneries’ own ETPs and help them with concessional green loans, discussants at the event said. 

Prime Minister Shiekh Hasina also supported the idea for tanneries’ own ETP for the sake of compliance, but it is yet to be a reality for an unknown reason, they added. 

For international compliance, tanneries also need quicker steps for solid waste management at the Savar hub. 

The relocation 

As per a High Court order, the government cut power and gas connections to the tanneries to compel the owners to relocate to the purpose-built Savar Leather Industrial Park to the north of the capital in April 2017.

The Industries Ministry allocated plots to 155 tannery owners through the Bangladesh Small and Cottage Industries Corporation (BSCIC) in the Leather Industrial Park established on 200 acres of land in Savar. 

As per the agreement, the government was supposed to establish a CETP at the industrial park to ensure that the liquid wastes discharged by the tanners are treated before flowing into the nearby river. 

The government decided to transfer the tanneries from Hazaribagh amid pressure from local and international rights groups, environmental activists and buyers because of their hazardous effects on public health and environment, especially the Buriganga River. 

Potential still there :

Alongside taking realistic steps for transforming the tanneries, the government also needs to incentivise local footwear and leather product manufacturers. 

“Bangladesh would be capable of adding 80-90 percent local value in the sector if export was facilitated,” said Nasim Manzur.

Leather and leather products together can achieve the previous vision for annually earning $5 billion from exports within 2024 if handled properly, Shaheen Ahmed expressed his confidence during the webinar moderated by BCE CEO Wasfi Tamim and addressed by CCCI President Mahbubul Alam. 

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