Home ›› 07 Dec 2022 ›› Front
Over the past decade, Bangladesh’s earnings from leather and leather goods exports have been hovering around the $1 billion mark but the sector’s potential remains untapped despite an adequate supply of raw materials from domestic sources.
However, the government has been adamantly setting high export earnings targets one after another for the leather industry without ever achieving the goals.
In 2012, the government aimed to increase the sector’s export earnings to $2 billion by 2017. But it achieved $1.23 billion in FY2016-17.
Then in 2017, the government again targeted to increase exports to $5 billion by 2021 but reached only $942 million in FY2020-21. According to government data, the industry has never been able to cross the $1.5 billion mark in annual export earnings.
But the Commerce Ministry has once again set another unrealistic goal for the leather and leather goods industry — earning $10-12 billion annually from exports within 2030 — despite the history of setbacks and no breakthroughs in the last 10 years.
Based on analysis of the data and government measures, economists and sector people have said that the leather industry might never be able to reach the new export earning target — even though it has the potential — unless the existing bottlenecks are resolved.
Beating around the bush will not improve the sector’s export earnings. This industry needs to go through massive development to improve safety, stop pollution and ensure environmental compliance along with all the other issues holding it back, they said.
A history of hope and downfall
Hope for the leather industry started growing in the early years of the last decade due to a surge in exports.
Although its root dates back to the pre-independence era, the sector began to flourish in the late 1970s after the government took over around 30 tanneries in Dhaka’s Hazaribagh area.
The growth was so massive around the time that entrepreneurs in 2012 had set a goal to earn $2 billion from exports annually within five years. When the sector’s export earnings crossed the $1 billion mark in FY2012-13, the goal seemed all the more possible.
But, problems were brewing as well. Poor waste management in the tanneries drew harsh criticisms from both in the country and abroad. Chemical wastes from the factories were dumped in the Buriganga River. The pollution was so severe that the river is yet to recover.
Air pollution in the factory area also got worse. Environmental non-compliance began to haunt the industry but its growth did not stop. By FY2014-15, it had become the second largest contributor to national export earnings, after readymade garments, with $1.13 billion, according to Export Promotion Bureau data.
By 2017, the criticisms over the industry’s non-compliance with international standards were so severe that the tanneries were shifted to the Savar Leather Industrial Estate, bringing new hopes of export growth.
Leather was also announced as the “Product of the Year” by Prime Minister Sheikh Hasina, while the government targeted to earn $5 billion from exports within 2021. That goal, however, remained untouched.
Non-compliance was already holding back the industry. After the tanneries were shifted to Savar, its growth began to fall even more. In FY2017-18, export earnings stood at $1.09 billion.
In 2019, the Industries Ministry introduced the Leather and Leather Goods Development Policy, which aimed to reach $5 billion in annual export earnings by 2025. It also aimed to increase the industry’s contribution to the GDP to 1 per cent within that timeframe.
The biggest drop in leather exports, however, came after the Covid-19 pandemic started in the country. EPB data shows, in FY2019-20, leather and leather goods exports fell to $797.6 million, a 29.79 per cent drop from the previous year. In FY21, it increased slightly to $941.6 million.
The industry regained its strength in FY2021-22 with export earnings at $1.25 billion. Also, in the first four months of the ongoing FY2022-23, the country earned $428.5 million, a 17.42 per cent jump compared to the same period last fiscal year.
Non-compliance
Industry insiders say the sector has the potential to become a major contributor to the national economy but is failing to blossom properly due to its non-compliance with international standards.
Authorities have been pledging to take steps in resolving the issues since 2012. But so far, no significant development in policies has been made. Wastes from tanneries are now polluting the canals and rivers in Savar.
The situation has gotten worse to the point that even a parliamentary standing committee last year recommended shutting down the Savar Tannery Industrial Estate.
Despite pledging to ensure compliance, tanners have failed over and over again to get the vital certification from the Leather Working Group (LWG), the global body for compliance and environmental certification in this sector, due to poor standards at the
Savar estate.
“The leather industry’s main problem is the lack of compliance. This is holding back the industry from reaching its full potential. Bangladeshi products are getting lower prices in the international market,” Dr M Abu Eusuf, executive director at Research and Policy Integration for Development, told The Business Post.
He said, “It is possible to earn $10 billion annually by exporting leather and leather products by 2030. But to do that, the ministries of industries, commerce, forest and environment, and the labour and employment must work together to ensure compliance in this sector.”
Lack of compliance and LWG certificate were slowing down exports even before the pandemic, he added.
Eusuf, also a professor at Dhaka University (DU), said the environment, social and quality compliance and obtaining LWG certification is critical to boosting exports. Exporters receive 30-40 per cent lower prices from international buyers because they lack these certifications.
He continued, “The lack of a fully operational central effluent treatment plant (CEPT) and solid waste management at the Savar tannery estate has proven to be a significant impediment. The LWG requires all tanneries to use cleaner technology and complete full treatment of effluents and adequate solid waste and chrome management.”
Noor Muhammad, assistant professor at DU’s Institute of Leather Engineering and Technology, added, “Foreign buyers want standard quality products. Due to the lack of LWG certification and poor compliance standards, buyers in many countries are not going for Bangladeshi products.”
He also identified that the lack of a completely efficient CETP is the reason behind factories failing to obtain the LWG certificate. The tanneries do not maintain all necessary regulations as well.
Policy support
Another issue holding back the sector is high tax rates, said the experts.
Professor Eusuf said, “Entrepreneurs want the government’s policy support more than financial aid. The leather industry has Tk 8,000 crore in bank loans, against which the companies have to pay Tk 800 crore in interest annually. Many fail to pay the loan back due to low exports.”
Jillur Rahman, assistant professor at Jagannath University’s Economics Department, told The Business Post, “Compared to 2022, exports of leather and leather products to the European Union (EU) increased by 61 per cent from January to August this year.”
He said exports have risen due to the increase in demand after the pandemic. Bangladesh’s leather and leather goods export to the EU has gone up as well. However, exports of products made of domestic leather in the international market are still lagging due to compliance realities.
Jillur added that out of the total Bangladeshi leather and leather products exports to the EU, footwear accounts for 74 per cent, other products 18 per cent, and leather accounts for the remaining 8 per cent.
Citing a study report, he said, currently, the United States is the largest market for Bangladeshi leather and leather products. In FY22, 34 per cent of total exports went to the US and 26 per cent to the EU.
Besides, 8 per cent were exported each to China, Japan and India, 5 per cent to Canada, 3 per cent to the United Kingdom, 2 per cent to Hong Kong, and 8 per cent to other countries.
$420b market
According to India-based research firm Straits Research, the global leather goods market’s size was valued at $419.5 billion in 2021 and is expected to expand at a CAGR of 6.2 per cent from 2022 to 2030 and reach around $720.8 billion.
With the highest revenue share, Europe has surpassed Asia as the leading region in the global market.
Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association President Mahiuddin Ahmed Mahin said the target has been set based on the international market’s demand and availability of local raw materials. “If we can capture 3 per cent of the global market, it will be possible to achieve the $12 billion exports target.
“At present, it has not been possible to capture even 1 per cent of this market even though the country has enough raw materials. Bangladesh ranks among the world’s top 10 producers of rawhide. The target can be achieved if quality products are made from these raw materials by following the proper process. This will create jobs for 25-30 lakh people at the same time,”
he added.
He echoed the industry experts’ concern about non-compliance and lack of policy support being the biggest obstacles in failing to achieve the annual targets for a long time.
“If compliance can be ensured, the prices of the products we export now will double. Foreign buyers are going to other countries as our industry is failing to meet the export requirements. LWG certification has become a must to achieve the export target,” he said.
Mahin further said that the government needs to rapidly strengthen policy support. “Entrepreneurs have fallen behind in the last six years. During this time, the debt burden has increased and as a result, they are in a liquidity crisis.
“The industry won’t be able to rebound if this debt burden is not taken care of. For that, 15 years must be given to repay the loan and the restrictions on the Hazaribagh lands should be lifted. There are many challenges in this sector and we need the government’s help to overcome them,” he stressed.
