Once the cynosure of all eyes, leather sector is losing its sheen lately! Long been touted the most promising sector in terms of export potential after the flourishing readymade garment industry, the leather sector had to concede its position of the second highest export earner to jute and jute products after its earnings in FY20 marked a decline of 21.79 per cent to clock US $ 798 million from sale of leather and leather products, while jute and jute products took over the second position with earnings of US $ 882.25 million from export of jute and jute products.
It’s a well-known fact that for the last couple of years, Bangladesh’s leather industry has been going through a crisis over environmental and social compliance issues, which have significantly pushed down its export earnings.
As per reports, export earnings from leather and leather goods decreased by 16.54 per cent to US $ 154.74 million in July-August of FY2021 from what was US $ 185.41 million in the same period of FY2020. Further, export earnings from leather footwear went down by 11.89 per cent to US $ 105.23 million, while other leather products decreased by 22.94 per cent to stand at US $ 34.02 million in the period.
In the current FY20-21, the target from this sector has been set at US $ 1.09 billion even as the Government has set an export earning target of US $ 5 billion by 2021, which economists feel is now almost impossible to attain.
So, what is the way forward in the given circumstances? Experts suggest the Government must formulate a master plan to revitalise the leather sector as dwindling exports and the coronavirus pandemic are further pushing this sector to the brink.
The sector, as one of the major sources of foreign exchange earnings, needs urgent care to bring it out of uncertainty to boost the economy during this ongoing crisis, experts said while underlining that Bangladesh needs to produce high-end leather products, attract massive domestic investment and enhance the capacity of private sector manufacturers to give the leather sector the much-needed fillip. However, image crisis apparently has emerged as major roadblock towards the same thanks to compliance issues. Experts believe an image makeover, which is so badly needed now by the sector, is possible only through rebranding Bangladesh’s image as a compliant and genuine leather goods supplier through ensuring social and environmental compliance. But to achieve that, the industry needs a realistic and modern policy framework.
The experts made these observations at a recent virtual dialogue on the theme, ‘Future of Bangladesh Leather Sector in the Aftermath of COVID-19,’ organised by the Economic Reporters’ Forum (ERF) in association with Asia Foundation and Research and Policy Integration for Development (RAPID).
Speaking on the occasion, industry insiders and experts underlined that it took the Government 17 years to set up a planned leather industry town on 200 acres of land at Hemayetpur in Savar. Nevertheless, the Central Effluent Treatment Plant (CETP) is not yet fully ready, they said adding that work on the dumping yard at the designated place for dumping solid waste has also not started. As a result, environment is being polluted in Hemayetpur as tanneries have been shifted from Hazaribagh without full preparation consequent to which large European and American buyers are not buying Bangladeshi leather.
The result, the export of leather and leather products has been continuously declining since the 2016-17 fiscal year, they said.
As to the issue of CETP, the Private Sector Industry and Investment Adviser to the Prime Minister, Salman Fazlur Rahman claimed the Chinese company contracted to build the tannery estate in Savar did not do a proper job, and that’s why there are big problems now.
“The tannery cluster of Hazaribagh has been shifted to Savar urging different experts to make it an environment friendly one. But Chinese builders did not work ‘properly’ at the tannery estate in Savar that’s why there are big problems now,” Salman said, adding, “The China Government has given us duty free access for Bangladesh. So, there is needed over 40 per cent value addition in the products. We have enough raw materials in leather products so it’s very easy to take the opportunity.”
It may be mentioned here that China’s recent move to allow duty free market access to 97 per cent of Bangladeshi products is expected to benefit the leather sector significantly.
“The CETP was at the core of the relocation project of the tanning industry, but it is not running at its fullest efficiency as some of the facilities are yet to be installed,” said M. Abu Eusuf, a professor of Development Studies at Dhaka University, while adding, “Technical evaluation and compliance of environmental issues of CETP in accordance with the LWG protocol must be ensured to make it fully functional and internationally accredited.”
The CETP lacks a full-fledged laboratory to measure all relevant parameters for smooth operation and monitoring, said professor Eusuf, suggesting appointing a professional management organisation to manage the CETP.
Since shifting the tanneries from Hazaribagh to Savar, the country’s leather sector has been facing serious difficulties, especially for lack of a CETP and water treatment plant, pushing many tanneries into a risky zone, the experts stated adding that many leather companies are failing to fulfil buyers’ demand, causing a constant fall in export earnings while also driving the buyers away on account of the same.
Shaheen Khan, President of Bangladesh Tanners Association (BTA), said the leather industry was plagued with numerous bottlenecks in 2017, and they could not make a recovery as yet. “We are still facing various problems,” said Shaheen, adding that the Government should take immediate action to solve these problems so as to attract foreign buyers in order to woo more investment in the sector.
“The leather sector needs a sector-specific, realistic and modern policy framework to address its longstanding challenges,” said Chairman of RAPID, Mohammad Abdur Razzaque, who further underlined that efficient operation of the tannery estate should be of utmost priority in building an export supply response.
When domestic demand is very strong, export can be replaced by internal consumption. Trade policy and differences between domestic and foreign standards can stimulate this trend, said the economist.
“The sector produces about 70,000 tonnes of solid waste, but there is no dumping station or management plant,” said Shaheen Ahmed of BTA even as experts as well as people involved with the sector stressed a free trade area (FTA) agreement for the post-LDC graduation regime.
“Understanding the likely implications of LDC graduation is important and the scope of post-LDC export incentives should be carefully considered,” said Razzaque, while Syed Nasim Manzur, Managing Director of Apex Footwear, on his part, maintained, “China and India are big markets for Bangladesh, as we enjoy duty free market access in those countries, which will not exist after the LDC graduation.”
Experts also called for a targeted policy to attract FDI in the tannery sector as it would help attract renowned global brands and share their experiences. They also called for equal treatment for the leather industry, in terms of incentives and policy support, alike the RMG sector.
Meanwhile, in a recent move that is expected to give a boost to the leather sector, the Government has launched a US $ 10-million export readiness fund with two funding windows for businesses in four priority sectors – leather and leather goods, leather and non-leather footwear, plastics and light engineering – to diversify and boost the country’s export.
As part of this move, a firm will get matching grant up to US $ 0.2 million in two categories from the export readiness fund (ERF) under the export competitiveness for jobs (EC4J) project of the Commerce Ministry.
The project, launched in January 2020, is providing fund and guidance to businesses to meet environmental, social and quality (ESQ) compliance standards under its funding window-1 so they can compete in global export markets, according to a press release issued by the Commerce Ministry.
The funding window-2 of the ERF will provide up to US $ 40,000 to a firm, with minimum 40 per cent as firm’s contribution, for covering business and technical services to meet ESQ standards, while on the other hand, window-3 of the fund will give maximum US $ 0.2 million in grants that cover both service and fixed asset expenditures to meet ESQ standards.
The firm will have to invest additional 50 per cent of the total grant amount.
Some 250 firms will receive support under the window-2 and window-3 of the 3-year fund.
The two funds will support the firm to upgrade the production plants, equipment and services, improve design and quality of products for making those ready for export.
The timely support given by the Government is definitely going to help the industry, but considering the myriad challenges it is faced with currently, if and when the industry would be able to come out of the export glut to reclaim its position as the second biggest export earner for Bangladesh again remains to be seen.
