The leather and its related downstream industries can claim to be the world’s largest industrial sector based upon a by-product. The Government of Bangladesh has identified the leather sector as one with considerable growth and investment potential ranked 2nd in the export earning sector after RMG. Leather is the basis of one of the oldest industries in Bangladesh. This is an agro-based by-product industry with locally available indigenous raw materials having a potential for export development and sustained growth over the coming years. The government has declared the leather industry as a thrust sector, with considerable growth, investment and export-earning potential.
Of the total earnings from leather in FY18, the Export Promotion Bureau (EPB) calculated that leather products earned $336.8 Mn – a year-on-year fall of 27% – even if leather footwear bucked the downward trend, growing by over 5% to $565.6 Mn in the last fiscal year.
History
The leather sector has evolved to its present state during the last 5 decades. However, from early 90s, it started getting importance. Real progress in terms of product development with respect to crust and finished leather commenced in the 1990s following the ban on export of wet-blue hides from Bangladesh. Basically, leather industry developed in Bangladesh on a large-scale basis from the 1970s. It is now growing at a steady pace and the growth rate is expected to accelerate with new factories coming into operation, and growing interest of foreign investors in the footwear sector.
Location
Three Fourth of the total number of registered tanneries are located Hazaribagh, Dhaka. Such a concentration is likely to offer a number of benefits in the form of sharing knowledge, raw materials, spare parts by the investors, and also helping a rapid development of vertical and horizontal integrations of the industry centering on the locality.
But due to residential locality, narrow streets and limited sewerage facilities are highly inadequate to meet the needs of a growing Industry like leather manufacturing. Secondly, the unplanned growth of the industry at Hazaribagh and the limited land area available in the locality has not made it possible to make any provision for the much-needed effluent treatment.
To solve the above problems, Government of Bangladesh have decided to transforming the leather industry is to support a relocation of the tanning sub-sector from its present location in Hazaribagh, in the center of Dhaka, to a new industrial estate in Savar on the outskirts of the city. The Hazaribagh production base consists of around 220 tanneries on about 50 acres of space. In contrast, the Savar estate has an area of 200 acres, with room for further expansion. The Savar estate also has all the facilities required to ensure environmental compliance of the tanning sub-sector, including most importantly, a Common Effluent Treatment Plant (CETP) for treating waste before discharge into the environment. Out of 155 tanneries that got plots in Savar Tannery Estate, 105 tanneries started the production of wet blue leather in Savar till now. Some more tannery factories will begin their production soon.
Market Player
The per capita consumption of footwear, including leather, is 3-pairs, which was 1.7-pairs five years back. According industry expert local footwear market that was worth BDT 16,000 crore in 2016 is growing 10-15 % a year. Some other players said the market size stands at around BDT 70,000 Mn to BDT 80,000 Mn. The country consumes 300 Mn pairs of footwear annually. This sector is dominated by the informal market. The organized sector began to secure a growing market share after some export-oriented footwear companies started opening outlets a decade ago. Bata is the market leader, particularly in the Bangladesh shoe industry. Around 20 % of the market grabbed by the organized sector is coming from Bata. Apex shares 10 % and the others occupy remaining 34 % of the overall local footwear market. Earlier, Bata Bangladesh was the lone chain retailer. After the entry of Apex in 2006, others such as Bay, Jennys, Zeil’s, Leatherex, and Lotto also approached to win the hearts of consumers. So, unorganized sector is playing the vital role. Almost 70 % of business is coming from the unorganized sector. In the unorganized sector, the basic footwear like the ‘chappal’ is the dominating factor. Sandals, chappals are the most sold footwear. Besides these, there are a good number of items imported from the neighboring countries, namely, China, India, Burma and Thailand. Even so, most demands for basic footwear is met by the local industries.
General Classification of Leather Goods
There is wide variety of leather goods produced in the Bangladesh. The main groups are below:
- Small leather goods/Fancy leather goods: Purses, wallets, key case, passport case, note case, card case, cigarette case band cigar case, match box case and so others
- Medium leather goods and: Bags, shopping bags, shoulder bags, document cases, attach cases and so on.
- Heavy leather goods: Box sides, Katti Leather, Split Leather, Cow Upper, Upholstery, Buff Softy, etc.
Raw Materials
Bangladesh has a fairly large livestock population to support a strong and growing tanning industry. The large portion of raw material comes from cow hides which account for 64.82 % of the production.
The current output of leather in Bangladesh is approximately 200 Mn Square Feet annually. According to Bangladesh Tanners Association, the country produces 220 Mn square feet (about 20 Mn square metres) of hide every year, 64.82 % of which is cowhide, 24.18 % buffalo hide and 12 % goatskin. More than half of it is procured from animals sacrificed during the Eid-ul-Azha festival. Another survey says about 16.5 Mn pieces of hides are collected each year in this country. The main determinants of lather sector’s growth are the growth of on livestock species. The demand for livestock is also increasing with the increasing number of population and Gross National Income (GNI). Though the production of meat increased in last five years, Bangladesh is still running with a shortage of its required amount of meat 9 crore tonnes. The country is now producing 62 crore tonnes of meat against the demand of 71 crore tonnes. To meet up the rest of our local demands and export in future, the government has taken several steps to create awareness among the farmers, producers and citizens. So, the industry will notice a significant growth in future.
In 2010-11, the number of cattle was 231.21 lakhs and in 2016-17 it amounts to 239.35 lakhs with a CAGR of .58 perceent. We can see uptrend in all livestock in between these years.
Leather and Leather Goods Export of Bangladesh
The leather industry is the second largest export earning sector of Bangladesh. Over 250 manufacturers are producing various Leather items such as travel goods, suitcases, briefcases and fashion accessories, along with belts, wallets, hand bags, case holders etc. for overseas export. Bangladesh has also entered the field of Leather fashion garments with items of distinction and prestige. The leather sector accounts for about 4 % of total exports earnings of Bangladesh. The World Bank included the leather sector among the priorities of the export diversification program for Bangladesh. There are 3 sub-sectors i) Leather Tanning, ii) Leather Footwear, iii) Leather Goods.
In past seven months of this fiscal year, there was a downward trend in export earnings. In 2016-17, for the same period export earnings were 827.62 Mn USD, when in 2017-18 it has reached 784.97 Mn USD, which is 42.65 Mn USD less from the previous year, with a negative growth rate of 5.15 %. According to a report by Technavio USA, current size of the global leather market is $220 Bn, which will become $271 Bn by 2021.
Bangladesh has been ranked eighth in terms of footwear production in the world in 2016, producing 378 Mn pairs of shoes or 1.6 % of the total output, according to World Footwear Yearbook 2017, Bangladeshi footwear industry is one of the fastest growing in the world, increasing export by nearly 700 % during the last decade, it noted.
Industry Outlook and Investment Incentives
Bangladesh produces 2-3 % of the world’s leather. Most of the livestock base for this production is domestic, which is estimated as comprising 1.8 % of the world’s cattle stock and 3.7 % of the goat stock. The hides and skins (average annual output is 15 Mn sq.m.) have a good
International reputation. Foreign direct investment in this sector along with the production of tanning chemicals appears to be highly rewarding due to this presence of basic raw materials for leather goods including shoes, a large pool of low cost, trainable labor, and a tariff concession facility to major importing countries under Generalized System of Preferences (GSP) coverage. Thus, Bangladesh is an ideal offshore location for leather and leather products manufacturing with low cost but high quality.
The government is in the process of setting up a separate leather zone, relocating the existing industry sites to a well-organized environment. Footwear is more important in terms of value addition. This is the fast-growing sector for leather products.
Threat
Bangladeshi footwear and leather goods export have been facing trouble over the last two years due to delays in relocating the tanneries from Hazaribagh to the newly-built leather estate in Savar to make the industry eco-friendly. While policymakers have earmarked the leather industry to earn USD 5 Bn by 2021, the present state of getting the industrial estate in full running condition is far from satisfactory. The relocation process itself was painful for the industry. Moreover, Gas connections, making available raw materials for preserving cattle hide and inadequate supply of water make this process an unsatisfactory one. Environment pollution is a major threat to this industries development. The relocation, in effect, shifted the pollution from Buriganga to the Dhaleshwari. The Indian government has announced a special package worth $404.7 Mn (about Tk 3,338 crore) from fiscal 2017-18 through to fiscal 2019-20 for employment generation in the leather and footwear sector. For this, Bangladeshi footwear and leather goods exporters are bracing themselves for tough competition in the global market as both the country’s export footwear and leather goods to the same destinations like the EU, the US and Japan. More than 3,000 small- and medium-scale footwear, leather and leather goods factories would be in trouble for the Indian package according to industry expert.
Opportunities:
The leather industry, the second largest export segment of Bangladesh, had received incentives from the government in the budget for 2017-2018 Government had reduced rate of duties as capital machinery. Tax benefit is given on the raw materials needed for leather processing from the very beginning. A Vietnamese company is set to invest around $100 Mn in Bangladesh’s leather sector. The company is eyeing duty benefits Bangladesh enjoys on exports to the European Union, Japan, Canada, Australia and several other developed countries according to the industry expert. It will set up a factory on the outskirts of Dhaka or Chittagong and maintain liaison with the government. Goods from Bangladesh have a competitive edge in the countries where Bangladesh enjoys duty benefits. Bangladeshi goods also have preferential access to China, Malaysia, South Korea, several South American countries including Chile. The plan is indeed big in that the country is eying to earn $5.0 Bn from the sector by 2021 when its total export target is going to be $60 Bn. This means one-twelfth of the foreign exchange may come from the leather sector by that time. Currently, the sector earns 1.54 % of the total foreign exchange earning with an average annual growth of around 29.8 %.
Future Prospect:
Bangladesh’s leather sector is deemed to be competitive because of its low labor cost differentiation, local availability of hides and a favorable business environment. This is complemented with the existence of organizations and institutional arrangements like the Export Processing Zone (EPZ) etc. and duty-free access to major international markets. Prime Minister Sheikh Hasina announced leather and leather products as ‘products of the year’ in January 2017. The seventh five-year plan (2016-20) of the Government of Bangladesh is specially focused on leather, leather goods and footwear as a highly potential export sector after readymade garments.
Current demand for the leather, leather product and footwear in the world is nearly $215 Bn where Bangladesh exports only US$ 1.08 Bn. As a result, we have a huge possibility to grab the market with our highest level of efficiency and proper strategic planning.
