The Financial Express

Plugging the leather loopholes

Helal Uddin Ahmed | Published: August 21, 2019 21:56:36

Plugging the leather loopholes

The leather industry of Bangladesh has not been able to keep pace with the preferences of world market during the past few years. The entrepreneurs are not optimistic about the immediate future as well. The recent slide in the prices of rawhides only demonstrates the seriousness of the situation. In fact, the prices of rawhides have been low during the past three years, which touched the bottom this year. It is customary for the tannery owners to pay arrears to the wholesalers during Eid-ul-Azha, which the latter use for purchasing rawhides and then selling those to the tanneries. But this year, the tannery owners could not provide enough money to the wholesalers and middlemen due to declining exports and failure to obtain sufficient bank loans. 

US$ 1020 million was earned from leather and leather goods exports during 2018-19, which was 6.0 per cent less than the preceding year. Before that, the export value was US$ 1234 million during 2016-17. Knowledgeable quarters say the setback has been partly due to the poor response from the European market, where the big importers mostly dominate. The general secretary of the Bangladesh Tanners' Association told the media that the number of buyers had decreased as Bangladesh lost the South Korean and Italian markets during the delay in shifting tanneries to Savar.

The government took a number of initiatives during the past few years in the backdrop of falling export revenue from the leather sector. Cash incentive for the commodity has been enhanced to 10 per cent from the previous 5.0 per cent. The tanneries were relocated to an industrial town in Savar from Hazaribagh of Dhaka in 2017 for enabling the processing of leather in an environment-friendly manner. But this town has not yet been made fully compliant with environmental standards. Many foreign buyers complain about deficiencies in environmental compliance. Consequently, the exports of many enterprises have declined in the European and American markets. One of the contributing factors has been the inability of most of the tanners to obtain Leather Working Group (LWG) certification from the USA, which certifies the quality of exported leather products. Bangladeshi enterprises lag behind in similar yardsticks for Europe.

This is happening despite the scope for procuring raw material (hides and skin) locally, with the value addition much higher than readymade garments. Earlier, the buyers had a positive impression about the quality of Bangladeshi leather. The world market for leather goods was expanding and Bangladeshi products had good demand. Possibilities were also created for getting additional purchase orders due to the ongoing trade war between the USA and China. Although the USA currently imports US$ 12 billion worth of leather goods from China, the Trump administration has announced imposition of 10 per cent duties on these from September 2019. Bangladesh could have obtained a large chunk of these orders from the USA, but this opportunity cannot be exploited adequately due to flaws in the environment-friendly processing of leather.

To elaborate on the theme, many buyers from Europe and America tend to avoid buying leather goods from Bangladesh as the processing has not yet been upgraded to environmentally-compliant international standard. Large quantities of salt and other chemicals have to be applied for processing leather. The processing work has to be done through proper waste management keeping in mind the environmental yardstick. Although work has been in progress in Savar during the past few years for environmentally-compliant processing including setting up of central effluent treatment plant (CETP), the task has not yet been completed. About 97 per cent work of the CETP has been finished, although work order for its construction was given by BSCIC (Bangladesh Small and Cottage Industries Corporation) back in April 2012, which was supposed to be completed within one and a half years. Some additional tasks for waste management including construction of dumping yard have also not been finished, as a result of which the solid wastes are disposed of haphazardly. The liquid wastes fall in the adjacent Dhaleshwari River and the surrounding environment gets polluted. There is an international yardstick on how much salt content the river can contain which has not yet been complied with.   

It may be recalled that the government took up the project for setting up Savar leather industrial town in 2003, but the land lease documents of the tannery owners have not yet been handed over till now. This is acting as a handicap for getting bank loans in addition to the Crescent Group scandal involving loans from Janata Bank. It took a long time for the tanneries to restart production after the Hazaribagh tanneries were suddenly shut in April 2017 and the owners forced to shift to Savar. But during delays in restarting production, many buyers from Japan, India and Europe switched to suppliers from other countries. The Chinese are now one of the major buyers, but the prices they quote are so low that even the production costs cannot be recouped often. Presently, 124 out of 154 sanctioned tanneries have gone into operation in Savar, out of which 123 do not have certification for standards. 

Leather and leather goods exports from Bangladesh will rise if the existing loopholes are plugged.  According to a report by the market research entity Grandview Research, the leather products had a market of US$ 414 billion globally during 2017. This market is set to grow at a rate of 5.14 per cent between 2018 and 2025. The market value of leather products in 2025 would be US$ 629 billion. The demand for the commodity is rising due to rising income and lifestyle improvements among people, novelties in fashion, and increase in domestic-cum-international tourism. But Bangladesh can never be successful in exploiting the opportunity without complying with international environmental standards. The government was adamant about shifting the tanneries from Hazaribagh. Now it should follow this up through extending appropriate policy supports and eliciting international certification of environmental compliance by ensuring required facilities and standards for the tanneries in Savar.    

Dr. Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly.


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