Tapping the potential of leather industry

The leather industry in Bangladesh is the third largest sector contributing to export growth. It has huge potential. The sector combines traditional practices with advanced technologies.

The leather industry is divided into two sub-sectors, tanning and production of leather goods (including footwear). There are about 220 tanneries, but only 113 are running efficiently. About 150 of them, earlier situated in Hazaribagh area in Dhaka on only 50 acres of land, popularly known as the tannery estate, used to produce around 100-150 million square feet of raw hides and skins. More than 75 per cent of these is exported to developed countries.

Bangladesh has sizeable livestock to support the booming industry. The cow hides account for 56 per cent of leather production and goat skins and buffalo hides make up 30 per cent and 14 per cent respectively. During the religious festival, Eid-ul-Azha, raw hides supply rises for a short period when a substantial number of animals are sacrificed. Local tanneries fail to process the sudden increase in supply and are unable to sell at fair prices. A significant percentage of these raw hides is smuggled out. This negatively affects the economy as it deprives the country of selling more value-added products.

About 18,059 workers are directly employed in the leather sector of which 60 per cent are skilled, 21 per cent semi-skilled, and 15 per cent unskilled. The leather is a highly labour-intensive industry with huge employment opportunities.

Over 250 manufacturers are producing various leather products like briefcases, travel bags, belts, hand bags, accessories, etc., for both domestic and overseas consumers.

The prestige that Bangladesh has gained in overseas market for its distinctive leather quality is noteworthy. The top five leather importers are Germany, China, Japan, the USA, and Spain, followed by Singapore, Taiwan, France and Netherlands.

During the fiscal year (FY) 2014-15, leather and leather goods exported fetched $1.13 billion, which increased to $1.16 billion in the FY 2015-16. Bangladesh has a contribution of 2-3 per cent to the global leather market and aims to export $1.22 billion worth of leather and leather products by this year.

Bangladesh should now aim at attracting more prestigious brands as the country's relationship with Puma and Hugo Boss shows that there is ample scope for this industry's upward mobility. However, only a few educational institutions provide education for this sector, with poor research and development initiatives. The Institute of Leather Engineering & Technology (ILET), University of Dhaka, offers 4-year undergraduate degree in leather, footwear, and leather goods technology. Recently, Khulna University of Engineering & Technology (KUET) has started a Department of Leather Engineering.

There seems to be a large untapped domestic market for leather-related items with an estimated demand of 30 million pairs of footwear per year. Moreover, about 49,300 tonnes of solid waste are generated per year from the tannery industry in the country. At present, leather processing units utilise only 25 per cent of raw material waste. There is an unexplored sector where the government can facilitate growth in industries which can utilise such wastes to make other value-added products, both for domestic market as well as export.

A by-product manufacturing unit and energy generation can be a viable option in this perspective. A robust forward linkage will boost demand for tanneries.

The relocation of tanneries to Savar is expected to be completed by the end of this year. Although the progress has been slow due to a shortage of fund, about 20 factories have already completed construction of their new premises. It will cost around Tk 60 billion to establish leather factories at Savar and start their production again. When all the leather factories at Savar Tannery Estate will start operating, this will create an opportunity for Bangladesh to make a breakthrough in global leather market. 

Although Bangladesh is geographically small compared to other emerging countries like China and India, it has achieved remarkable growth indicating a potential to thrive as both consumer and exporter of leather products. To boost the growth of the leather industry, the budget for FY2017-18 has provided tax benefit on raw materials, which is the highest ever. The government should also encourage foreign private companies to invest in this promising leather industry.

Sakib B. Amin is Assistant Professor, School of Business and Economics, North South University and Saanjaana Rahman, BS Student at the same institute.

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