Jan 11, 2010

Leather forecast

The leather industry sees no hope for the sector in the new trade policy

By Aoun Sahi

Till a few years ago, Pakistan's leather industry used to be a leader in Asia. It is facing difficult times today. During July-November 2008-09, the leather exports of Pakistan faced a decline of 27 percent while India, which exported 43 percent more leather garments, witnessed 27 percent increase in its leather exports during the same period.

The sharp decline in Pakistan's second top foreign exchange earner after textiles that employs some 500,000 workers is a matter of serious concern, calling for immediate steps to stem the tide. The government announced some steps for supporting leather industry in its trade policy 2009-12, including facilities from Export Investment Support (EIS) Fund for the procurement of expert advisory services, a matching grant to establish design studios/centres and establishment of research and development centres in Karachi and Sialkot.

Federal minister for trade and commerce, Makhdoom Amin Fahim, also announced that leather sector would be able to avail EIS Fund facilities that include sharing 25 percent financial cost of setting up laboratories and matching grant for setting up of effluent treatment plants. "A scheme is also likely to be launched to compensate inland freight cost to exporters of leather garments and some other items," he said. He also ensured availability of electricity supply to the leather industry. "The ministry of water and power and electricity distribution companies will enter into agreements with a cluster of industries whereby electricity will be supplied at mutually agreed times," he said while announcing the target of six percent increase in export of leather products.

The leather industry sees no hope for the sector in the new policy. "Our main demand is to provide rebate on exports equal to other regional countries. China, India and Bangladesh had announced relief packages to face the international recession and had salvaged their industry by offering rebates ranging from 7.5 percent to 15 percent on leather and leather goods imports which is only 2.3 percent in Pakistan," Sarfraz Bhatti, CEO FS Candino, a leather goods-making factory in Sialkot, tells TNS.

Bhatti has lost around 50 percent of his business during the last one and a half year for different reasons. "Increase in the cost of production due to power crisis, economic depression, better rebate rate and financial environment in India, China, Bangladesh and Turkey, the competitors in international market and export of raw leather are the main factors responsible for the situation. We are supplying raw leather to India too."

According to him, the number of tanneries in the country has increased from 520 in 1999 to 720 at present while the production of hides of cattle and skins of goats and sheep in the country is almost static for the last two years at 12.3-12.6 million and 45 million respectively."

Bhatti says two years back more than 500 people used to work in his factory but now they are not more than 200. "Every leather goods-making factory in Sialkot has been facing the same situation."

According to Pakistan Leather Garment Manufacturers and Exporters Association, there are more than 460 leather apparels-making and 345 leather gloves-producing units in the country that employ more than 40 percent of the total labour force working in the leather sector.

Having 11 percent of the world's livestock -- 14 percent buffaloes and 7.5 percent goats -- Pakistan stands 15th in the world in leather production. According to sources, around 80 percent of leather production is exported. Pakistan stands at number four in leather garments production, second in leather gloves, and 36th in leather footwear. "Even then Pakistan's share (USD940 million) is less than one percent in the world leather trade of USD 98 billion while its share in the world's leather exports is 1.29 percent", former chairman Pakistan Tanners Association (PTA), Agha Saiddain, tells TNS.

According to him, Indian and Bangladeshi governments have been giving special attention to the sector while our government is still not ready to take solid step towards giving benefits to the leather export sector. "Because of the timely steps by the Indian government for its leather industry and relief package of Rs13120 million for 10th and 11th leather plans, its leather exporters have been able to increase their export. The Indian government has also given Rs2630 million to leather exporters in grant in the head of modernisation, capacity building, and betterment of infrastructure of the sector. In contrast, the Pakistan government has not followed the recommendations of the leather industry."

It is estimated that around 15-20 percent of the hides and skins are affected by pre-slaughtering damages, like skin-cuts, rashes, diseases, injuries, etc, while around 10 percent more are damaged due to power and gas loadshedding at the main tanneries. Saiddain admits there are many problems in the industry as well, "We don't have enough skilled labour while our industry is also less interested in taking new initiativesThe future of the leather industry in the country is linked to the development of shoe and value-added leather goods."

Leather shoe and footwear manufacturers, however, do not see hope even in this sector. They think their arch rival, Vietnam, has many advantages over them. "Since the US has announced duty-free import of Vietnam's footwear, many Chinese shoe-making companies have shifted their operations to Vietnam to take advantage of the situation. Since Vietnam exports to ASEAN countries are tariff-free, this is also a big issue for Pakistan to penetrate ASEAN markets", Muhammad Ashraf, owner of a shoe-making factory in Lahore tells TNS. The other issue, according to him, is the cheap Chinese footwear which is being dumped in Pakistan markets. "It has compelled manufacturers of joggers and sleepers manufacturers in Pakistani markets to outsource production to China to take advantage of the low cost of doing business there," he says.

TNS contacted Noor Alam Khan, parliamentary secretary on trade and commerce, but he declined to speak on the issue. Azhar Ali Chauhdry, joint secretary export, foreign trade wing of the Ministry of Commerce and Trade tells TNS, "I think the international economic crisis is the only reason for decline in our leather exports. I don't think there are any local reasons".

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