Leather sector wasting opportunities

Bangladesh's garment sector has become the world's second largest exporter only on the basis of cheap labour and the domestic supply of an insignificant amount of raw materials.

On the other hand, the leather sector is struggling to make its mark in the global market despite having the guarantee of an abundance of raw materials and workers.

One may argue that the value addition in the apparel industry is much lower than that in the leather sector.

But countries rich in key raw materials usually have a much higher value addition and thus higher earnings. That has not happened in the case of the leather sector of Bangladesh.

As a result, the leather sector cannot ensure value addition of over 65 percent whereas there is potential to reach 90 percent.

Industry people say as long as animals were sacrificed during the Eid festivals, the generation of rawhide, meaning the raw materials, is guaranteed.

But manufacturers cannot ensure maximum value addition as demand has not yet been created locally for high-value products.

The value addition falls to 30 percent for products made for export markets owing to a lack of certification from Leather Working Group (LWG), a global multi-stakeholder community committed to a responsible and transparent leather supply chain.

"We have the main raw materials but cannot use them for the export market in absence of LWG certificates," said Md Mizanur Rahman, a professor and director of the Institute of Leather Engineering and Technology of the University of Dhaka.

There is scope to ensure 85 percent to 90 percent value addition through quality tanning and manufacturing of high-end products, he said.

According to him, there are huge prospects for the leather sector to grab a significant piece of the global leather and leather goods market by using local rawhides and improving value addition.

"However, we will have to comply with global standards in the tannery industry," Rahman added.

Bangladesh has 200 tanneries and 223 leather and leather product manufacturers but only five tanneries are certified by the LWG -- Apex Tannery, Riff Leather, SAF Industries, Superex Leather, and ABC Leather.

As a result, Bangladesh is not doing well in the international market. Shipments fell 1.74 percent year-on-year to $1.22 billion in fiscal year 2022-23 that ended on June 30.

Rahman believes that the local leather sector has the potential to increase exports to $5 billion to $7 billion by using locally available leather to cater to the global market worth $300 billion.

Photo: Star/File

However, Bangladesh's share of the global leather market is less than 0.5 percent, he said.

Bangladesh accounts for about 3.5 percent of the total rawhide produced globally but cannot use much of the material for making exportable products, he added.

According to Bangladesh Tannery Association, the tannery industry is capable of producing 300 million square feet of leather each year.

Of the total production of finished leather, only 20 percent can be used for the domestic market. The rest has to be exported as there is no scope to use the material for manufacturing export products in absence of the LWG certification.

However, exporters allege that harassment by customs officials, tax collectors and other government agencies reduces the scope for value addition.

"The value addition for leather footwear for the domestic market declined to 65 percent from 85 percent over the past year due to declining demand for high-end products," said Dilip Kajuri, chief financial officer of Apex Footwear Limited.

"As people's disposable income has reduced due to inflationary pressure, they do not want to purchase costly products," he added.

As a result, Apex has reduced manufacturing costly products that have higher scope for value addition.

"If we want to ensure 85 to 90 percent value addition, we have to manufacture costly items that have less demand at the moment," Kajuri said.

Kajuri also said 95 percent of their leather shoes for the domestic market were made from local raw materials, but they have to import leather for high-end products, such as that of the Venturini brand.

"Now, leather footwear manufacturers can ensure value addition of around 20-30 percent depending on the products for the export market," said Arifur Rahman Chowdhury, general manager of ABC Footwear Industries Limited, one of the biggest exporters of leather footwear.

Previously, manufacturers could ensure value addition of around 60 percent, but with the appreciation of the US dollar against taka, the value addition has reduced.

According to him, most exporters cannot use leather produced locally due to the lack of LWG certification.

"But we can use local leather tanned at our factory as we have LWG certification," he said.

On condition of anonymity, a leading footwear exporter said they have to mention the source of raw materials when selling products to foreign buyers.

For this reason, there is no scope of using leather whose processor does not have an LWG certificate.

Besides, without LWG certification, one of the prerequisites of which is a central effluent treatment plant at the tannery industrial estate at Savar, higher value addition and increasing exports is not possible, he added.

Arfanul Hoque, head of retail at Bata Shoe Company (Bangladesh), said they are a major consumer of local leather as they retail products using the material in the domestic market.

But for high-end products, they need to import a very nominal quantity of finished leather, he added.

According to Hoque, Bata is a multinational company that uses local leather as a raw material to manufacture leather shoes and ensure maximum value addition.

Market insiders say average annual domestic market sales of leather footwear (organised and non-organised) amounts to around Tk 16,000 crore.

Other than leather, footwear manufacturers need to import all the required raw materials to make products even for the domestic market, making them nearly 100 percent import dependent.

There are at least 152 types of raw materials required by footwear industries.