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Progress, Prospect and Problems of Leather Industry in Bangladesh
Progress, Prospect and Problems of Leather Industry in Bangladesh
Progress, Prospect and Problems of Leather Industry in Bangladesh
1.2 Objective
The objective of this report is to address the performance of Bangladesh in international trading through a sector name Leather industry. The specific objectives of this study include the following: To study and analyze the current international market scenario To investigate various opportunities about Leather industry in Bangladesh To explore the contribution of leather production in the national economy To analyze the chances to boost the leather production and export revenue To detect the barriers of leather production and export in international market
1.4 LIMITATION
The following were the major limitations that hampered the report from being more accurate. Time constraint or limitation
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Related websites are not standard because they give demo or little information or data. Assembling all the information in an adequate manner was also a difficult task. But among these we believe lacks of information are the main limitation of our report.
2.0 INTRODUCTION
Leather and leather products have always been a part of that heritage and after the emergence of an independent Bangladesh in 1971; the industry received a fresh momentum. Bangladesh started exporting crust and finished leather in early 80's and footwear and other manufactured leather goods during 90's. The leather industry in Bangladesh is well established and is the third highest foreign exchange earner right after RMG and frozen food sector. About 95% of leather and leather products of Bangladesh are marketed abroad, mostly in the form of crushed leather, finished leather, leather garments, and footwear. Most leather and leather goods go to Germany, Italy, France, Netherlands, Spain, Russia, Brazil, Japan, China, Singapore and Taiwan. The Leather sector plays a significant role in the economy of Bangladesh in terms of its contribution to export and domestic market. West Pakistan was the sole importer of Wet Blue, an intermediary in the Tanning Process, and the Western world had already source of good raw material for their, Industrial era, Shoe and boot factories, leather Jackets, handbags and other accessories. Yet Bangladesh then East Pakistan shared little of the profits from trade, since their technological contribution to the tanning process is marginal. Bangladesh being a Muslim country has the annual Qurbani festival, which is a fulcrum for the procurement of excellent and large sized , cow and goat hides, to the tune of nearly 1 million slaughters per year, the grain pattern on these items are very much in demand in the western world. The government of Bangladesh provides a support to the leather industry through various steps, including monitoring the export market, evaluating the performance of the sector by a permanent parliamentary committee, and liberal bank credit.
3. 0 Factor Endowments
3.1 Land
At present, there are about 170 tannery units in Bangladesh and they use locally available raw hides and skins. Of them 114 are large and medium units (by local standards) and are registered with the Directorate of Industries. Others are mostly of small and cottage type and
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are not on the register of the government. About 150 tannery units are located at Hazaribag of Dhaka in only 50 acres of land popularly known as tannery estate.
3.2 Labor
Another major advantage of this sector as it does not required highly skilled or expert labor but semi skilled labor can easily work in this sector. Bangladesh will definitely get advantage in this sector because we are labor intrinsic country. According to the records of the Bangladesh Tanners Association, about 3,000 workers are employed in the tanning industry. Besides, there are about 100 qualified technologists including foreign nationals who are working in different tanneries.
3.3 Capital
Total capital invested in the tannery industry is estimated at Tk 2.5 billion, of which government/bank finance is about Tk 1.2 billion. About 1,500 persons are involved in the process of collecting raw hides and skins and making them available at tannery units. About 100 organizations import chemicals for use in tannery industry.
3.5 Technology
A major factor for leather sector is that it is not technology oriented rather than skilled and creative manpower required. In this point of view Bangladesh has the advantage for this cheap labor.
3.6 Infrastructure
The government considers leather industry as one of the most booming export sectors. Thus, government is providing various infrastructural supports for flourishing the industry. The government in 2003 took the initiative to build Leather Industry Estate (LIE) in Savar which holds all the facilities necessary for international standard leather processing unit and
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expected to complete by 2012. Moreover, eight EPZs (Export processing Zone) of the country also facilitates thrive in footwear and other leather goods industry. Bangladeshs domestic and overseas transportation facility is also admirable.
5.1 Bank
As a exporting Item, bank is very facilitates by the extensive export of leather. They make the whole exporting process much easier for both importer and importer by opening LC, protecting importer from exchange rate. They generate revenue by giving the trade protection to the importing country. As a result there are lots of banks who are developing their activities relating to their international business.
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In order to process the raw leather a huge chemical is necessary. So if we can increase our export of leather and expand our business in foreign market, the demand of chemical industry in domestic market will also develop.
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In the year 2009-10 Bangladesh exported leather nearly 2431 crore taka. Because of the antidumping rules of WTO, China, India and Vietnam are facing difficulty in producing low cost leather goods. In 2010-11 by minimizing smuggling and increased international price (from 2.73 to 3.7 per miter of raw) also caused boost in leather exportation (nearly 2720 crore taka). Consequently, an enormous demand for Bangladeshi made footwear is formed in Germany, Italy, France, Japan and Canada. The following tables summarize the total value of leather exports from 2001-2011.
Fig 1: Export of Leather from 2001 to 2011 Source:
From the above Graph, we can explain that in year 2001-02 and 2002-03 the export of leather decreased and the reason behind this was the incident occurred in September 11 in USA. Again the export dropped in the year 2008-09 as a result of increase in salt price and devaluation of local currency. Faulty decision taken by care taker government of Bangladesh and the increase of smuggling in neighbor countries also caused the decrease of exportation.
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Source: leather manufacturers The current scenario of export in major markets is discussed below: USA: Trade Policy: Market and Product Growth: EU: Trade Policy: Market and Product Growth:
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In the year 2009-2010, Bangladesh exported leather and leather goods amounting of 46.8 crore taka to Germany (compared to 264 million taka and 107 million taka in the year 2008-09 and 2007-2008 respectively), 280 million taka to the United Kingdom (compared to 192 million taka and 152 million taka in the year 2008-2009 and 2007-2008 respectively), 412 million taka to France (compared to 423 million taka and 278 million taka in the year 2008-2009 and 2007-2008 respectively), 2,558 million taka to Italy (compared to 2,173 million taka and 2,958 million taka in the year 2008-2009 and 2007-2008 respectively) and 531 million taka worth of to Spain (compared to 411 million taka and 725 million taka in the year 2008-2009 and 2007-2008 respectively).
country Germay UK France Italy Year 2007-08 (taka million) 107 152 278 2958 725 Year 2008-09 (taka million) 264 192 423 2173 411 Year 2009-10 (taka million) 468 280 412 2558 531
most significant barriers towards market access for the leather and leather goods industries. Type 2 barrier. Technical regulation, standards and certification arrangement problems are the major problem for the industry.
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Type 3 barrier. Labeling rules, packaging and marketing requirements are the major
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quality raw material, as hides and skins are a by-product of large livestock industry.
Worldwide reputation for quality grain leather: Bangladesh has a domestic supply of good
quality raw material, as hides and skins are a by-product of large livestock industry. Presently Bangladesh produces between 2 and 3 percent of the world's leather market. The hides and skins (average annual output is 150 million sq.ft.) have a good international reputation.
Availability of a large, low-wage work force: The labor-intensive leather industry is well
the country: Currently there are 8 of Bangladesh Export Processing Zone, the world renowned brand of the 50 production of various products and sports goods, etc. , as well as production of general merchandise exports to the EU , the United States and other zero tariff for Bangladesh Preference-giving countries.
Duty free and GSP facilities: Adequate government support in the form of tax holidays, duty free imports of raw materials and machinery for export-oriented leather market. Having the basic raw materials for leather goods as well as for the production of leather shoe, a large pool of low cost but trainable labor force together with tariff concession facility to major importing countries under GSP coverage, Bangladesh can be a potential off shore location for leather and leather products manufacturing with low cost but high quality.
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12. 2 PROBLEMS
In Europe, the rate of interest for industrial loans is only 2.5 per cent. In India and Pakistan it is only five per cent. But in Bangladesh the rate of interest for bank loans is 13 to 17 per cent. Unless Bangladesh reduces interest rate for bank loans to international level, it will be very difficult for the export-oriented industries of Bangladesh to survive in world competition.
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A small number of factories that have been set-up by mainly inexperienced entrepreneurs and ever eager machinery suppliers, who have used the myth of the buyback agreements to push their machine sales. These factories by and large have been unable to get off the ground despite considerable investment in machinery and infrastructure;
Other than three or four exporters most of the factories are not engaged in regular production and exports;
A total lack of adequately trained and skilled human resources for production as well as for managerial personnel in the leather footwear industry;
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No support industry in terms of linkage factories such as lasts, cutting dies etc, so there is a high import dependence thereby reducing price competitiveness as well as increasing lead times;
Low awareness amongst international buyers as not enough factories are working in the industry
Inadequate working capital finance as most banks insist on Master L/C and back to back L/C procedures for import. Unfortunately in today's highly competitive market most buyers no longer operate on L/C. Our competitors offer much easier payment terms such as open account, D/A basis delivery, etc;
Discrepancy in the import policy where the import duty on finished shoes and on shoe
components and accessories is almost the same, therefore there is no advantage for manufacturers. Today the local shoe industry is being severely threatened by cheap imports that are being smuggled and dumped from neighboring countries such as Myanmar and India.
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14.0 The International Challenge towards Export-Oriented Leather and Footwear Sector
Besides the above mentioned problems Bangladesh Export-Oriented Leather and Leather Goods has been facing the following international challenges: Overwhelming dominance of the Far East i.e. China Bangladesh should, however, look upon this not only just as a threat but also as an opportunity as a lot of buyers feel over-dependent on China and are looking for reliable alternative suppliers. These fears often manifest themselves in the form of quota restrictions, anti-dumping duties or tariff barriers on products from the Far East, which can be an opportunity for us. So it is imperative to become aware of the global situation and use it to our advantage. Furthermore Bangladesh can learn from the Chinese mode l where appropriate, for example by studying how they have developed their components industry, or by identifying segments or market niches where they are not predominant, e.g., leather moccasins. Chinese government policy in terms of duty exemptions, tax breaks, foreign exchange benefits and even infrastructural support, such as low cost housing for migrant labor and training facilities, should serve as a blue print for a country like Bangladesh.
Government should also provide some supports through institutional credit support for the development of the industry. Especially disbursement of funds from banking sources to leather traders needs to be ample and smooth before the Eid-ul-Azha when the maximum number of hides and skins are produced in the country at a time.
Institutes need to be set up to impart education and training on leather technology. Such a move on the part of the government will increase the supply of trained people for employment in leather industries and inspire considerably the establishment of new leather industries.
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The rate of interest of bank loans is too high in Bangladesh. The export-oriented leather industries of Bangladesh have to compete with world market. The rate of interest must be at par international standards. Leather is our 3rd largest export earning sector and we need to infuse new technology to modernize the industry so that it can withstand the intense global competition. Government should ensure proper preservation method through establishing modern warehouse in every district, towns and municipal areas to handle the carcass in a proper way. The government would move bilaterally and multilaterally, especially with Japan, to get duty-free access of leather and leather products. Tannery owners demand soft loan for shifting factories to Savar
If we look a the above chart we can clearly see that by exporting leather goods (Various Items) on1000 sit of leather the value addition for products are much higher compared to the finished leather export. Therefore based on the information provided by EPB for the export of leather and leather goods from Bangladesh for the year 2003-2004 if we compare the ligers of export of leather and only wallet (only) then total export value would have been 383.64 Million and not 211.41
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(US$ 211.41 Mill export / US$ 1.65 finished leather value per sft = 128.13 mill sft/ 1.50 sft consumption of Wallet= 85.42 Mill PCs of wallet x US$ 4.50=US$ 383.04) Therefore by exporting wallets instead of finished leather Bangladesh could have earned US$ 172.23 Million extra. Therefore we can clearly see that from the above chart that if we export finished Leather goods weather shoes or bags or other finished items then exports of Bangladesh in this sector would surge. For the Leather goods industry to flourish, Bangladesh needs to improve in the following suggestions mentioned below:
14.4 FINANCE
It is the biggest obstacle for the industries in this sector because to setup leather goods and footwear industries huge capital is required. Interest rates are very high and for this most of the companies cannot pay back on time and thus become sick. So assistance can be provided with or by giving long term loans directly through financial institutions and also provide loans with lower interest rates of 4% to 5%.
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Therefore the government should really decide and formulate a policy with clear concepts if they really decide and formulate a policy with clear concepts if they really are sincere about making this industry as a thrust sector.
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