You are on page 1of 10

A quick review of emerging leather

sector of Bangladesh
Editor in Chief
Current demand of leather, leather product and footwear in the world are nearly $21500
core. Bangladesh exports roughly $50 Core. About $1.50 Core square foot leather is
produced in Bangladesh. So, contribution of leather in world market is bellow one
percent. As a result we have a huge possibility to grab the market with our highest level
of efficiency and proper strategic planning. For this it has been a crying need to shift the
tanneries to Savar Tannery Estate. According to the related professionals more profit
can be gained by proper strategic planning, market monitoring, and quick preservation
of raw leather, transportation and proper processing of leather.

The largest market for leather is China where labor wage has been increased. Recently
Bangladeshi manufacturers are seeing bright prospects for the leather sector after the
readymade garment industry because of a policy change in China, the worlds largest
economy. Moreover anti damping tax has been introduced for leather and leather
product of China. .They expect Bangladesh to be an attractive destination for leather
sector entrepreneurs as China, the worlds largest footwear manufacturer, is shifting
focus away from this sector. The manufacturers believe Bangladeshs annual $550-
million footwear industry may grow to a $15-billion sector within a few years, if the
opportunity is seized.
History of leather industry in Bangladesh:
The first tannery in Bangladesh territory was set up at Narayanganj by RP Saha
sometime in the 1940s. It was later shifted to Hazaribag area of Dhaka, which turned
into a location that now accommodates a large number of tannery units. Leather
Industry developed in Bangladesh on a large-scale basis from the 1970s. 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. Value addition in these exports averages 85% local and
15% foreign. More than 100 modern tannery units are now in operation in the industry.
These are located mostly in the Hazaribagh area of Dhaka city. In 1998, the sector
exported 178 million sq ft of leather and earned $160 million. The country is endowed
with luxurious vegetation encouraging a large livestock population. The quality of the
raw hide and skin is relatively good, as barbed wire fencing that damage the skins of
animals is not used in the natural farms and fields. Black goatskin of Kushtia is
particularly noted for its fine grain structure and tensile strength. The tradition of
humane care of domestic animals also contributes significantly to keeping the leather
quality high.

About 40% of the supply of hide and skin comes from animals slaughtered during the
annual Muslim festival of eid-ul azha. In addition to daily consumption of meat, festivals,
Muslim weddings, and other celebrations yield a substantial supply of hide and skin.
The tanning industry got a big boost following the government decision to promote more
value addition in exports. The installed capacity for crust leather production increased.
At present, it is double the domestic supply of raw hide and skin. Investments are also
made in installing new finishing capacity. The trends encourage more tanneries to
produce finished leather on a commercial basis.
Present Scenario:
At present, there are about 220 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 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. 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. 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.
Bangladesh produces approximately 100-150 million sq feet of raw hides and skins,
about 85% of which is exported in crust and finished form. The rest is used for
producing leather goods to cater to the domestic market.

The relocation of tanneries in Hazaribagh to the leather industrial park in Savar on the
outskirts of the capital is likely to be completed by this year. The relocation work is going
on in full swing and 20 factories have already completed construction of their new
premises. The progress is slow due to shortage of fund. It will cost about Tk6,000 crore
to relocate the factories and to start production in the new establishment. The Ministry
of Industries decided to relocate the tannery factories from their current location in the
capitals Hazaribagh area amid pressure from the rights group, environmental activists
and buyers concerned with its hazardous effects on the public health and environment.
It allocated plots to 155 tannery owners through Bangladesh Small and Cottage Industry
Corporation (BSCIC) at the leather industrial park, established on a 200-acre land in
Savar. The government is processing the allotment plots to the rest of the tanneries in
Hazaribagh that did not get a place in Savar.
Present market condition of leather market of Bangladesh:
Exports of leather and leather goods crossed $1 billion for the second year in fiscal
2014-15, according to data from the Export Promotion Bureau. In 2014-15, Bangladesh
exported leather and leather goods worth $1.13 billion, compared with $1.12 billion in
the previous fiscal year, making it the second highest contributor to national exports
after garment.

Export Target Vs Export Performance (July February 2015-16)


The sector has been performing well, as higher export values have helped the sector
earn over $1 billion for two years in a row. Despite earnings growth, the country missed
the export target of $1.4 billion by 19.09 percent in 2014-15. Bangladesh aims to export
$1.21 billion of leather and leather goods in 2015-16, which is 7.28 percent higher from
last fiscal year. Italy, the UK, Belgium, Spain, France, Germany, Poland, the US and
Canada are the big markets for the sector. In recent years, the exporters have been
doing well in Japan, India, Nepal and Australian markets. Of the new destinations,
Japan is very promising for us, as our export is increasing significantly in the market
because of a duty-free advantage. The government should negotiate with Japan as the
possibility of a free trade deal to be signed by different countries with the Asian
economic giant may encourage it to cancel the duty benefit.
Products Export Target for Strategic Target for Jul- Export Performance
2014-15 Feb 2015-2016 Jul-Feb 2015-2016

All products 33,200.00 29,943.08 28,144.38

Leather 625.00 258.09 187.13

Leather Product 325.00 169.57 241.55

Leather Footwear 447.28 354.87 324.03

LEATHER SECTOR 1,397.28 782.53 752.71


Bangladesh now exports only 0.5 percent of the global leather and leather goods
market worth $215 billion, according to industry insiders. According to experts, the
sector may achieve the target by the end of the current fiscal year, although it missed
the target in the last two years.
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. Leather goods
producers in Bangladesh tend to be associated only with manufacturing and exporting.
They do not have much control over downstream operations. However, the success of a
number of Bangladeshi firms in attracting such brand names as Puma, Pivolinos and
Hugo Boss to source from this country proves that there is ample scope for the
industrys upward mobility.
The role of BMO/BIO/NGO in these particular sectors:
Technical educational institutions: ILET is the only technical education institution in
Bangladesh dedicated to leather technology. It delivers undergraduate courses (4-year)
in leather technology, footwear technology, and leather goods technology. Located in
the tannery centre of Hazaribag, Recently Khulna University of Engineering Technology
(KUET) has started Department of Leather Engineering for providing B.Sc degree in
leather engineering.
Sub-sector BIOs BTA, BFLLFEA, LFMEAB: The three sub-sector BIOs have about
550 members amongst them. Though there seems to be some overlap in membership.
The main roles of the BIOs are to maintain memberships, promote export in terms of
providing certificate for GSP, Tariff benefits on capital machineries and raw materials,
provide common services for their common benefit, advocacy and lobbying for common
interests.
SME clusters Bangladesh Leather Technologist SME Entrepreneurs
(LTSE):Representing the members of Hazaribag tannery area cluster at centre region
Dhaka, the most potential cluster formed with young adults and educated entrepreneurs
who are graduated from Institute of Leather Engineering and Technology, Dhaka
University.
Bangladesh Paduka Prostutkarak Samity (BPPS): Representing members of the
Katwalli police station (old part of Dhaka) cluster at Dhaka. This is the largest and oldest
footwear cluster consisting of 350 MSMEs with 5000 employees serving the domestic
market and substituting imports through best practice in production of higher value
added leather products.
Bhairab Paduka Karkhana Malik Somobay Somity (BPKMSS) : Located at Bhairab
which is one of the larger clusters consisting of 342 SME members located in the
outlying district Kishoregonj who currently producing low end products supplied to local
wholesalers and retailers.
Leather Sector Business Promotion Council (LSBPC): Created as a PPP initiative
mandated in the Export Policy 2003-06, the LSBPC is the umbrella organization for the
leather sector. Meant to act as the link between industry, institutions and the
Government, LSBPC focuses on promoting the local and international market capacity
of the leather sector focusing on compliance issues, skills development, and export
market diversification.
Center of Excellence for Leather Skills Bangladesh(COEL): Centre of Excellence for
leather Skill Bangladesh Ltd (COEL) is the nations first institute of its kind. Objective of
COEL is to increase and improve the overall skill level of the workforce of the leather
sector. The training centre of COEL is situated at Pallibiddut, Chandra, Gazipur which
serves as the hub of COELs Leather Skill Training Programs. For now, this 12,000 Sqft
area has an up to date setup to carry out professional training program for 300 trainees
at a time. This is an industry led public private partnership (PPP) facilitated by EC
Funded TVET Reform Project, USAID-PRICE, SDC and Ilion order to enhance work
place learning and productivity through improved skills of the employees.
Labour in the Leather Sector:

In a survey data shows that a total of 18059 employees are directly employed by the
leather sector firms/units having above 15 working force. Of them, about 60% are skilled
(having experiences of more than 3 years), about 21% are semiskilled (having
experiences of 1-3 years), around 15% are unskilled (having experience of less than 1
year) and less than 4% are professionals. Most of the leather sector
manpower/employees (about 80%) are full-time employees, and most of them belong to
skilled employees category. A notable number of about 18% of all the manpower are
seasonal employees. Of the total employees about 59% are employed in the leather
processing units, 37% in the footwear manufacturing units, and remaining 4% are in
leather goods manufacturing firms. Among the employees about 73% are male. About
97% of the total female employees are full-time employees; however, about 28% of the
male employees are either seasonal or part-time employees.
Raw Materials
Raw Materials for Leather Processing: Leather Raw Materials for Wet Blue (Raw Hides): Raw
processing units or tanneries produce wet-blue, hides used for producing wet-blue is mainly
crust, and finished leather. In producing wet-blue collected from local sources. Locally, raw hides
and crust, the firms use raw hides and wet-blue as collected mainly from leather depot located at
raw materials respectively. Crust leather is used as Dhaka, Chittagong, Comilla, Kustia, Natore and
raw materials in producing finished leather. Rangpur. Only a very insignificant volume of cam
hide is imported from external sources.

Raw Materials for Crust: As in case of wet blue, Raw Materials for Finished Leather: Crust leathe
raw materials for producing crust is mainly used for producing finished leather is mainly
collected from local sources mainly from Dhaka. collected from local sources. Only about 5% of t
Only a very insignificant volume of camel wet blue cow crust is imported from external sources valu
is imported from external sources mainly from Tk.34 million (monthly average).
South Africa and Australia.

Chemicals used in leather processing: A number of Accessories used for leather goods production:
chemicals are used in the leather processing, Many accessories are used in the production of
footwear manufacturing and leather goods footwear and leather goods. These include bukl
manufacturing units most of which are foreign belt, button, belco tom etc. Both footwear and
chemicals. Above 95% (of the total value) of the leather goods manufacturing units use foreign
chemicals used in the productions of crust and made accessories for their products. As a whole
finished leather are foreign. Over 70% (of the total only about 20% of the accessories used in the
value) of the chemicals used by the footwear production of footwear and leather goods are
manufacturing is foreign made. However, leather locally made.
goods manufacturing units depends wholly on local
chemicals.
Machineries
Machineries Used in the Leather Sector: A number of machines are used in the leather
sector, leather processing, leather footwear and leather goods. A huge number of
machines used in different leather sector industries are collected from external sources.
Leather Processing: Under leather processing, Leather Footwear: In footwear industry generally
production wet-blue, crust, and finished leather more than one machine/tool are used in each st
require different types of machines at different of production. Most of these machines are foreig
stages. Drums are extensively used at different made. Italy, India, Germany, Taiwan, and Korea
levels in the processing of wet-blue. Platting are the main sources of machineries used in the
machine, dyer, hook dryer, drum etc. are some production of footwear.
common machines/tools used in the processing of
crust leather. In the production of finished leather
dedusting machine, buffing machine, spraying
machine etc. are commonly used. Most drums
used are locally made. However, most of the other
machineries used in the leather processing are
foreign made machines. The main sources are
India, Italy and Germany.

SWOT Analysis- Leather Sector of Bangladesh:


Strengths-
Governments declared Thrust sector; highest priority is Footwear & Leather Goods
Renewable natural resources
The growth rate of Bangladeshs livestock population have been steadily increasing
90% materials locally available
Unique grain pattern and fiber structure of cattle, high quality and reputation of
natural leather
Adequate competitive workforces, availability of labor and low labor cost
Comparative price advantage in international market
The sector has favorable conditions for high value addition ~90% when the largest
RMG sector has value addition scope ~40%
Unbeatable price offer as basic raw materials are locally available and low overhead
costs.
Favorable geographical location
Weakness-
Selective and limited Access to Finance
Lack of Skilled Workforces
Lack of access to latest technology and machinery facilities
Insufficient services and supports from BIOs.
Lack of education, training
Absence of entrepreneurial skill, rent seeking mentality.
Poor linkage and coordination between/among SMEs and lead firms
Absence of market information and promotion, inadequate marketing knowledge of
local leather entrepreneurs
Inefficient/unskilled hide collection systems
Poor/or no R&D, laboratory facilities
Inadequate training facilities and centers
Vulnerable SMEs; poor enterprise level cooperation
No international brand image
Poor compliance practice
Poor infrastructure, power
Weak accessories/chemical industry
Dependence on chemical/accessories import
Skilled designers and facilities for product design and development are unavailable
High rate of interest on term loan and working capital, and many limiting factors to
have access to finance
Footwear accessories (such as tapes, trims, buckles, linings, shoe-last, etc.) are not
locally available
Limited product development and market orientation
Complicated rules and regulations which affect lead-time and acquisition of inputs

Opportunities to highlight:
Huge untapped international market, <1% as well as domestic market
Increasing global demand for value added, diversified products
Scope of developing backward linkage business
High value addition potential
High tax on competitors by major leather products importers
Labor intensive; employment opportunities
Low wage workers convertible to skilled ones
No duty on shoes, leather products made and exported from Bangladesh.
Establishing by-product industry with solid and liquid waste through proper R & D
Local and Foreign Direct Investment opportunity in value added leather products
sector
China is losing competitiveness
Future Leather estate to raise brand image
Backward linkage development
Investment in the value added leather goods and footwear sector
Government policies toward leather exporters; GSP, Cash Incentive; etc.
Already big players like Young-one, Blue Ocean, Venturini, Tata invested in BD
signaling many more to follow.
Increasing International and Local demands for value added leather products.
International Fashion and sourcing houses in BD for RMGs showing interest in
leather products
Threats to be considered:
Absence of integrated policy; no long term policy regarding Common Facility Center
(CFC), SME cluster development, Branding/promoting Bangladeshi leather products
No dedicated skill development institute/ vocational training center for workers and
supervisors
Political instability, corruption
Lack of backward linkage industry for chemicals/accessories and substandard
quality of the products.
Increasing import of low priced synthetic products
Illegal export of raw hides/skins
Smuggling and under invoicing of products
Potential buyers stringent stands for compliances, and delay in building Common
Effluent Treatment Plant (CETP) at leather village, Savar, Dhaka
Emergence of alternative sources like Myanmar.
Recommendations to move forward:
Government should formulate appropriate rules and regulations to support Leather
and leather-based products and footwear sectors.
To ensure sufficient and continuous power supply.
They can start joint venture business with other major leather exporting country like
India and Japan.
By collaboration with EU and other developed leather importing countries they can
import advanced technology.
Government should take initiatives to formulate appropriate leather policies to
support the sector which is aligned with the industrial, export, and investment policy
and specially strengthen e-diplomacy.
Government needed to arrange some soft loans for the industry to fight against the
current financial crisis.
Government must take initiative to enhance R&D and technology transfer to the
industry.
Government should take initiatives to enrich the livestock of the nation to ensure
higher availability of raw-inputs.
Government needed to arrange some special funding and leather preservation
facilities for the industry in occasion of Eid-ul-Azha.
Government should take initiatives to protect lather smuggling to India.
Government should plan and built facilities to increase the value addition through
increases production of finished goods.
Government has to ensure the HR development in the sector.
Government has to reduce the environment pollution level of the industry.
Conclusion:
Bangladesh leather industry is dominated substantially by the domestic investment
which is mostly export-oriented. The leather includes some ready-made garments,
although that aspect is continued mainly to a small export-trade in Italian-make
garments for the US market. Footwear is more important in terms of value addition. This
is the fast growing sector for leather products.
Presently Bangladesh produces between 2 and 3 percent of the worlds leather market.
Most of the livestock base for this production is domestic which is estimated as
comprising 1.8 percent of the worlds cattle stock and 3.7 percent of the goat stock. The
hides and skins (average annual output is 150 million sq.ft.) have a good international
reputation. Foreign direct investment in this sector along with the production of tanning
chemicals appears to be highly rewarding.
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, Bangladesh can be a potential off shore location for
leather and leather products manufacturing with low cost but high quality. Provision of
newly announced infrastructural facilities through establishment of an integrated Leather
Park and simultaneously, growth in the global demand, opportunities for investing in and
setting up export-oriented leather industry in Bangladesh is definitely attractive. Foreign
investors are welcome to capitalize on this opportunity.

You might also like