[🇧🇩] Footwear, Rubber and leather Industry in Bangladesh

[Saif]

‘Leather export potential remains untapped’

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‘Leather export potential remains untapped’​

28 Mar 2024, 12:00 am

Tasnuba Akhter Rifa :

The leather and leather goods industry in Bangladesh has garnered the trust of both domestic and foreign buyers owing to its combination of low prices and high quality.
Nevertheless, its export potential remains largely untapped due to a lack of international standard certification.

In response, the National Board of Revenue (NBR) has implemented a reduction in source tax on leather and leather goods exports from 1% to 0.5% until June 30, 2025.

While this move is expected to provide some relief to entrepreneurs and potentially stimulate employment, industry insiders caution that it may not significantly bolster exports.

Experts emphasise that enhancing compliance within the sector is crucial to unlocking its full export capacity.

Foreign buyers insist on satisfactory working conditions, worker safety, and environmental standards before engaging with factories, necessitating compliance with government regulations and buyer-imposed rules.

Compliance not only ensures adherence to laws and policies but also guarantees benefits for workers and employees.

According to the NBR Chairman, environmental pollution stands out as the primary challenge in the leather and leather goods sector, hindering entrepreneurs from tapping into significant global markets. Improved compliance, he argues, would lead to an increase in exports of leather and leather goods.

“The main problem in the leather and leather goods sector is environmental pollution. That’s why entrepreneurs are not able to capture big markets around the world.
If compliance improves exports of leather and leather goods will increase.” said NBR Chairman.

Despite being the country’s second-largest export product, the leather and leather goods sector faces hurdles. In the current financial year (2023-24), it aims for exports totaling $13 billion.

However, exports during the first eight months (July-February) amounted to approximately $71 crore, marking a 14.38% decrease compared to the same period last year.

In the previous financial year (2022-23), exports reached $122 crore, down about 2% from the preceding year.

During a pre-budget discussion in February, the Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) highlighted various challenges in the sector and proposed reducing the source tax on leather goods and footwear exports from 1% to 0.5%.

LFMEAB Senior Vice President Mohammad Nazmul Hasan expressed optimism to The New Nation regarding the government’s initiative, anticipating an increase in leather goods exports and the creation of new jobs.

However, he highlighted challenges such as decreased demand for these products in the international market and increased production costs in the domestic market, especially with a 45% rise in sea transportation costs due to fuel price hikes and Middle East conflicts.

Contrary to the reduction in incentives, Dr. Mahfuz Kabir, a Senior Research Fellow and economist at BIISS, argued that such measures wouldn’t facilitate market entry into Europe or other regions, attributing the sector’s export challenges primarily to compliance issues.

“There is no benefit in reducing the incentive in this sector. Even if we reduce it, we will not be able to enter the European or other markets.

We are not able to capture the market due to compliance issues.” said Dr. Mahfuz Kabir, BIISS Senior Research Fellow and Economist.

He emphasised environmental pollution as a significant hurdle, citing the incomplete functionality of the central effluent treatment plant (CETP) at the planned leather industrial city in Hemayetpur, Savar.

This pollution impedes tanneries from obtaining international standard certification, thereby hindering Bangladesh from fully capitalising on its export potential.

In order to sell leather and leather goods at a good price to international brands, one has to have the certification of the Leather Working Group (LWG), a global leather industry organisation.

It is known that only six establishments in Bangladesh have LWG certification.

Domestic entrepreneurs export leather and leather goods to markets where there is no brand value. Each leather processed in a non-LWG-certified factory in the country is being exported for a minimum of 45 cents to $1.60.​

 

[Saif]

Leather shipment recovers, fetches $100 million in 9 months

Leather exports rose 9.8% year-on-year in Jul-Mar of FY24

www.thedailystar.net

Leather shipment recovers, fetches $100 million in 9 months
Leather exports rose 9.8% year-on-year in Jul-Mar of FY24

The shipment of leather has started to revive as Bangladesh fetched $100.40 million from the sales of the semi-finished raw materials in July-March of 2023-24, data from the Export Promotion Bureau (EPB) showed.

The exports were up 9.8 percent from the identical period a year prior.

A spike in the import of semi-finished leather by China is helping local suppliers export a higher volume of the product.

According to industry insiders and exporters, China has started to import a significant quantity of semi-finished leather from Bangladesh to remain competitive in the US market by the way of keeping the production cost lower.

"Export orders for semi-finished leather from China have increased substantially in the last three to four months," Diponkar Tripura, owner of Life & Race Bangladesh, a manufacturer and exporter of leather and leather goods.

The dragging trade row between Washington and Beijing has brought about a positive impact on leather exports from Bangladesh.

Besides, the production cost in China has gone up in the last few years driven by a surge in labour wages, prompting manufacturers in the world's second-biggest economy to source raw materials from the South Asian nation.

Chinese companies import semi-finished leather from Bangladesh and process them in China before manufacturing finished products in Vietnam and Cambodia for the US markets, said Tripura.

If Chinese firms export products from China, the US importers will have to pay an elevated level of tariffs, which are comparatively higher than Vietnam and Cambodia, he said. "Therefore, they are importing raw materials from Bangladesh."

Besides, Chinese companies use imported raw materials to meet the demand for their domestic leather goods market, which was valued at $22 billion in 2022.

Bangladesh has 161 tanneries that process rawhides into finished leather. However, 98 percent of them are not compliant as per global standards, forcing local suppliers to sell semi-finished leather, said Tripura.

Arifur Rahman Chowdhury, general manager of ABC Footwear Industries Limited, said China is phasing out industries hazardous to the environment such as the initial processing of rawhides. "So, they import semi-finished leather from Bangladesh."

However, he said, the price of semi-finished leather is low in Bangladesh, making the country a lucrative sourcing destination for Chinese importers.

Although the exports of semi-finished leather are gaining pace and generating foreign currencies for the country, Bangladesh is, in reality, losing out since it could have earned more had it been able to export finished leather and finished goods produced from the local leather directly.

For that to happen, local processors will have to secure certification from the Leather Working Group (LWG), a global multi-stakeholder community committed to building a sustainable future with responsible leather.

A top official of a leather product exporter says the Bangladeshi firms that process world-class finished leather don't sell them in the local market since they don't receive cash incentives from the government.

The government provides a 12 percent cash incentive on the shipment receipts of semi-finished leather. Of the semi-finished leather produced in Bangladesh, 70 percent is exported, mainly to China.

The official says there is a scope to add value to the products sold abroad and then export them directly. Direct exports can earn as high as $5 billion for Bangladesh, he said.

A senior official of the Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) said the global economy has begun recovering, which will raise the demand for luxury products like leather items.

"As a result, the orders for leather from Bangladesh will grow in the coming months and we will receive better prices as well."

Finished leather exports fetch less than one-third of footwear: one square foot of leather fetches only $0.60, according to the LFMEAB .

Bangladesh would have received at least $1.5 per square foot if the central effluent treatment plant in the tannery estate in Savar could treat all of the toxic chemicals released, said MA Awal, vice-chairman of the Bangladesh Finished Leather, Leathergoods and Footwear Exporters' Association.

Bangladesh produces 400 million square feet of leather annually, according to industry people. There are 165 footwear and leather factories in the country.​

 

[Saif]

CPD for nearly doubling tannery workers’ wages

Tannery workers in Bangladesh should get a minimum monthly wage of Tk 22,776 considering the current market conditions and high inflation in the country, according to the Centre for Policy Dialogue (CPD).

www.thedailystar.net

CPD for nearly doubling tannery workers' wages
Says current market and living conditions should be considered

Tannery workers in Bangladesh should get a minimum monthly wage of Tk 22,776 considering the current market conditions and high inflation in the country, according to the Centre for Policy Dialogue (CPD).

A study by the CPD revealed that a worker's food and non-food expenses stand at a combined Tk 33,478 per month in 2024, or Tk 20,564 and Tk 12,914 respectively.

A minimum wage of Tk 13,500 was fixed for workers of the export-oriented tannery industry in 2018.

"But the owners did not implement that," said Tamim Ahmed, a senior research associate at the CPD, during a discussion and media briefing on the new minimum wage for tannery workers at the CPD office in the capital's Dhanmondi yesterday.

The CPD recently surveyed 35 tanneries and 105 tannery workers in the BSCIC Hemayetpur Tannery Estate in Savar in partnership with OSHE Foundation and under coordination of the Leather Development Forum.

At least 16 percent of the surveyed tannery workers are receiving less than Tk 13,500 as monthly wages despite working in their respective positions for more than a year.

Meanwhile, 43 percent of them received less than Tk 15,881 per month despite having held their position for at least six years.

Around 59 percent of the surveyed workers indicated that they have zero awareness of any sort of grading system in regard to wages.

Also, 71 percent do not know about the minimum wage set by the government, the CPD found.

Under the current wage structure, there are no mechanisms for promotion from one grade to another. Hence, the issue of increments is crucial for this sector.

The survey said that other than the amount paid, deviations between factories were also observed in terms of timely payment of wages.

The lack of implementation of the minimum wage could be attributable to the weak monitoring of the Department of Inspection for Factories and Establishments (DIFE).

The CPD found that 46 percent of the surveyed tanneries had not undergone a single inspection till date.

Liaquat Ali Mollah, chairman (senior district judge) of the Minimum Wages Board for tannery workers, said the tannery owners would not be able to implement the CPD's recommendation.

However, a respectable minimum wage will be fixed through discussions with the owners and workers considering both sides' interests, he added.

Mollah also said working conditions in the tannery industry are hazardous for workers' health, so medical allowances should be included in wages to ensure their livelihood.

"If the workers enjoy sound lives, they will perform better and the owners will do well in business," he added.

Mollah suggested owners ensure that factories are compliant with industry regulations and said they could bargain with buyers for better prices, thereby providing reasonable wages to workers.

However, tannery owners feel that it is not possible to implement the minimum wage proposed by the CPD.

"Tannery owners are not doing well, so implementation of the CPD's proposal is not possible," said Md Shaheen Ahmed, chairman of the Bangladesh Tanners Association (BTA).

Besides, due to the increase in tariffs of electricity and gas, the cost of production has increased, he said.

On the other hand, he said they were being compelled to sell leather to non-compliant Chinese companies at low prices due to the non-compliance of tanneries at the Savar Tannery Industrial Estate.

Still, Ahmed assured they would introduce a reasonable and implementable salary structure following a tripartite discussion including owners, workers and the government.

Ahmed also said they are trying hard to avail Leather Working Group (LWG) certification for at least 10 factories within the next six months, which will help improve their bargaining power with European buyers.

Md Abul Kalam Azad, president of the Tannery Workers Union (TWU), stressed the need for compliant factories and changing the mindset of owners to sustain their business.

According to him, the leather sector has the potential to grow a lot as the required raw materials are easily available in the country.

"So, this industry should be protected at any cost," Azad said.

Md Abdul Malek, general secretary of the TWU, said the tannery industry is different from other industries as it is has some health risks since more than 100 chemicals are used.

"Therefore, we need to give protection to the workers," Malek added.

The session was moderated by Khondaker Golam Moazzem, research director of the CPD. SM Morshed, vice-chairperson of OSHE Foundation, and Md Mizanur Rahman, vice-chairman of the BTA, also addressed the discussion.​

 

[Bilal9]

The majority of future exports for Bangladesh shoe export sector is non-leather sneakers. New factories are being set up almost every month and compared to barely a few tears ago, non-leather sneaker and sports-shoe exports have doubled. If past history with other countries is any indication, it will double again in a couple more years. Winding down of non-leather sneaker exports from China is the reason. China is not subsidizing this sector any longer.



Hiking boots, snow. boots, steel toe working boots (though leather based) are also being made in Comilla and Chittagong export zones. Some boots are being supplied to the US Army.

 

[Saif]

Leather losing its shine in exports

Rising local value addition, poor compliance with international standards, and buyers shifting to other countries have thwarted exports of leather, which was once among Bangladesh’s three main export items.

www.thedailystar.net

Leather losing its shine in exports

Rising local value addition, poor compliance with international standards, and buyers shifting to other countries have thwarted exports of leather, which was once among Bangladesh's three main export items.

The relocation of tanneries from Hazaribagh in Dhaka to the Savar Tannery Industrial Estate (STIE) in 2017 and the severe fallout of the Covid-19 pandemic and Russia-Ukraine war are other major reasons for declining leather exports.

In the face of such challenges, leather exports have declined by more than half over the past decade.

In fiscal year 2022-23, leather exports amounted to $123.44 million, down sharply from $397.54 million in FY14, according to data from the Export Promotion Bureau (EPB).

In the July-May period of the outgoing fiscal year, leather exports stood at $125.72 million, EPB data showed.

The rise in value addition means the number of factories, be it for domestic or export purposes, has increased, thereby increasing domestic consumption of tanned leather.

The significant rise in consumption of tanned leather and subsequent value addition can also be gauged from Bangladesh's exports of leather and leather goods.

In FY15, exports of leather and leather goods amounted to $1.13 billion and it has stayed above the billion-dollar mark for the past decade.

In FY23, exports of leather and leather goods brought in $961.49 million.

Exports of jute, tea and leather, once considered the most valuable products of Bangladesh, have been fading either due to loss of competitiveness globally or owing to rising consumption in domestic markets.

For instance, in the case of tea, the consumption in the domestic market increased over the years. At the same time, jute has failed to grab a bigger share as it competes with low-priced plastic.

Even 25 years ago, leather contributed more than 75 percent of the total exports of leather and leather goods, according to Md Saiful Islam, former president of the Leathergoods and Footwear Manufacturers & Exporters Association of Bangladesh.

But its share has now declined to nearly 13 percent, which indicates that local value addition has increased, he said.

Moreover, poor compliance with environmental standards in tanneries and the tannery estate at Savar is a major reason for lower exports of leather. Those factors also lead to lower prices from international buyers, Islam told The Daily Star over the phone.

Md Shakawat Ullah, general secretary of Bangladesh Tanners Association (BTA), echoed those sentiments.

He said local exporters cannot sell tanned hides to renowned international retailers in Europe, North America or other major destinations due to poor compliance at the STIE.

The poor compliance has barred tanners from obtaining a Leather Working Group (LWG) certification, a vital recognition for doing business, he said.

As a result, local exporters are having to send 65 percent of the tanned leather to China, which pays nearly 60 percent lower compared to international prices, he added.

To read the rest of the news, please click on the link above.​