PAKISTAN’S leather industry has gone through some difficult years in the recent past owing to both internal and external factors.
The last fiscal year was one of the toughest as global commodity prices crashed and a slowdown gripped Europe. And the present year is feared to be even worse.
“Every business carries some inherent risks. However, no business can survive the kind of losses that the leather and leather products industry suffered when international commodity prices came crashing down,” asserts Sheikh Mohammad Arshad, whose family has been in the leather trade for four generations.
The leather industry, one of the most important export earners (after the textile industry), comprises 800 tanneries and provides almost half a million direct and indirect jobs
Pakistan’s overseas sales of top quality finished leather and leather apparel — the two major segments, constituting 78pc of the nation’s total leather and leather-product exports — declined by 11.4pc and 10.4pc during the last financial year from a year ago.
“Some manufacturers and exporters who had large inventories went broke and others were compelled to sell their stocks at cheaper prices. You know, most businesses operate at 5-10pc margins and are not capable of sustaining price losses of 50-60pc,” says Arshad, who has recently been elected as president of the Lahore Chamber of Commerce and Industry (LCCI), during an interview with Dawn.
Overall, the leather industry saw its foreign sales plummet by 6.36pc to $1.19bn in the last financial year from a peak of $1.27bn, as a growth of 11pc in foreign sales of footwear and 7pc of gloves slightly made up for the decline in the overseas shipments of finished leather and leather garments.
The Pakistan Tanners Association (PTA) says Pakistan is the only country in the region that has experienced a negative export growth in its leather and leather products, against a positive growth of 47pc, 40pc and 102pc managed by China, India and Bangladesh respectively over the last five years.
“We have lagged behind other regional players despite a growing cattle population over the last one and a half decade, modern technology and abundant manufacturing facilities because of a lack of government support,” says Arshad, who also imports good quality hides from Africa to add value for re-export.
He says almost all the good quality leather produced in Pakistan is exported and only low-quality leather is used by the producers of leather apparel and gloves for foreign sales and by the shoe industry for domestic consumption.
“A major reason for our tinier share in the global trade despite concessions given by the European Union under its GSP Plus scheme is our failure to develop a domestic consumer and fashion market. Unless we have a robust domestic market, we will never be able to develop an auxiliary industry producing accessories for value-added leather manufacturers and exporters, establish our brands and sell outside the country,” he adds.
He believes that the leather industry could treble its overseas sales in a little time if the government lends support to the manufacturers so they could compete with their regional rivals and capture a greater market share. “No one will invest in an auxiliary industry and fashion items until the government puts in place policies that protect our investments.”
He points out that India fully supported its leather industry when the euro had hit a bottom several months ago. On the other hand, the Pakistan government did nothing to protect the industry from the ill effects of the euro’s downfall and let the exporters suffer the losses.
The leather industry is one of the most important earners of export revenues (after the textile industry), comprises 800 tanneries and provides almost half a million direct and indirect jobs. According to the LCCI’s research and development (R&D) wing, Pakistan is one of the top 10 producers of leather worldwide and the industry contributes 6.15pc to GDP and 6.56pc to the country’s foreign exchange earnings.
Sheikh Arshad is also not happy with the government’s policies, which he says discriminate one industry against the other.
“The government recently agreed to reduce the export refinance rate by 1pc to 3.5pc for the large-scale textile industry but not for the leather industry. Even the 4pc R&D allowance given to the exporters was never extended to the foreign sellers of finished leather. How will we compete with our foreign rivals when our own government is discriminating against us?”
Published in Dawn, Business & Finance weekly, October 26th , 2015