Can leather industry exploit its potential?

That the country's leather industry had immense potential is universally agreed. Similarly, the fact that it failed to flourish due to policy flaws and a lack of decisive actions to overcome some infrastructural constraints bedevilling the sector is undisputed. Now that the leather industry is facing a tough time globally, the fragility of the footwear and leather goods sector at home is badly exposed. Had it not been mired by the decades of foot-dragging on relocation of tanneries from the capital's Hazaribagh to Savar Tannery Industrial Estate and then the installation of a defective central effluent treatment plant (CETP) there, quite a few footwear and leather goods manufacturers would have by now received the much vaunted Leather Working Group (LWG) certification. Notably, this certification opens the opportunity to export leather goods and footwear to markets in Europe and America. With just three factories earning the coveted LWG certification--- Apex Footwear (gold), ABC Leather Ltd and Riff Leather Ltd (silver) ---the industry naturally could not achieve the desired position next to the RMG in terms of garnering foreign exchange.

As part of diversification of the export basket, however, this had to be on the priority list. The country's pharmaceutical industry and leather industry are two leading candidates for taking on the mantle of the RMG in case the number one forex earner faced a reversal for some reason. But at a time footwear and leather goods are bogged down by lower demand worldwide, leather factories -- particularly the smaller and the medium ones among them -- are witnessing a sharp decline in export. Already handicapped by their limited market with no access to the high-end destinations, these factories now find a daunting challenge for their survival. The export of leather and leather goods declined by 14 per cent but that of footwear declined by 26 per cent between July and January of 2023-24. Since footwear production is more than leather goods, a bigger market slump for the former means the value addition has also suffered in the process.

It is exactly at this point the Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) has been looking for ways to tide over the current crises. As part of pre-budget proposals, it has asked for a unified tax rate of 1.0 per cent on import of raw materials. This will reduce the lead time by 20 days, triggering a 50 per cent increase in export of their products, it claims. Currently, the bond management stands in the way of easy access to industrial inputs.

The proposal certainly has its merit because the manufacturers and exporters of leather and leather goods are not asking for too much when they also seek rationalisation of tax at source by reduction of the 1.0 per cent freight on board (FOB) value to 0.5 per cent. In the context of the January 30 circular by the Bangladesh Bank to the effect of slashing cash incentives for export of some key exportable items, the demand for tax holiday may hardly be entertained. But synthetic and fabric footwear along with chemicals and spare parts for CETP certainly deserve special considerations. If the objective is to give the leather industry a competitive edge in the global market, such concessions ought to be granted at least for a reasonable period.