Experts suggest equal, long-term policy supports for leather sector

Attaining $5.0b export target by 2021

FE Report | Monday, 26 February 2018

The country's leather sector needs rational, equal, implementable and long-term policy supports from the government to attain the US$5.0-billion export earning target from the sector by 2021, experts, industry people and participants opined at a workshop on Sunday.
They identified a number of issues, including excessive cost of doing business, infrastructural bottlenecks, exchange rate appreciation, and discriminatory policy measures for the non-RMG (ready-made garment) sectors, as major problems that are affecting the local leather industry.
They also came up with some recommendations, including ensuring effective operations of the Tannery Estate Dhaka (TED) with functional effluent treatment plant, effective functioning of Chittagong Port and Dhaka airport, market diversification, and equal policy supports as given to the country's RMG sector.
The observations and recommendations came at a stakeholders' consultation workshop on the study - 'Leather and Leather Goods Exports from Bangladesh: Performance, Prospects, and Policy Priorities' - by Bangladesh Enterprise Institute (BEI) held at a city hotel.
BEI project leader on trade and investment Dr Mohammad Abdur Razzaque presented the study findings report at the workshop, chaired by its president and chief executive officer Farooq Sobhan.
Professor and chairman of Department of Development Studies of Dhaka University Dr Abu Yusuf, managing director of Apex Footwear Limited Nasim Manzur, president of Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) Md Saiful Islam, and managing director of Fortuna Footwear and Leather Fayaz Taher, among others, spoke at the workshop.
"Given the availability of local raw materials, know-how of the supply management within the export industry, abundance of labour, and expressed policy support, the leather sector has huge potentials for transformation, generating billions of dollars as additional export earnings," the report said, adding the realization of these potentials depends on several factors.
Stressing on the urgency of adopting an appropriate export policy to make the exporters more competitive, Mr Farooq Sobhan said all the projections, including Vision 2021 and Vision 2030, would remain on paper only unless those are implemented.
"We are left with four fiscal years - 2017-18 (that ends in this June), 2018-19, 2019-2020, and 2020-2021 - to achieve our export targets. The formulation of a new export policy (2018-2021) should take the opportunity for providing concrete inputs."
He opined that the time before Bangladesh comes out of the least developed country (LDC) status (until 2027) has to be effectively utilised.
"Policy support needs to be innovative, strengthened and re-energised, and where possible, its scope and coverage have to be deepened," Mr Sobhan added.
Mr Abu Yusuf suggested that the benefits, given to the RMG sector, should be equally given to other export-oriented sectors, including leather and leather goods.
Echoing him, Mr Nasim Manzur said the EDF ceiling for RMG is $20 million whereas it is $15 million for others, and corporate tax for green RMG units is 9.0 per cent while it is 37 per cent for others.
Besides, RMG sector enjoys duty-free import of fire and other related safety equipments, but other sectors have to pay 7.0 per cent tax for it.
"Why there are two rules in this country," he raised question, demanding equal benefits for all the export-oriented sectors, including leather.
Mr Manzur said after the US GSP suspension, Bangladesh is losing business, as foreign direct investment (FDI) is going to other competitors, like - Cambodia, where investors are getting trade benefits.
He made a number of recommendations, including fixing the TED, long-term and equal policy support for five to seven years, rationalizing import duty, and withdrawal of tax on technical knowhow etc.
Mr Saiful Islam said efficiency of Chittagong Port is declining day by day, suggesting operating the port by international operator(s) through international tender to help reduce its lead-time.
Mr Taher focused on allowing alternative financing policy for lower interest rate financing.
The study pointed out infrastructural bottlenecks as one of the major problems, affecting the export industries, including the leather sector.
Inland transportation, port infrastructure, and trade logistics - in all these areas there are major issues affecting export competitiveness, it also said.
Besides, among other factors are - excessive cost of doing business including time required for registering properties, costs of enforcing contracts, and high land price.
"One effective way of reducing the cost and lead time to exports could be establishing more off-dock facilities, like - private container freight stations (CFS) or inland container depot (ICDs)," it suggested.
The study also pointed out some major 'policy-induced' problems, like - increasing real exchange rate or anti-export bias, saying since 2012, the real exchange rate has appreciated by 60 per cent.
On the other hand, an inbuilt anti-export bias within the trade policy regime gives 'disincentive' to the local producers, it noted.
"Higher cost of doing business, an appreciated real exchange rate, and policy-induced disincentives tend to undermine external competitiveness, resulting in weak export response," said Mr Abdur Razzaque.
"To overcome the strong anti-export obstacles, it is important that the leather sector exporters are supported directly through different export incentive schemes," he suggested.
"Bangladesh will soon graduate out of the LDC group. After that some of the existing policy flexibilities and trade preferences will either be lost or will be significantly reduced."
"Therefore, it is the high time to consider reinvigorated and deepened policy support with the objective of expanding export base rapidly. Hence, the scope for deepening policy support for the leather sector needs serious consideration," he added.
Along with policy supports, the study emphasised expanding export markets and export products, improvements in product quality, sophistication and standards.
The study also highlighted the need for developing domestic capacity in designing, marketing and product research and development, brand and fashion development, and at the same time setting up training centres for workers' skill development and effective operation of the TED.
The BEI study also focused on removing barriers to access to finance and financial services, which include high collateral requirements, high interest rate, skill development, relaxing foreign expert hiring rule, and enhancing capacity of the local institutions to support industry-specific needs.