Leather industry: Focus on diversification

Products other than footwear (both leather and non-leather) are now broadly categorised as 'leather goods'. Leather goods manufactured in Bangladesh today include bags, belts, purses, wallets, travelling kits, jackets etc. Increasing demand for footwear and leather goods in Bangladesh as well as rising export volume indicates the potentials of this sector. Whereas the combined export earnings from footwear, leather and leather products were US$ 459.15 million in 2009-10 fiscal year, it rose to US$ 651.03 million in 20010-11, US$ 765.03 million in 2012-13 and crossed US$ 1,000 million in 2013-14.
Individually, the export of footwear almost doubled from US$ 204.09 in 2009-10 fiscal to US$ 399.73 in 2012-13, and the export of leather products steeply rose from a mere US$ 28.96 in 2009-10 to US$ 161.62 in 2012-13 (EPB, 2014).
Bangladesh's footwear industry has attracted the attention of globally-renowned retail-chains including JC Penny, Marks & Spencer and Tesco of the UK, Wal-Mart and Macys of the USA, Deichmann of Germany, and ABC Mart of Japan (EPB, 2013), which are now sourcing footwear products from Bangladesh at a highly competitive price. The interest of these buyers has opened up an opportunity for local footwear and leather industries to raise export volumes, reach new markets and penetrate new product/market segments.
Availability of raw materials, duty-free export facility to Europe and Japan, cheap labour and lower production cost are comparative advantages Bangladesh currently enjoy in this sector.
Bangladesh exports mostly leather footwear, although the share of non-leather footwear is growing. Footwear exports totalled US$ 335 million in 2011-12 fiscal, consisting mostly of leather footwear (US$ 240 million or 71.5 per cent). Others included non-leather footwear (US$ 76.5 million or 22.8 per cent) and footwear components like soles. Non-leather footwear exports have grown by 142 per cent since 2008-09 and outpaced growth in footwear export value as a whole, which grew by 83 per cent during the same period (EPB, 2013). However, export volume, as expressed in official statistics of EPB, reflects total kilograms instead of number of pairs, making it difficult to compare Bangladesh's footwear export volume with those of other countries.
Bangladesh is one of the top Asian producers of non-leather footwear, with production in 2011 of 276 million pairs and a 1.3 per cent share in the global market. China is the market leader with a share of 60.5 per cent, followed by India with 10.4 per cent (World Bank, 2013). Non-leather footwear in Bangladesh takes several forms, including jute-based espadrilles, canvas/rubber tennis shoes, moulded polyurethane and PVC shoes, and artificial leather shoes.
According to the Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB), 'espadrilles' dominate non-leather footwear exports. But as it does not fall into one of the HS codes, as a result trade data specific to 'espadrilles' does not exist. However, within the niche 'espadrilles and jute soles market', Bangladesh apparently commands 90 per cent of global production. The country's largest export markets for non-leather footwear are Spain, the Republic of Korea, Japan, Germany, France and Italy.
CHALLENGES TO DIVERSIFICATION: The challenges facing the footwear and leather products industry in Bangladesh include the following: (a) inadequate and underdeveloped processing facilities for raw leather hamper the quality and quantity of finished leather; (b) there is dearth of locally available raw-materials for non-leather footwear; and (c) there is inadequate diversification of leather products (e.g. leather jackets are currently the only item in the category of leather garments) in line with changing tastes and fashion in the developed markets.
Bangladesh's non-leather footwear currently belongs to the non-luxury niche. Therefore, changing consumer attitude bodes well for the demand for Bangladeshi shoes. International trade of footwear is expected to continuously grow as the supply-chain for footwear manufacturing becomes increasingly globalised and developed countries continue to outsource production from lower-cost countries. Bangladesh can be an attractive manufacturing hub due to its competitive labour rates and existing export infrastructure (Lee, 2011; cited in World Bank, 2013).
Once considered peasant footwear, designer 'espadrilles' are now widely available in many modern interpretations. Today, espadrilles are considered a summer staple whose natural material has become synonymous with warm-weather fashion. The common denominator is jute sole and/or wrapped midsole. Currently, none of the extremely high-end espadrilles is fully assembled in Bangladesh although they may be manufactured by using Bangladeshi components.
Leather's share of the global footwear market is on the decline due to environmental and other reasons. Leather footwear exports globally represented 62 per cent of value and 34 per cent of volume in 2001, but by 2011 exports of leather footwear had declined to 50 per cent of value and 16 per cent of volume (APICCAPS, 2012, cited by World Bank, 2013). Reasons for this decline include reduced supply because of drought, increasing cost of animal feed, growing concerns about the ethical treatment of animals, and the adverse environmental effects of the tanning process. Some of these issues reverberate in Bangladesh, where ensuring safety and health of workers are major concerns. Awareness about green fashion is also rising and certainly bodes well for the growth of non-leather footwear industry.
The GSP has endowed Bangladesh's espadrille manufacturers with an advantage over their Chinese rivals in the European market, but not in the United States. As a least developed country (LDC), Bangladesh benefits from GSP privileges in most major markets (including Australia, Canada, the European Union, Japan, Korea and New Zealand) and as such has to face zero import duty. But non-leather footwear exports to the United States are subject to an import duty of 36 per cent. Currently, 99 per cent of all footwear sold in the USA is imported, of which more than 80 per cent is from China. Thus, GSP privileges in the USA could have been a huge boost for export of footwear and leather products from Bangladesh.
The non-leather footwear industry in Bangladesh is dominated by four companies, but includes a multitude of small entities. Of these four, three can be classified as large firms, with the fourth company between medium and large. The sector also includes many small and micro companies that are available to the larger firms for sub-contracting during peak seasons.
Currently, there is no FDI in the espadrille sector, but export processing zones (particularly Chittagong EPZ) have received FDI in non-leather footwear (World Bank, 2013). There is thus much scope for attracting FDI in the footwear and leather products sector of Bangladesh.
NEEDED SUPPORTS:  The role of Bangladesh government in the development of footwear and leather products industry in Bangladesh has not been very noticeable. One glaring example is the fact that the tanneries of Hazaribag in capital Dhaka could not yet be shifted to a nearby location (industrial estate) in Savar despite efforts for over two decades. Production of new items requires new machineries. Constant updating of production facilities, product specifications and marketing strategies are required to cope with the changing demands and tastes of the consumers in potential markets.
There is limited focus on footwear and leather products industry from both public and private institutions in Bangladesh. The LFMEAB was established in 2003 and it lobbies for policies and regulations that support its members including leather and non-leather footwear companies. Its official mandate omits reference to non-leather footwear, though it has jurisdiction over such products through the government requirement that non-leather footwear export certificates be generated by the LFMEAB. Apparently, the association undertakes no marketing activities on behalf of its members. There is also no evidence of support for the non-leather footwear sector from donors and non-government organisations. The government can take initiatives to rectify these constraints.
Footwear (leather and non-leather) was designated a priority sector by the Bangladesh government in 2009. As such, it is entitled to the following benefits: bonded warehouse facilities, 100 per cent duty drawback for re-exported inputs, 1.5 per cent income tax (compared to 15 per cent for non-priority sectors) and, tax-free import of capital equipment. In addition, leather footwear exports receive a 12.5 per cent export subsidy, meant for export of finished leather goods.
In the international arena, Bangladesh does not have membership of the International Footwear Conference. At the global level, institutions such as the World Footwear Congress and the International Footwear Conference meet periodically to discuss industry issues. Bangladesh needs to become a member of this conference, like other competitors including China and India, in order to have a voice on the global plane.
Overall, the Bangladesh government should provide adequate policy support and sufficient patronisation for swift diversification of footwear and leather products industry in the country.
The writer, a PhD, is a senior civil
servant and former editor of the Bangladesh Quarterly.
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