Protecting the leather sector

Processed leather and leather products occupy a prominent position in the list of few exportable goods from Bangladesh. But the full potentials of this sector could not be realised for many reasons over the years ranging from smuggling to lack of effective policy supports and proper institutional credits for businesses in this sector. The blame for not harnessing the potentialities of this sector should be also be shared by some of the entrepreneurs involved in it. Some such entrepreneurs have not properly used or have wasted the opportunities given to them during better days when credit supply to them from financial institutions used to be generous. Some troubled leather industries have accumulated large debts in the form of loans of a non-performing nature. This has caused a tight squeeze on further loan disbursement to them. However, this policy does not cover the state-owned banks. For example, the three such banks allocated a sum of Taka 2.75 billion for the on-going Qurabani season to help the traders to buy raw hides and skins. Some 60 per cent of hides and skins become available after animal sacrifices. The facility from the state-operated banks has, no doubt, been playing big part in enabling the local businesses to attempt to meet a bulk of their procurement programmes that would indirectly also prevent smuggling.
Steps taken last year by security forces along the border also yielded relatively greater success, reportedly, in thwarting smuggling. Thus, there is no reported shortage of hides and skins in the country and if the smuggling control operations this year prove to be equal to those of the last year and even better, then the stocks of hides and skin could turn out to be quite comfortable for the country.
Such stocks of hides and skins could have been good news for the economy and the exporters but for the fact that the price of leather in international market has dropped suddenly on average by some 50 per cent. This is considered to be an outcome of the recession in the developed countries. That has led to shrinking of import of both semi-processed leather and leather products. It is posing a difficult situation for exporters from Bangladesh. The association of industries in this sector is demanding some financial and other supports from the government. They and related traders -- a good many of them being new-comers this year -- want such assistance to be at least 25 per cent and also some owners of tanneries, having repayment problems relating to their post bank borrowings, want also reduction in the rate of interests on old and new loans.
On its part, the government already remains too stretched in giving subsidies in agriculture, energy and other areas. For it to give any more large-scale subsidies to another sector that has been largely paying its way, will certainly create another burden. However, considering the sudden predicament due to purely external reasons and what would be the consequences of the large number of operators in the sector from a lack of policy response earlier in time, the government may consider giving some them effective policy supports that may also involve some of its cash resources. However, such supports will have to be carefully considered, taking the ability and limitations on the government in doing so, and also related costs and benefits, into consideration. As for meeting the other demands of reduction in the rate of interest on loans or even their rescheduling, a flexible approach may also be needed. The merit of all such steps should be weighed very carefully under the present circumstances to help promote the legitimate interests of an export-oriented sector of the country and to save it from a nosedive with all its highly undesirable results.