Building the future of the leather sector

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Abul Basher In addition to the flight of people leaving town in flocks for their roots in village and bumper-to-bumper traffic jam in the highways, the collection of rawhides also makes headline news on the eve of Eid-ul-Azha. Total demand for rawhides in the country is about 220 million square feet. Around 60 per cent of them are collected during the Eid-ul-Azha. Therefore, the prospect of the leather sector, which is the fifth largest export sector of the country, is perceived to be strongly linked with Eid-ul-Azha. Some efforts are taken by the government during this time to benefit the sector. However, such isolated efforts so far failed to bring any meaningful result and would continue to fail unless complemented with a number of other efforts. Leather in Bangladesh is an export-oriented manufacturing sector based on local raw materials like hides and skins. It started in the late 1940s in Narayanganj but eventually moved to Hazaribagh in early 1950s. Today more than 90 per cent of the total tanneries of the country are haphazardly located in a congested area of only 70 acres of land in Hazaribagh. Until the independence of the country, most of the tanneries belonged to the non-Bengali owners who abandoned them during the Liberation War of 1971. The new government of the country vested the management of the abandoned tanneries with a newly-formed Tannery Corporation. As the Tannery Corporation failed to serve the purpose, government handed over the task to the Bangladesh Chemical Industries Corporation (BCIC) and Bangladesh Freedom Fighters Welfare Trust. Following their failure, the government privatised the sector. The privatisation, followed by a major policy reform during 1980-81 (import ban on wet blue leather), resulted in a positive development. During the mid-90s modern manufacturing units were set up and herewith began a new era for the leather sector. Nonetheless, the country is yet to fully realise the natural comparative advantage stemming from a strong stream of local supply of quality hides and skins and a large unskilled but trainable low-wage workforce. It is one of the very few manufacturing sectors based on home-grown renewable resources. The country is endowed with luxurious vegetation favourable to a large livestock population raised at household level. The quality of the rawhide and skin is relatively good, as barbed wire fencing that damage the skins of animals, is not used in the natural farms and fields. The Black Bengal and other variants of goat skin from Bangladesh enjoy an excellent reputation worldwide for their fine grain structure and tensile strength. The tradition of humane care of domestic animals also contributes significantly to high quality of the Bangladeshi leather. Because of the fully integrated production chain from raw materials to tanneries and leather goods without substantial reliance on import, the leather industry result in a high inter-industry linkage effect and value-addition. Some estimates by a Bangladesh Institute of Development Studies (BIDS) researcher, albeit little dated, indicate that a unit growth of leather sector result in a 10 times higher growth potentials (total linkage effects) for other domestic sectors compared to the unit growth of the ready-made garment (RMG) sector. The leakage of the potential linkage effects through the import of raw materials is only 10 per cent in case of leather sector whereas the same for the RMG is 48 per cent. Therefore, a unit growth of leather sector contributes more to gross domestic product (GDP) than that of RMG. The leather sector has huge potential to grow because of expanding local and international market. About 10 per cent of the total population of Bangladesh is recognised to have the purchasing power to buy leather products. In other words, the local consumer base for the sector is about 16 million people - higher than the total population of many of the Middle Eastern and eastern European countries. The size of the global market for leather and leather products is recorded at over US$ 60 billion per year and Bangladesh's export accounts only less than 0.4 per cent of this amount. The global market is still far from the saturation. Besides, because of the growth of population and increase in the purchasing power, global demand for leather and leather products is increasing. A number of roadblocks can be mentioned to the full realisation of the potential of the sector. Private leather entrepreneurship is not an autonomous development in Bangladesh. The majority of the leather manufacturers got involved in this sector through purchase of public industrial units when offered to the private sector at a low price. There are a few true entrepreneurs continuously working to keep pace with the changing world market, but many of the others are yet to take strong business interest in the sector. The high-value leather products are a fashion item and their design changes every year in the global market. The lion's share of the profit of leather industry goes not to the input supplier or manufacturers but to the product designers. Despite the availability of cheap raw materials and labour, Bangladesh still lacks the ability to design a single signature product of its own for the global market. This lacking of capacity for product design, development and marketing is a major hindrance to the prospect of the sector. Bangladesh College of Leather Technology, Leather Research Institute and Bangladesh Livestock Research Institute fail to ensure the supply of skilled personnel and technical know-how. The lack of appropriate technical skills of the butcher flaying and curing leads to defective processing of rawhide resulting in a 20-25 per cent value loss. For true development of the leather sector, Bangladesh needs to establish a Fashion and Product Development Centre for Leather products to broaden the access to global market. While it will take time to establish such an institute and benefit from it, a globally known fashion designer to design and market the Bangladeshi leather products in the global market can be appointed for the short run. Strengthening of the research facilities of Leather Institute is also crucial to render meaningful services to the leather industry. Leather is a traditional sector in Bangladesh based on local supply of raw materials. Because of its fully integrated production chain, it could be one of the driving forces of country's economy. Having the basic raw materials and a large pool of cheap labour together with duty-free access to countries under GSP (generalised system of preferences) facilities, Bangladesh can become an offshore location for leather and leather products. Mere provision of credit to buy the skin, fixing their price, and administrative measures to prevent their smuggling to India will not suffice. The government needs a well-designed, forward-looking strategy to really polish the future of the leather sector. Abul Basher, PhD is researcher at Bangladesh Institute of Development Studies (BIDS), former economist, World Bank, and former faculty, Willamette University, USA. [email protected]