Leather goods, footwear producers downhearted by decline in sales
The once cheery demeanour of leather goods and footwear exporters has turned into one of depression as shipments declined 22 per cent in the just-concluded fiscal year due to the ongoing coronavirus pandemic.
The export of various leather products fetched about $998 million in fiscal 2019-20, according to data from the Export Promotion Bureau (EPB).
Of the country's total exports, leather footwear earned $779 million while other leather goods accounted for $221 million and rawhide sales $98.31 million.
According to the manufacturers, the leather goods industry has been severely impacted by the slump in sales at home and abroad brought on by the coronavirus pandemic.
Countries that have been hit hard by coronavirus opted for nationwide lockdowns or placed restrictions on public movement in a bid to curb the spread of the deadly pathogen. This is especially true for a number of Bangladesh's major export destinations, such as the US, Italy, Spain, UK and Germany.
The government has set a target to earn $5 billion in 2021 through the export of leather goods even though last year's receipts totalled only $998 million.
In light of the situation, the Leather Goods and Footwear Manufacturer & Exporter's Association of Bangladesh (LFMEAB) has urged the EPB to withdraw source tax on export subsidy to help the industry recover amid the coronavirus fallout.
"We urged the EPB to ensure equal rights for all export sectors by removing inconsistencies among the industries so that they can recoup the losses incurred due to this pandemic," said LFMEAB President Mohammad Saiful Islam.
The government gives preferential treatment to major export sectors such as garment, he said.
"This can be considered as discrimination against the leather sector," Islam added.
On October 30, 2019, Prime Minister Sheikh Hasina said that financial incentives for the leather goods industry would continue for at least the next five years so that the country can achieve its export targets from the sector.
However, the sector only enjoys a 15 per cent cash incentive on shipments.
"So, we want the same facilities granted to the garment sector gets. This includes tax breaks on exports, imports, VAT, bonded warehouses and so forth," said Nasir Khan, chairman and managing director of Jennys Shoes, a local pioneer in the manufacture and export of leather footwear.
The leather sector shows promise as it could possibly help diversify Bangladesh's export basket, he said.
Although leather goods manufacturers do more value-addition in comparison to their counterparts in the garment industry, apparel producers have been given better facilities over the years.
Vietnam entered the global market for leather footwear just a decade ago but in that time, the Southeast Asian nation's export has grown to about $20 billion annually, said Khan, also the general secretary of LFMEAB.
Meanwhile, Bangladesh made its first foray into the international arena for leather goods three decades ago. However, shipments have hovered around the $1 billion-mark even though the country is ripe with raw materials and human resources.
One could blame the lack of backward linkage industries, inconsistent policies, lengthy customs procedures and harassment faced by business owners when trying to secure a bonded warehouse or import raw materials as the main reasons behind Bangladesh's slow exports in the leather sector.
"It would not be a tough job for the leather goods sector to expand its exports to $10 billion by 2025 if the authorities, including the National Board of Revenue, EPB, port authority and banks cooperate with exporters," Khan said.
Other than rawhide, all other materials needed in the production of leather goods are imported. Besides, customs officials do not allow manufacturers to import enough raw materials for the entire year in a single shipment.
This forces leather goods companies to import their necessities in phases, leading to delays in production and subsequently, exports, he added.
There are about 60 local firms, including Apex Footwear, Jennys Shoes and Bay Footwear, that export various leather goods to mainly Japan, the EU and to some extent, the US.
However, if the approximately 165 footwear and leather factories currently operating in Bangladesh were compliant and used modern technology, they could fetch up to $5 billion in export receipts, according to the LFMEAB.
Bangladesh's leather goods and footwear sector is failing to make it big internationally even though the country has an abundance of rawhide and a skilled workforce.
Of the country's total production, only 30 per cent of the finished leather is consumed locally while the remaining 70 per cent is exported, mostly to China.
The global leather footwear market was valued at $246 billion in 2017 and is expected to reach $320 billion by 2021.
"Therefore, there is huge potential for growth among new entrepreneurs," Khan said, adding that Tk 20 crore is enough capital to open a factory with the capacity to produce 1,000 pairs of shoes daily.
Mohammed Nazmul Hassan, managing director of Leatherex Footwear Industries, said that his company is in an uncertain situation due to the drastic fall of domestic sales fell amid the coronavirus outbreak.
The global impact of the virus has continued to harm the leather sector.
According to a recent survey by the World Footwear Business Condition, the consumption of leather footwear products could experience a 22.5 per cent decline by the end of 2020.