Leather turning into a big draw for foreign investors
The leather sector in Bangladesh is turning into a hotspot for foreign investment due to the country's low manufacturing costs, availability of cheap raw materials and its eligibility for trade benefits on exports, said industry insiders.
New investors from Japan, Taiwan and Vietnam have been contacting local leather goods and footwear manufacturers either to make investments in joint ventures or in companies they could establish themselves.
The export incentive on crust leather is 7.5 per cent while its 15 per cent on leather goods, which is also a major factor drawing foreign direct investment (FDI) to this sector.
Crust leather is the term applied to leather which is dried after tanning but has not yet been dyed.
Foreign investors are also interested in Bangladesh's domestic markets because of the rising number of middle-income customers and lifestyle changes for rapid urbanisation which have mainly pushed up the use and sale of leather goods and footwear.
Currently, total investment in leather and leather goods and footwear is more than $1 billion, of which some $700 million is from domestic investors while the remaining $300 million is from foreign investors who are engaged in the export of manufactured goods.
"Of the foreign investment, most of the amount came from Germany, Taiwan, China, India and Italy," said Saiful Islam, president of the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh.
"I have been receiving a lot of queries from foreign investors as they are interested to invest in Bangladesh," he said.
Interest spiked when the government recently allowed tanneries at the country's Savar Tannery Industrial Estate (STIE) to set up their individual effluent treatment plants (ETPs).
The use of ETPs ticks one of the boxes for global standards, added Islam, also managing director of Picard Bangladesh.
Coupled with the cheap rates of an abundant source of raw materials, foreign investors see prospects of good business, he said.
So far, the government has allowed two tanneries to construct their own ETPs for delays in the establishment of a central one for the STIE.
Currently, some 123 out of 155 tanneries at the STIE are operational.
Due to poor adoption of global standards set by Leather Working Group, Bangladeshi exporters have failed to avail compliance and environmental certifications from the global body for the leather goods sector.
This leaves them with no choice but to sell goods to some non-compliant Chinese factories and accept prices that are 40 per cent lower than the international norm.
Md Shaheen Ahmed, president of the Bangladesh Tanners Association (BTA), said tanneries would surely benefit if foreign investment comes in the leather goods sector because it would increase demand for locally tanned rawhide.
Whatever investment that has been made in tanneries till date has come from locals, he said.
The establishment of ETPs by just 50 privately-run tanneries at the STIE can bring substantial benefits to the sector through the attainment of LWG certifications.
But so far, only two have been allowed to construct their ETPs, he added.
Ahmed also expressed concern over the difficulties in monitoring of privately-run ETPs at the STIE by government officials.
M Abu Eusuf, professor of the Department of Development Studies at the University of Dhaka, also believes that this sector would immensely benefit from the arrival of foreign investment.
Bangladesh has revised its export target for leather goods to $3 billion by the end of next year. If the foreign investment comes, achieving the target would be easier. Vietnam has already proved this, he said.
Currently, international brands like ABC-Mart, Adidas, Aldo, Esprit, Hugo Boss, H&M, Kate Spade, Kmart, Michael Kors, Marks & Spencer, Nike, Steve Madden, Sears and Timberland source leather goods and footwear from Bangladesh.