Further delay for Savar leather industrial estate

12 April 2007

The delay in implementing the Dhaka Tannery Estate Project (DTEP) poses a threat to the Buriganga River and millions of residents in the western part of the capital. With a total of 195 acres of land, the Hazaribagh Tannery Relocation Project (HTRP) will eventually have an annual production capacity of 74,000 tonnes of leathergoods. The initial deadline for relocation of 40-year old tanneries from Hazaribagh was June 2004, which was extended to December 2005 and subsequently postponed to December 2006. Bangladesh Small and Cottage Industries Corporation (BSCIC), responsible for establishing the leather industrial estate, claimed that it had already completed the major infrastructural work and allocated 164 plots in the 200-acre site. BSCIC recently submitted a proposal to the Planning Commission to double the area of the estate to 400 acres. According to industry ministry sources, 60% of the preparation has been completed though the setting up of effluent treatment and water treatment plants still remains to be done. Meanwhile, several teams, including senior government officials, have visited Pakistan and Italy on a fact-finding mission for establishing a treatment plant in the LIE. DTEP officials have now asked the government to extend the project period from December 2006 to December 2010. The revised project proposal is now lying with the industries ministry. They have also requested that the project budget be raised from Tk1.75 billion (US$24 million) to Tk3.59 billion (US$49.8 million). The BSCIC is setting up the estate at Savar, on the outskirts of Hazaribagh with the financial support of the government. Local sources claim that completion of the project is being delayed due to the number of ministries involved. In addition, the BSCIC invited fresh tenders for two projects relating to treatment plants due to a number of technical faults in the previous tender. 'Of the total project cost, Tk1.0 billion was earmarked for development of land and other facilities for the tannery industries, while an amount of Tk700 million was allocated for setting up the waste treatment plants and other development works. The main priority of the Hazaribagh Tannery Relocation Project (HTRP), initiated by the Industries Ministry in 2003, was to save the capital city and the Buriganga River from pollution following a guideline submitted by Unido experts in 1996. Hazaribagh's 220 tanneries discharge some 21,600 cubic metres of liquid waste and 88 tonnes of solid waste per day posing a serious threat to the livelihood of some 100,000 people and prompting observers to deem it to be on the brink of an environmental disaster. According to leather experts, the tannery wastes contain more than 300 harmful chemical compounds with a rate of up to 13%, whereas a rate of 6% can be fatal for humans. Tipu Sultan, Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association (BFLLFEA), stresses that the tanneries cannot be relocated to the new LIE without a fully operational treatment plant, 'and without the financial support of the government the tanners will not be able to afford to set up such a plant.' Demands for compensation As a result of the delay and increased costs, tannery owners are now lobbying the government for compensation and other facilities. The compensation claims total Tk250 crore ($35million), of which half would be in the form of grants and the rest as 'loans without interest'. Their demands also include making the LIE a special economic zone with all the facilities enjoyed by the country's Export Processing Zones (EPZs), provision for easy exit of the 'weak' tanneries that are heavily indebted to the banks, and which are not viable in the long-run and special loan rescheduling facilities to other viable factories. Sultan predicts that after relocation is complete the price of the land in Hazaribagh will increase, allowing indebted tanneries to pay off bank loans by selling the land and equipment. Tannery owners have expressed their demands to the government through a report jointly prepared by heads of ministries and three associations including BFLLEA. Advocating the tannery owners' demand for compensation, association president Sultan said: 'Total shifting of the tanneries would require an investment of Tk5,400 crore (US$750 million). But with the existing set-up at Hazaribagh, we would be able to cover 25-40% of the required investment. We still fall short of Tk3,000 crore (US$416.6 million) and to manage the huge investment we would definitely need government support. We have narrowed down our demands to the minimum level. Now the government is to decide about the relocation.' The current political crisis has further impeded progress. According to Sultan: 'A recommendation of the secretary-level committee to build a treatment plant is now awaiting the approval of industry adviser but the interim government may not take the decision about such projects.' He added that the authorities concerned would have to wait for the next elected government's decision to expedite the project work. As a result of the political crisis, manufacturers of finished leather and leathergoods fear a substantial decline of the volume of their exports. Local exporters report that foreign buyers are gradually moving away from the Bangladesh market due to uncertainty over on-time production and shipment. 'We are not getting as much export orders as before due to the political unrest here and more than 50% of orders are normally settled before the Eid-ul-Azha festival', said Tipu Sultan. Sultan fears that for this reason members would fail not only to achieve the export target in the current financial year but also to earn foreign exchange from the export of leathergoods. The government has set a footwear exports target of US$180 million and leathergoods exports are predicted to reach US$260 million during the 2006-07 financial year. In the previous year, Bangladesh earned about US$124 million from footwear exports and US$249 million from leathergoods exports. Sultan continues: 'We (exporters) are being affected from all sides. We are not sure when we would receive the imported raw materials (chemicals) in our factories and even if we are able to produce the goods, we are unsure when we will be able to make shipments.' Matters are made more difficult for tanners by the strength of the euro against the dollar. Leather traders said Bangladesh generally exports leather and leathergoods to Italy, Japan and China. India and Pakistan use their own chemicals in the preservation process but Bangladesh uses European chemicals imported in euros. However, the country earns US dollars by exporting leather and leathergoods. The difference in the rates between the two currencies has compelled Bangladesh to increase the price of its leather and leathergoods, putting it in a disadvantageous situation. Raw materials In addition, the nation's leather sector has been facing a number of problems in terms of raw materials over the last few years. There has been a shortage of raw and wet-blue hides, crust and finished leather for the past few months. However, this year, extra raw hides have been obtained on the occasion of the Eid-ul-Azha festival. Usually most of these hides are smuggled out of the country due to the lack of a streamlined hide procurement system and the utilisation of hides in local leather industries that would in turn help them export a greater volume of leathergoods. Lack of fuel and transportation problems also contributed to obstruction in the movement of raw hides to treatment centres. During Eid-ul-Azha this year, about 180 million sq ft of hides and skins worth Tk8 billion were estimated to be traded compared to 140 million sq ft traded in the previous year, industry sources stated. Approximately 2.2 million cows and 10.2 million goats were slaughtered across the country, which is 10% higher than those of the previous year. One third of the country's raw hides are produced during the festival. The associations have also urged the government to allow duty-free imports of accessories for the footwear manufacturing sector. The future government will have to ensure the efficient implementation of policies for real development of the leather sector to occur. Production Bangladesh meets between 2-3% of the demand of world's leather market. Most of the livestock base for this production is domestic which is estimated at 1.8% of the world's cattle stock and 3.7% of the goat stock. Local hides and skins have a good international reputation. Bangladesh largely exports finished and crust leather and these exports grew 2.4% in 2005-06 over the previous year. However, sources at the Export Promotion Bureau (EPB) said the demand for finished leather was growing at a considerable rate. The range of leather articles produced in Bangladesh includes some ready-made garments, although these are confined mainly to a small export-trade in 'Italian-made' garments for the US market. Footwear is more important than garment manufacture in terms of value addition, accounting for just over US$4 million of exports in 1992-93. By 2002-03 the figure had risen to US$257.17 million. In October 2006 local footwear exporters were forecasting 30% growth in sales to the European market after the European Union imposed a two-year anti-dumping duty on Vietnam (10%) on China (16.5%). Describing China and Vietnam as main competitors of Bangladesh in the EU market, exporters observed that the restrictions imposed against these two countries would ultimately open a new avenue for augmenting the country's footwear exports. Currently, China and Vietnam are supplying about 76% of footwear to the world market. The contribution of Bangladeshi footwear in the world market is around 1%. Prior to the political crisis, footwear manufacturers were optimistic about the future: Akbar Hossain, general secretary of Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association, stated: 'A large number of European buyers are now showing their interest in our footwear products. They are randomly visiting our footwear units located in export processing zones in Dhaka and Chittagong.' Sources at footwear units in the Dhaka EPZ said they are capable of providing a pair of quality shoe at prices between US$8 and $14 to the European markets. This makes the product highly attractive to buyers as Chinese shoes are being exported at an average of e40 per pair. However, exporters have observed a trend towards purchasing only the upper, with buyers presumably sourcing soles from elsewhere. According to Sultan, Bangladesh ships 60% of its leather footwear to the EU region, 30% to Japan and 10% to other parts of the world with Italy, France, Germany and England being the major destinations. The BFLLGFEA president said Bangladeshi shoes are becoming competitive in terms of quality and prices. Bangladesh earned $257.53 million from exports of leather and leathergoods in 2005-06 of which leather products accounted for $68 million. The share of leather footwear is almost $61 million, according to the Export Promotion Bureau. Currently, Apex footwear, Janny's Shoes, Isamora Shoes and Paragon are the country's leading shoe manufactures. In addition, there are also a number of shoe making units producing quality shoes in and outside Dhaka and Chittagong EPZs. EPB has set the target of Tk20.3 billion (US$282 million) for exports of raw hide, Tk9.8 billion (US$136 million) from footwear and Tk5.6 billion (US$77.7 million) from leather bags in the current financial year 2006-07. Investment Foreign direct investment in this sector along with the production of tanning chemicals appears to be quite promising, in terms of rate of return on capital investment. Bangladesh has the basic raw materials for leathergoods as well as for the production of leather footwear and a large cheap but trainable labour force. This, combined with a tariff concession facility in major importing countries under the generalised system of preferences (GSP), make it a potential offshore location for manufacturing leather and leather products at low cost but with high quality.

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