Leather industry faces strong competition21 March 2005
Pakistan's former finance minister Shaukat Aziz, now the Prime Minister of Pakistan, gave incentives to industrialists to establish effluent treatment plants when he presented the Rs931.5 billion gross budget for the year 2004-05. The proposal involved concessional loans from the bank in the form of export finance schemes but very few industrialists availed themselves of this concession. The budget for the fiscal year 2004-05 showed that the growth rate would reach 5.8% but with continuously rising rates for gas, petrol and electricity, there would be some setback to the development of industries. Khawaja Mohammad Yousuf, chairman of the Pakistan Tanners' Association (PTA), told Leather International that in a meeting of the managing committee in February 2005, the PTA cautioned the government that due to the continuous increase in the utility charges, leather industry exports would be adversely affected. The government has increased fuel prices from Rs32 to Rs42 per litre in one year. In the same way gas prices have been increased by 8.3% leading to higher production costs. Besides this, the exporters of finished leather to European countries have to face the imposition of a 3.5% duty on their leather entering European countries. S M Naseem, former chairman of the PTA and managing director of MIMA, one of the biggest tanning groups in Pakistan, told Leather International that while the 3.5% duty on Pakistan exports have been maintained, import duty on exports of finished leather from Bangladesh and India will not be levied. Naseem said that the PTA had written to the government requesting that they take up the case with the European Union. The European Commission has suggested including India, Indonesia, Thailand and the Maldives in a new Generalized System of Preferences (GSP) with effect from April 1, 2005, due to the tsunami disaster. In this way, India will have an edge over the exports of leather from Pakistan. Furthermore, the EU is working on simplifying and where appropriate relaxing the rules of origin to allow these countries to take further advantage of the benefits of GSP. It is believed that this would be a blow to exports of shoes from Pakistan. According to Naseem: 'most of the shoe industry is being shifted from Europe to China and India, due to lower labour costs.' Thus, these two countries are the major beneficiaries and the export of shoes from Pakistan has already been affected during the past six months. During July-December 2004, Pakistan exported finished leather worth $135.2 million against $117 million during July-Dec 2003, an increase of 15.5%. Exports of leather garments from Pakistan suffered stiff competition from China, India and Bangladesh during July to December 2004 and dropped to $132.7 million against $185.1 million during July-December 2003. Exports of leather gloves during this period were up to the mark. There was a tremendous increase in exports of leather gloves from $33.3 million to $55.3 million during the period July-December 2004, an increase of 66.18%. The main reason for the increase in exports of leather is that Pakistan's leather industry is producing more fashionable finished leather. Some tanners are also researching fashion requirements for the next six months or one year ahead. The finished leather industry has managed to maintain growth for the past four years. Naseem points out that exports of leather garments have shown a downward trend in spite of the incentives given by the government for the industry. The leather garment industry has been given a subsidy to import technicians from Korea to train artisans in the leather garment industry in producing more fashion orientated garments. Taking advantage of these policies, the Pakistan Tanners' Association will also seek government help in importing technical assistance from Italy to advise Pakistani tanners on how to improve the quality of finished leather. Raw materials According to a survey by Leather International the prices of raw hides and skins increased by about 5% during Eid ul Azha, the festival sacrifice during the last week of January and early February. During this period tanners get fresh hides and skins and the main reason for the increase in prices is stiff competition between the tanners. All the hides and skins collected during this festival are auctioned in a transparent way so that tanners cannot complain about partiality. It is interesting to note that mostly it is the proprietors and chief executives of the tanneries who take part in the bidding process. They have inherited their skills in examining the grain and quality of the hides and skins from their forefathers. The proprietor of a large tannery said that the profit of their tannery depended on successful participation in auctions. Naseem points out that the demand for goat skins has risen. He said 90% of sheepskins are consumed locally for garments while goats are exported for shoe upper. With the increase in demand, prices of goat have gone up by 15% while the cow is now 5% more expensive. While Pakistan imports large quantities of wet-blue from Saudi Arabia and Africa there have also been some imports of low quality goat and sheep from Afghanistan due to the improvement of trade relations between the two countries. Another problem facing the industry, according to Adeel Alam of Premair Leather Pakistan (Pvt) Ltd, is that: 'we are facing difficulties in procuring wet-blue splits due to exports to China.' He said that local consumption of wet-blue splits is increasing and more has to be imported to meet the demand. He added that glove manufacture has been badly affected by the shortage of this raw material. Mohammad Musaddiq, chairman of the Northern Zone, Pakistan Tanners' Association, has demanded that the government withdraw their withholding tax on the purchase of raw hides and skins in order to make exports of finished leather more competitive. He also urged the government to take stringent measures to stop the smuggling of livestock to Afghanistan and other bordering countries by land as the industry is facing an acute shortage of raw hides and skins. Setting up a tannery in Karachi or Lahore has become very expensive. Due to the liberal loan climate for homes and office buildings, the prices of real estate have gone up by another 200%. A plot in the tannery area in Karachi is now costing two to three times as much. The Pakistan Tanners' Association welcomed a move by the Indian Council for Leather Exports to invite the Pakistan tanners to their Chennai leather exhibition at the end of January 2005. In a meeting between Indian and Pakistani tanners, Rafeeq Ahmed, chairman of CLE, floated the idea of forming a SAARC Leather Council to benefit tanners in the whole region. With regard to future exports of finished leather, S M Saleem has said that during the next year the tempo of these exports of finished leather would be maintained. However, he said that Pakistan would face competition from China, India and Bangladesh. The Pakistan Tanners' Association has advised tanners to obtain ISO 14000 certification to ensure a better environment in their tanneries and comply with the WTO requirements. Musaddiq urged the chairman of Export Promotion Bureau to allocate resources from the Export Development Fund to individual tanneries for installation of treatment plants.