Leather is one of the oldest industries in Bangladesh. Exporting 10 percent of the global demand for leather, Bangladesh’s leather industry has become the country’s second-largest source of foreign exchange after RMG. Having a favorable environment for raising and nurturing animals, Bangladesh has 2 percent of the total livestock population in the world. Bangladesh’s Leather is internationally popular for its high-quality fine grain leather, uniform fiber structure, smooth feel, and natural texture. Currently, Bangladesh’s leather industry is gaining the capacity to produce processed raw leather and leather products in sustainable ways.
Overview of the Leather Industry
Bangladesh’s leather industry began to grow in the 1970s. The leather industry has played a vital role in the development of war-torn Bangladesh. In 1964 a non-profit organization called Pakistan Tanners Association was established. After independence in 1971, the organization was renamed Bangladesh Tanners Association (BTA). The main function of this organization is to promote the development of the leather industry of Bangladesh by maintaining liaison with government departments and issuing the export certification.
Previously, exports depends mainly on wet blue leather. Wet blue leather is made by separating the fur from the skin and preserving it with salt. However, if raw leather can be processed further for producing finished goods, it can add up to 90% value to leather goods. The government of Bangladesh banned the export of blue leather in 1990 to increase the production of higher-value-added leather goods. This resulted in the entrepreneurs further modernizing their operations, which contributed to the growth of the industry. From then on, the journey of crust and completed leather manufacturing of the country began. In 2003, the Leathergoods And Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB) was founded to build a business environment, through developing relationships among local producers and exporters with international clients.
According to a report by EBL Securities LTD, published in August 2019, Bangladesh produces 350 million square feet of leather every year, of which only 20 to 25 percent is required locally, and the rest is exported. Currently, the entire leather industry is divided into different sub-sectors, one of which is ‘Tanning & Finishing’. In this sector, several tanneries are producing crust leather, finished leather, and blue wet leather. According to LFMEAB, there are currently 200 tanneries and 3500 MSMEs in Bangladesh. On the other hand, The footwear & Footwear Components producing sector is contributing a large part to the leather industry with 2500 footwear units and 90 large firms. According to the Dhaka Tribune, the market size of the local footwear market in Bangladesh in 2020 was around BDT 17,000 crore. Every year 378 million pairs of shoes are manufactured in Bangladesh, where the local footwear market demand is 200 to 250 million per year.
The rest of the shoes are exported worldwide after meeting the local demand. With this, Bangladesh has become the 8th largest footwear producer in the world by 2020 with a 2.1 percent share of Global Shoe Productions. Brands like ABC Mart, Adidas, Aldo, Esprit, Hugo Boss, H&M, Kate Spade, K-Mart, Michael Kors, Marks & Spencer, Nike, Steve Madden, Sears, and Timber Land, and other prominent brands import their required leather products and footwear from Bangladesh. Besides this, the manufacturing of leather accessories like belts, bags, jackets, suitcases, wallets, and some fancy items is also a prominent sector of the leather industry in Bangladesh. According to LFMEAB, the leather industry in Bangladesh indirectly and directly employs about 0.85 million people, of whom 60 percent are women.
According to the Export Promotion Bureau, Bangladesh’s second-largest sector in terms of exports, after RMG, exported leather and leather products worth $941.67 million in the FY 2020-2021. Which is about 2.43 percent of the total export earnings of the country ($38.758 billion). The leather footwear sector, which accounts for 60.5 percent of the total leather industry exports or products worth $569.88 million, is the largest in are the industry. Similarly, exports of processed or semi-processed leather, as well as other leather products, amounted to $119.14 million and $252.65 million, respectively, contributing 12.65 percent and 26.83 percent to the entire leather industry.
But, over the past few years, the export earnings of Bangladesh’s leather industry have been declining. In the 2016-17, 2017-18, and 2018-19 fiscal years, Bangladesh’s total exports of leather and leather products amounted to $1.23 billion, $1.09 billion, and $1.02 billion, respectively. Especially in the fiscal year 2019-20, the export volume of this industry decreased further to $797.6 million. Declining demand for the crust and processed leather in the export market, the rising popularity of artificial leather, lack of proper waste management, safety and compliance issues, lack of new investment, and lack of product variety are the main reasons behind the steady decline in export earnings. According to the chairman of the Bangladesh Tanners Association, due to the Covid-19 epidemic, work orders for finished and crafted leather from Spain, Italy, Hong Kong, and South Korea have fallen by 40 percent which is 60 percent of the total exports of finished and crafted leather items to Bangladesh. In addition, about 30 percent of Bangladesh’s total finished and crafted leather items are exported to China at low prices, which is 40 percent less than the regular price of European or US buyers. According to exporters, the trade war between the US and China is one of the main reasons for this negative export growth rate.
In FY 2021, with the exports increasing by 18.06 percent Bangladesh’s leather industry is turning around again. According to the Chairman of BTA, in addition to the traditional markets, Bangladesh’s exports to non-traditional markets such as Australia, Singapore, Japan, South Africa, India, and Spain are also increasing. In addition, adding value to leather products, and creating compliance according to the foreign market, are the two main reasons for the current growth of the leather industry.
Current Trends
Environment Pollution Issue
The Government of Bangladesh is working hard to prevent environmental pollution caused by waste from the leather industry. In 2003, the government established BSCIC Tannery Industrial Estate on 200 acres of land at Hemayetpur in Savar to prevent pollution of the Buriganga river and develop compliance in the industry, and all tanneries were shifted from Hazaribagh to Hemayetpur. But this facility can hold about 25 thousand cubic meters of liquid waste per day, in contrast to which about 40 thousand cubic meters of liquid waste is discharged from the tanneries every day. In addition, proper solid waste management has not yet been established in the area. According to The Daily Star, the government is planning to close this tannery complex of Savar. Besides, the Bangladesh government is planning to set up a leather industrial park next to BSCIC Tannery Industrial Estate. A full-fledged ‘leather industrial city’ of 400 acres will have a tannery, forward and backward linkage industry, and a proper waste management system. According to Bangladesh Small & Cottage Industries Corporation or BSCIC, the government has decided to set up two more tannery villages in Bangladesh besides the Savar Tannery Zone. One of which is in Rajshahi and the other in the Mirsarai area of Chittagong.
Eco-friendly Leather Culture
All animal rights organizations around the world are working hard to stop the use of wild animal skins, such as snakes and crocodiles. As a result, world-renowned brands have also stopped using these wild animal skins in their products. The brands want to use the skin of domestic animals because the skin is a residue of meat consumption. Several companies in Bangladesh are working on making exotic skins that look like snake and crocodile skins by using domestic animal skins. The companies are conducting the entire designing and tanning process of this leather in an eco-friendly way as well as ensuring compliance for the foreign market.
Challenges of the Leather Industry
Imported Machinery & Chemicals
Machinery used in leather processing and production is modernizing mainly imported from abroad. Besides, chemicals required for production also have to be imported from abroad at high prices. As a result, the overall cost of leather preparation is much higher.
Inefficiency in Raw Material Procurement
According to a BTTC source, the total supply of raw skin in Bangladesh at present is 20 million units, of which 50 percent comes during Eid-ul-Azha. The processing work has to be done quite fast to finance and to maintain the quality of the raw leather procurement collected at this time. But the procurement, preservation, and processing systems of these skins are much more outdated, insufficient, and slow in Bangladesh. Due to this, in addition to declining skin quality, the skin is often permanently damaged.
Lack of Skilled Workforce
To add higher value to any product, it is important to meet the various needs and export targets of the value chain. And this requires a sufficient and efficient workforce. But there is a lack of an adequate skilled workforce in Bangladesh’s leather industry. Which is a big challenge for this industry.
Lack of Funding
One of the most significant challenges facing the leather industry is the lack of funding. In particular, the lack of funding for small and medium-sized tanneries is a major problem. A stable fund stream is much required to adopt advanced technology and create a skilled workforce. However, due to the high rate of loan default in the leather sector, it becomes very difficult for the tanneries to get funds. According to Business Standard, published in July 2020, more than BDT 40 billion has been invested in the country’s leather sector, of which BDT 32.5 billion is still in default, most of which is in long-term debt. As exports declined and processing became more expensive tanneries became loan defaulters.
Heavily Reliant on Brokers
The leather market in Bangladesh is dominated by some large tanneries which directly collect leather from small and medium tanneries. This has made most of the small tanneries in the market dependent on brokers for their leather sales. As a result of such a market structure, tanneries fail to reach foreign markets like conglomerates.
Work Environment
The tannery environment is very dirty due to poor management of waste. Tannery workers also gradually fall ill in such a dirty work environment. Most tanneries do not follow the Basic Health Compliance Guidelines, which is a major problem for the health and safety of the workers involved in production.
Opportunities
Huge Global Demand for Leather Products
The demand for leather products on the global market is constantly increasing. According to Grand View Research, the global market size of leather in 2020 was $304.12 billion, which is expected to grow at a CAGR of 5.9 percent from 2021 to 2028. According to GlobeNewswire, despite the epidemic, the market size of global footwear was $364.2 billion in 2020, which is expected to reach $440 billion by 2026. As a result, Bangladesh also has a golden opportunity to uplift its position in the global market. According to Engr. Abu Taher, Chairman of the Fortuna Group, said global exports of all leather goods, including shoes and leather goods, amount to $240 billion. If Bangladesh can capture even 10 percent of this global leather market, it will be possible to build a business worth $24 billion.
Grabbing China’s Leather Market Share
Although China has long been the market leader in the global leather industry, they have also begun to lose market share due to rising costs, tolerant supply chains, and increasing demand for non-leather products. As the big brands are leaving the Chinese market, there is an opportunity for Bangladesh to become a direct investment hub of the global leather industry. According to Bangladesh Bank and EBLSL Research, FDI net inflow into Bangladesh’s Leather & Leather Products industry in 2017 was $70.2 million, which is increasing every year.
Rise of the Artificial Leather Industry
PU or Polyurethane leather is a type of thermoplastic polymer-based artificial leather used to make leather products and looks a lot like genuine leather. Since the beginning of product manufacturing using artificial leather in China, global demand for such artificial leather has grown significantly over the past few years. According to Grand view research, the global synthetic leather market was valued at $31.4 billion in 2020, which is expected to grow by 7.8% percent between 2021 and 2028. The demand for this artificial leather in Bangladesh is also very high. According to an innovation survey, although traditional genuine leather is widely used for high-end fashion products, most of the leather product market in Bangladesh is under PU leather. Most of the artificial leather in Bangladesh is imported from China.
Export Permit for Wet-blue Hides
Over the past few years, the raw leather market in Bangladesh has been quite unstable. Most dealers are either selling the skins at a very low price or throwing them in the open or in the water. For the first time in the last 21 years, to ensure fair prices for leather and reduce its wastage, the government of Bangladesh has allowed the export of wet-blue leather for a short period. By June 30, 2022, five companies will be able to export a total of 10 million square feet of raw leather. According to the Dhaka Tribune, at 70 to 80 cents per square foot, this leather export will be able to generate at least $6 to $7 million in revenue in 2021. All these government initiatives are creating new opportunities for the leather industry.
Rising Potential in the Domestic Market
Apart from meeting the global demand, there is also an opportunity to expand the domestic market of Bangladesh’s leather industry. In 2018, according to a report published by ADB, the demand for footwear in the domestic market of Bangladesh is around 30 million pairs of shoes, which is constantly growing along with the growth of the middle-class population. Besides, the demand for other leather products is also increasing.
Suggestions
Some necessary steps can be taken for the rapid and sustainable growth of Bangladesh’s leather industry. Firstly, by building and funding high-quality collection and preservation facilities, raw leather extraction can be further enhanced. Especially during Eid-ul-Azha. Because this is the best time to source raw leather in the country. In addition, the government may establish a ‘credit line fund’ to provide funding facilities to the small and medium-sized tannery and footwear producers. In addition, tanneries must invest substantially in the use of eco-friendly production and advanced leather processing technology. By doing this, low-grade leather, and solid and liquid waste management systems can be improved. In addition, local companies can add more value to leather goods by producing finished products and exporting them rather than exporting locally produced raw leather. In addition, cross-border business procedures need to be made more efficient and convenient to further attract foreign direct investment and improve the business environment. Apart from that, proper marketing and distribution channels are necessary that will help producers and exporters get access to better markets and lead to increased profits.
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