Export of leather and leather goods from Bangladesh fetched $797.6 million, down by 21.79% from $1.01 billion in FY19
The leather and leather goods sector lost its second position in terms of contributions to national exports as earnings nosedived by 21.79% to $798 million in FY20.
As of FY19, the leather and leather goods sector was the second largest foreign currency earner after the readymade garment (RMG) industry with $1.01 billion earnings, which came down to $798 million.
However, it is now the third largest export earner as jute and jute goods took the place with export earnings of $882.25 million in FY20.
According to data from the Export Promotion Bureau (EPB), export of leather and leather goods from Bangladesh fetched $797.6 million, down by 21.79%. The figure was $1.01 billion in FY19.
Of the total earnings from the leather sector in FY19, leather products earned $220.55 million, down by 10.81%. Earnings were $247.28 million in the previous year.
Processed leather exports also declined by 40.28% to $98.31 million against $164.62 million in the same period a year ago.
However, exports earning from leather footwear posted a 21.24% negative growth to $478.75 million, which was $608 million in FY19.
Why the slippage?
With existing challenges such as non-compliance around environmental issues, the Covid-19 pandemic has rubbed more salt on exporters' wounds, pushing down export earnings sharply.
Global buyers held up and cancelled work orders due to the pandemic as it forced consumers to confine themselves in their homes, as well as forcing brands to shut stores amid lockdowns.
On top of that, the leather sector was already in trouble due to compliance issues, especially environmental ones, caused by the delayed establishment of a central effluent treatment plant (CETP) at Savar Leather Industrial Park.
“We were not environmentally compliant due to lack of a functional CETP. The manufacturers need compliance certification from the Leather Working Group (LWG) to export goods to global brands,” said Md Saiful Islam, managing director of PICARD Bangladesh Limited.
In addition, the global buyers and brands have cancelled ongoing work orders due to the pandemic, said Islam, who is also president of Leather goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB).
"In the given context, from the beginning we anticipated that exports would see a fall of at least $250 million," he added.
Meanwhile, tanners, suppliers of raw materials to the footwear industry, opined that earnings from the processed leather and leather goods fell as production dipped due to the relocation of the industry to Savar.
On the other hand, supply chain disruption, especially with China, is a big reason for the decline as it imports good quantities of processed leather from Bangladesh.
“Relocation of tanneries from Hazaribagh to Savar reduced the production capacity of the sector, which also created a shortage of raw materials for the product makers,” Md Shakawat Ullah, general secretary of Bangladesh Tanners Association (BTA), told Dhaka Tribune.
“Besides, some tanneries are not yet in operation as they have not yet completed construction of buildings in Savar Park and that has affected production capacity,” he said.
Amid these challenges, export of processed leather to China had been hindered due to supply chain disruption by the Covid pandemic, he explained.
CETP critical for turnaround
“While diversification of goods to reduce dependency on the single RMG sector is critical, a sharp decline in the second largest export earner is a bad sign for the country’s export earnings,” former World Bank lead economist in Dhaka office Zahid Hussain told Dhaka Tribune.
This is not only because of the Covid pandemic but was also largely related to non-compliance issues and the fact that the sector had been on a downward trend in the last couple of years, said Zahid.
“So, to gain buyers' trust and to attract them, we must ensure environmental compliance first to survive,” said the economist.
The government should complete the CETP within the next few months as the world business model would be changed and buyers would move to new destinations, said Zahid.
"We have to be ready as in the post-Covid world, buyers will reduce single country dependency that will create opportunities for us," said Saiful Islam.
“To this end, we should maintain social and environmental compliance, where workers' rights should be protected,” said the business leader.
As per a High Court order, the government cut power and gas connections to the tanneries to compel owners to relocate to the purpose-built Savar Leather Industrial Park to the north of the capital in April 2017.
The Industries Ministry allocated plots to 155 tannery owners through the Bangladesh Small and Cottage Industries Corporation (BSCIC) in the Leather Industrial Park established on 200 acres of land in Savar.
As per the agreement, the government was supposed to establish a CETP at the industrial park to ensure that the liquid wastes discharged by the tanners are treated before flowing into the nearby river.
The government decided to transfer the tanneries from Hazaribagh amid pressure from local and international rights groups, environmental activists and buyers because of their hazardous effects on public health and the environment, especially the Buriganga River.