Faltering footwear, leather industries: Why Bangladesh fails to capitalise on raw material advantage

Bangladesh lags far behind its economic peers in footwear and leather product exports, exposing the country's insufficient focus on a sector that possesses a key advantage – regular access to the main rawhide – which its competitors lack.

For instance, Bangladesh, despite having started footwear and leather product exports earlier than Vietnam, lags significantly behind in earnings, with the latter earning over $20 billion compared to Bangladesh's $1 billion.

Every year after Eid-ul-Adha, Bangladesh's weakness in the sector becomes evident. The price of rawhide, a scarce commodity, consistently declines year after year. 

The current price is even lower than it was a decade or more ago. This issue becomes more pronounced during Eid-ul-Adha as it negatively impacts underprivileged individuals who are entitled to receive the sales proceeds from over a million sacrificial animals.

In the past five to six years, the prices of sacrificial animals have more than doubled, while the prices of their rawhides have more than halved, further illustrating the disparity. 

Tanners attribute their hardships to the late 2000s when global consumers shifted from leather-made footwear to synthetic alternatives following the global financial meltdown.

However, the real blow came when tanners were compelled to adhere to the tanning industry's environmental standards. 

In 2017, they were required to shift from Hazaribagh, the tanning hub in the capital, to a new tannery complex in Savar. Also, they had to obtain international certification of environmental compliance from the Leather Working Group (LWG), a global alliance of top brands. This added another layer of challenge for the industry.

"We are not getting the fair price of our leather without the LWG certification, and ironically, the new complex we were forced to shift to offers us a faulty central effluent treatment plant (CETP)," said Md Mizanur Rahman, vice chairman of the Bangladesh Tanners Association (BTA).

A Chinese company built the faulty CETP and in 2020, they handed it over to a local specialised company mainly controlled by the government, he said, adding that there had been no improvement to date.

"It is the CETP that kept each of the over 140 tanneries at Savar environmentally non-compliant before the eyes of best international buyers who would have paid us more than double prices," he said.

Before the shifting to Savar, when LWG compliance was not a big deal for many of the foreign buyers, finished leathers were being exported at $2.25 per square foot and it came down to $0.8 to $1.2 nowadays, according to his association.

Mainly, some Chinese and Italian buyers remained there to buy finished or semi-finished leather from Bangladesh.

"We have to keep bargaining with them for a few cents per square foot, and it is a harsh reality for us," said the tanner.

After the start of the LWG initiative in 2005, India started to transform their tanneries and now they have nearly 250 LWG-compliant tanneries including 42 in West Bengal alone, BTA Chairman Md. Shaheen Ahamed told TBS earlier last month, adding that in Bangladesh, only two tanneries secured the certification while another one was in the pipeline.

And, none of the three fortunate tanneries was in the Savar tannery complex.

Mizanur Rahman said talking to the world's top tannery CETP technology company from Italy tanners suggested the government invest some Tk50 crore to make the CETP function and later invest some further Tk200-250 crore to make it up to the mark.

The Tk300 crore investment and the private sector's sufficient role in the CETP management would help many of the tanners' LWG compliant and they would earn some $400-500 million dollars a year from compliant leather exports, said Rahman.

"Like our competitor tanners we can have sold our finished leather at $2.25 per square foot," said Rahman.

The country earned nearly $1.25 billion in the 2021-22 fiscal year from the exports of leather and leather products while semi-finished or finished leather made less than $125 million of it, down from $400 million in 2014-15.

Because of the non-compliance of local leather, footwear, and other leather product exporters have to import compliant leather from other countries as per the buyers' specifications, and that costs the country over $150 million annually, according to BTA.

China again exports a portion of the semi-finished leather they take from Bangladesh at a higher price after finishing, while they also have grown their local market for leather products bigger to consume a lot of it.

The local market for Bangladesh for leather products has been in a vicious cycle of low efficiency, high price and low growth that, on the other hand, failed to make the local market big enough to consume a significant portion of the annual supply of 27-30 crore square feet leather comes from around a crore cows and buffalos and around 2 crore goats and sheep a year, said BTA vice chairman.

"A functioning CETP for the country's more than 95% tanneries would be the simple game changer," said the association's chairman adding, "We have visited so many compliant facilities across the world and the LWG certification would not be a tough job for most of us."