Opportunities for the leather sector under CPEC

19 Jun, 2018

Leather and leather products are the most important industries in Pakistan and the third most dynamic industrial sector after cotton, textiles and rice. The leather industry in Pakistan includes about 800 small, medium and large industrial units and tanneries. According to the PTA, the contribution of the leather industry to GDP is 2.6%, which accounts for 5% of the country's total exports. It provides employment opportunities for more than 1 million skilled and semi-skilled workers.

However, for the last five years, statistics for exports of leather goods depict a grave situation. Pakistan is drastically losing its exports share in the traditional leather markets to other regional states. Common reasons quoted by the industrialists, factory owners and the government are an increase in the cost of production, failure of domestic industries to comply with environmental standards and a decline in the supply of leather as a raw material. For the last five years, Pakistan had an export of $1.2 billion in the leather sector. This may appear reasonable; however, two things make the situation sore. Firstly overtime, leather exports are exhibiting a decking trend. As per PTA official data the leather and leather products exports recorded a fall of 6.76 percent to $0.757 billion in 2016-17 from $0.812 billion in 2015-16. Export of leather apparel and cloths declined by 8.95 percent, gloves by 5.38 percent, footwear by 6.35 percent during 2016-17 as compared to 2015-16. Secondly, share of neighboring countries in the global leather market is increasing and they are achieving double-digit growth. China’s leather export rise by 20 percent, India’s by 63 percent and Bangladesh’s 100 percent. Pakistan’s share of 0.5 percent in the global market for leather is insignificant compared to China’s 19 percent, Italy 9 percent, Vietnam 4 percent and India 2.5 percent.

Increasing economic cooperation with China under the China-Pakistan Economic Corridor (CPEC) has the potential to boost the growth of Small and Medium Enterprises (SMEs) through joint ventures between businessmen of the two countries, and modernization upgrade of the existing leather industry through transfer of technology and financial assistance. There is a wide scope for joint ventures between Pakistani and Chinese SMEs, especially in the fields of leather and apparel, because China currently dominates the conversion of leather into finished leather goods; however, with rising labour costs, Chinese leather industries are willing to relocate to other developing economies. Globally, the demand for leather garments exhibit a stable trend, however, the demand for leather products continues to expand. Pakistan is well positioned in this regard because of the availability of finished leather and competitive labor costs. Growth has been restrained by an inability to meet changing customer demands including a fast turnaround for fashion items. Pakistan has the best quality of raw material (raw skin and leather) of cow, buffalo, goat and sheep, but production has been restrained because of a decrease in livestock production.

It is imperative for Pakistan to resolve the growth constraints on the leather sector. Access to technology and sector-specific equipment is important for the expansion of the leather sector. Moreover, investment in manufacturing and value addition are required. Since the establishment of Pakistan, the primary focus has been on tanning (the process of treating skins and hides of animals to produce leather). Pakistan exports 95% of all leather produced in the country and 85% of these exports comprises of leather without value addition and finished products. Leather sector imports 25% of hides and skins from the Middle East, Africa and Australasia and exports semi-finished leather to China. CPEC offers immense opportunities for industry-led economic growth in Pakistan if we are able to take advantage of the emerging opportunities. Strong liaison and joint business ventures with Chinese enterprises will ensure a transfer of technology that shall help in the modernization and production of finished leather. For sustainability of local leather industries, it is vital to acquire and follow chemical production, dying, and tanning techniques from Chinese counterpart to meet the international environmental standards.

However, international buyers of finished leather and leather products need a higher degree of compliance with environmental regulations. For tanneries in developing countries, meeting environmental compliance standards has always been a challenge. Tannery waste comes in three forms: solids, liquids and gases. For tanneries, liquid waste is the biggest challenge because the output per kilogram of leather is between 50 and 60 liters. Contaminants in liquid waste must be treated in a sewage treatment plant before they can be discharged into water bodies. Millions of dollars have been used to solve this problem in tanneries; however, it has achieved limited success. Other environmental issues for leather product manufacturers are the retention of chemicals and residues in leather and the treatment of solid waste. Failure to meet environmental standards may limit the industry's use of Pakistan's gsp+s tatus exports to the EU market. The optimized use and use of the sewage treatment plant in Korangi, as well as the wastewater treatment plant at the Clean Production Centre in Sialkot, can solve the environmental problems in the Pakistani leather industry.

The CPEC framework can benefit the chance of local leather industry through the use of streaming technology, financial assistance, and business opportunities. However, this requires vigilance in planning and management policies. At the local industry and government level, scary exports maintain the roots of trends and enrich the market for community leather exports.

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