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Leather industry review

Pakistan’s leather industry, including leather products, is the second largest export earning sector after textile. Presently, this sector is sharing almost $874 million yearly volume but has the potential to multiply this volume of exports with improvement in quality and diversification in different range of products. The leather industry comprises of 6 sub-sectors such as; tanning, leather garments, leather gloves, leather footwear, leather shoe uppers, and leather goods. Recently, the country is among the leading states in the production of leather garments and gloves.

The leather and leather made-ups industry plays a significant role in the economy of Pakistan and its share in Gross Domestic Product (GDP) is 4 percent. Industry experts revealed that Pakistan is still leading in leather technology and quality wise our leather is at 2nd number after Italy. The only missing thing is a government patronage. In China, Bangladesh and India the duty drawback and incentives permitted to this sector are much larger than our country. All other governments except our government understand that leather sector is one of most significant sector having wider advantages due to its role in job creation, linkage to agro and rural economy, poverty elevation and foreign exchange earner. The officials of SBP revealed in its recently statistical report that leather manufacturing plunged by 17 percent in FY2017 as against to a 6.9 percent rise in FY2016.

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The downward trajectory has intensified with leather garments falling by 16.8 percent in FY2017 as against to falling by 6.5 percent in FY2016. Leather gloves dived by a whopping 28.6 percent in FY2016 while falling by 5.1 percent in the last year. In its analysis the SBP has cited a variety of factors that are behind the leather sector’s dreary performance. Industry experts noted that a pertinent issue which this column has also flagged has been the incessant smuggling of live animals to neighboring Afghanistan which puts pressure on supply of hides and skins to leather manufacturers. Other factors, which have not crept up presently but have plagued the leather industry for some time now, include the inefficient leather supply chain, the dearth of quality labor as well as lack of modern technology.

Because of Eidul Azha falling in the hotter part of the year, large quantities of hides and skins were damaged because of inadequate preservation mechanisms, rising reliance on imported raw material. It is pertinent to note that the Eidul Azha season accounts for almost 40 percent of the total raw material accumulated from domestic sources. In this regard, the federal government has proclaimed removal of the customs duty on imports of raw materials like skin and hides in the present budget to provide some relief for the industry although this should have come sooner.

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As far as balancing, modernization and replacement (BMR) go the culprits are the host of custom duties levied on various machinery used in dissimilar production processes. There has been imposition of a 4 percent customs duty also 17 percent sales tax on import of machinery. To add to the woes is the high cost of doing business which has affected every sector in the manufacturing industry.

The Government of Pakistan does not assist when it also creates delays in refund processing with the rates of duty drawbacks and rebates already low in Pakistan as compared to regional peers. Although reassurances have been made, these have not materialized into action.

 

Pakistan Tanners Association (PTA)

According to the Pakistan Tanners Association (PTA), Pakistan is the only country that experienced a negative growth in exports as opposed to the optimistic growth in its regional competitors namely India, China and Bangladesh. Industry experts are of the view that the Government of Pakistan has not been following export-led policies as against to regional countries’ governments. In the federal budget 2016-17, Government of Pakistan has provided an exemption of leather industry from sales tax. In addition to this, export re-finance rate has also been declined to 3 percent from 3.5 percent in federal budget 2016-17. Impact of these initiatives is yet to seen.

There are about 800 tanneries in Pakistan, 213 Members presently recorded with Pakistan Tanners Association from all over the country are actively engaged in manufacturing and fully geared-up towards promoting export of quality finished leather and leather products on modern pattern as per global demand and are playing their positive role in earning much needed foreign exchange by invigorating country’s export volume. They are courageously prepared to meet the challenges of WTO regime and other international pressures with quality consciousness and full sense of responsibilities to uphold the impeccable image of leather industry within the ambit of national strategies, rules & regulations and global conditionality.

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During 2013, the Generalized System of Preferences (GSP) Plus status given to Pakistan was expected to increase export volume. As per GSP Plus status, about 20 percent of Pakistani exports were allowed to enter the EU market at zero tariff and 70 percent at preferential rates. Impact of GSP Plus status was evident given the rise observed in the country’s exports to EU during FY2014. However, appreciation of rupee and real effective exchange rate (REER) after implementation of GSP Plus added to the woes of exporters.

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