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THE BOOMING LEATHER INDUSTRY
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Leather plays a vital role in the economy of
Pakistan
By SYED M. ASLAM
June 04 - 10, 2001
Leather enrichs our lives in numerious pleasant
ways. The belts and shoes that we wear and the wallets and purses that
we carry are made of leather. In the developed countries, almost all
of which are located in the frigid North, leather jackets, trousers
and suits have long become a status symbol and so are the leather
upholstered furniture and lavish interiors available only in
top-of-the-line luxury cars.
Leather has long outgrown its practical purposes
and today is regarded more as a luxury than a necessity, particularly
in the affluent West. This transformation is made possible due
primarily to the induction of state-of-the-art treatment and tanning
technologies to give leather a never-before-possible thickness,
unlimited colour variations, luxurious feel and silky touch. This has
also turned leather into as comfortable a material to work with as any
other fabric for any or all of the uses mentioned above.
Leather plays a vital role in the economy of
Pakistan. During last decade it contributed an average of over 8 per
cent to the exports second only to over 60 per cent by the cotton
commodity group. Its production during the same period has registered
a significant increase — 14 per cent for goat and sheep 'skins' and
30 per cent for cow and buffalo 'hides.' In terms of quantity the
former increased from 32.7 million meter to 37.2 million meter while
the later increased from 5.9 million meter to 7.6 million meter.
Exports of leather
Including tanned/finished leather, leather garments
and footwear — registered a substantial overall increase of 28.43
per cent for nine months ended March over the comparative period the
previous year. The collective exports of these three core leather
categories increased from $ 392 million to $ 503 million during the
period under discussion. Export of tanned leather registered an
increase of 29.65 per cent, garments by 28.4 per cent and footwear by
21.81 per cent. The value of exports are shown in Table 1.
Besides the three core categories used to monitor
the export performance of leather and products, Pakistan also exports
a sizeable volume of leather gloves and 'leather manufactures which
include such items as belts, wallets, purses, etc' the value of which
totalled $ 30 million and $ 8.6 million in 1999-2000. However, the two
non-core categories are not used to monitor the leather/products
exports.
An analysis of the above statistics reveal a
worrying pattern: it shows that despite catering to the domestic
demand satisfactorily leather footwear industry exported just $ 25.5
million of the most used value-added item much lower than the $ 29.8
million worth of leather gloves. This depicts the complete
indifference of value-added footwear sector to make greater
penetration in the foreign markets.
The observers blame the low footwear exports on the
non-availability of quality tanned leather and the lack of
value-addition in leather for the footwear industry. The problem is
further complicated by the fact that the footwear industry of Pakistan
has not developed in the organised sector primarily due to the high
capital investment which it requires. However, this still fails to
justify a situation vis-a-vis the leather garment industry which
despite being regarded a far more capital-intensive activity has
registered a commendable private-sector lead growth. Both leather
footwear and leather garment industries have a problem of their own
— shoe manufacturing, particularly organised requires huge capital
investment in terms of plant, machinery, labour and marketing while
garment manufacturing requires investment in inventory. For instance
it requires about 2.5 square feet of tanned leather to manufacture a
pair of shoe, the manufacture of a leather jacket requires some 40
square feet of tanned leather.
However, the otherwise welcomed increase in overall
value of three core leather categories masks a disturbing fact: it was
made possible by 39.25 per cent increase in tanned leather exports in
terms of quantity which increased from 8.7 million square meter to 12
million square meter. On the other hand, the percentage increase in
term of quantity during the same period was 39.25 per cent meaning
that the unit price per square meter decline by 6.9 per cent from $
13.70 per sq. m to $ 12.75 per sq. m. The trend should indeed be a
cause of concern.
Foot & Mouth Disease
Earlier this year reports of Foot & Mouth
Disease (FMD) in cattle in Britain created a wave of concern across
the meat-loving masses of the globe. By May 28 over 3.2 million
animals were culled in the UK, the memories of whose culling,
incineration and collective burial would remain etched in the memories
of many of us for good. The culling included over 484,000 heads of
cattle, 1.5 million sheep, 2,000 goats and 122,000 swine.
By any scale, this was the biggest cattle and
livestock culling ever witnessed anywhere in the world. FMD is an
acute, highly contagious infection of cloven-hooved animals and is
present in many countries of the world. It was first reported in 1929
in the USA, 1952 in Canada, and in Mexico in 1954.
FMD is highly contagious and may spread over great
distances with movement of infected or contaminated animals, products,
objects, and people. That explains the disinfected mats at the
airports in the US and the ban of all meat imports from the UK. Though
humans cannot be infected by eating meat of an infected animal , they
can be infected through skin wounds, oral mucosa by handling the
infected stock, the virus in the laboratory or even by drinking
infected milk. However, the human infection is temporary and mild and
as such FMD is not considered a public health problem.
But this did not stop the people to be worried
about a cattle disease which they don't have enough information about.
As the recovered cattle may be FMD carriers for 18 to 24 months and
sheep for a much smaller period of 1-2 months, it is advisable that
the entire stock of animals on an infected premises are slaughtered
within 24 hours of the first report of the disease.
The FMD has resulted in the massive culling of
cattle in the UK resulting in great economic loss as neither the meat
nor the hides and skins of the slaughtered animals were to be used.
The reports of FMD in various other countries in Europe has caused
similar concerns. So what does the massive culling in Britain means
for Pakistan?
It means that it would take years for the UK to
rebuild its cattle stock and the resultant shortage of availability of
domestic leather meanwhile. This further is expected to result in
three distinct scenarios — number one UK would have to import
leather from outside, the main beneficiaries of which can be Pakistan
and India whose tanning industries have the capacity and capability to
meet UK's demand in terms of quality and quantity; number two, UK
would resort to placing direct orders for leather products; or number
three, increased joint-venture in the value-added leather products.
All three potential scenarios can help Pakistan to make a deeper
penetration in the UK and also a unique chance to make it sustainable.
According to the report of Leather Industrial
Development Organisation, merged now with the Export Promotion Bureau
Islamabad, there are some 784 tanneries operating nationwide. In
addition, there are some 461 leather-garment manufacturing units, 348
glove manufacturing units and 525 footwear manufacturers.
The leather tanning units of the country as a whole
are utilising only between 70-80 per cent of their production capacity
despite the fact that many big export-oriented units are operating at
their maximum capacity round the clock. The Pakistani tanning industry
has the capacity and the capability to make real inroads in the UK by
using the collective production capacity, a substantial portion of
which remains unutilised presently.
UK does not make up the list of 11 countries, South
Korea being the top, which collectively contributed $ 146 million or
over 83 per cent to the total $175 million tanned leather exports in
1999-2000. It, however, was the third top market of Pakistani leather
garments the same year after USA and Germany. European countries
collectively are the single top market of Pakistani tanned leather and
garments.
So what does this mean for Pakistan in term of
strategy? The above statistics highlight the need of the local leather
and products industry to find ways and measures to increase its thus
far negligible presence in the UK in term of tanned leather and to
better its share of leather garments. The fact that UK does not appear
on the list of 11 countries contributing over 83 per cent to the total
tanned leather exports (see Table 2) should provide all the impetus
for the local industry to benefit from the emerging situation in the
UK. The same is also true for the export of gloves as UK was the
fourth top destination of this value-added leather product which do
not form the list of core category.
UK trails far behind the US and Germany as the
destination of leather garment exports. What gives this an altogether
different perspective is that there has been a significant increase in
the export of leather garments since 1988. The percentage share of
garments in the three core leather categories has increased from 39
per cent then to 68 per cent at present. During the same period the
share of tanned leather registered a similar pattern of decline —
from 61 per cent to 32 per cent. Though the increase in garment
exports came at the cost of leather, the transformation is a welcomed
sign indeed of the move towards value-added products.
As is, the top tanned leather exporters including
South Korea, Hong Kong, Italy, Germany and others use the Pakistani
exports to produce quality value-added products which help them earn
substantial earnings in exports. The enhanced leather garment
manufacturing and exports would mean the same for Pakistan. By any
standard this has been a welcomed transformation for the leather
exports of Pakistan.
The transformation is all the more welcomed when
one realises that leather garment exports registered a substantial
growth despite the absence of domestic market for these value-added
products. This has been due primarily to the fact that tropical
climate does not encourage the maninstream demand of leather garments
and whatever little demand which is there comes from only the small
circle of the fashion conscious upper classes. The absence of domestic
market, however, has not discouraged the enterprising individuals to
establish leather garment manufacturing units, the majority of which
are owned by small and medium investors.
Pakistan has a large population of livestock —
cattle (cows and bulls), buffalo, sheep and goat — which is
constantly increasing — from 107.9 million in 1996-97 to 116.2
million in 1999-2000 depicting an eight per cent increase. The
populations of cattle, buffalo, sheep and goat are all on the increase
and there were 22 million cattle, 22.7 million buffalo, 24.1 million
sheep and 47.4 million goat by end 1999-2000.
The large population of cattle, buffalo, sheep and
goat gives Pakistan an edge in the international markets of leather
and products which are backed by induction of latest tanning
technologies to produce quality leather for the manufacture of many
value-added products. Though India remains a major competitor of
Pakistan its leather does not enjoy as good a reputation in the
international markets as it is naturally inferior to that of its
Pakistani counterpart.
While about three-fourth of the leather demand of
Pakistan is met through domestic skins and hides the rest is met by
imports from other countries such as Saudi Arabia, Kenya, Sudan,
Australia, New Zealand, Brazil, etc. Duty free import of raw hides and
skins is allowed for re-export purposes strictly.
The strengths
Pakistani leather industry, despite many natural
disadvantages, is an a far better position to benefit from the spread
of FMD and the resultant culling of cattle in the UK. Though India
houses the top cattle population — 20 per cent of goat and 6 per
cent of sheep — and has an abundant supply of raw material — skins
and hides — its share in the global leather and products trade is a
low 3.5 per cent. India is also one of the top four exporters of
leather graments and thus is a direct competitor of Pakistan,
particularly in value-added products.
Despite these disadvantges, Pakistan enjoys an
excellent position to compete with India as the quality of its skins
and hides are much better in natural qualities. Despite a much bigger
cattle population, Indian cattle are capable of producing a
comparatively less thicker skins and hides than that of their
counterparts in Pakistan. India also trails behind Pakistan in term of
tanning not able to produce a thick leather with quality surface
finishing necessary for the manufacture of quality and high-priced
value-added products.
Summing up
So is the leather industry of Pakistan understands
the potential of the benefits of FMD to make a real penetration in the
UK market. Is it aware of the spillover of the benefits of the FMD in
the months to come to make a real presence in the UK market and to
take measures to sustain it in the years to come. It should not
underestimate the increased demand of tanned leather and manufactures
in the UK but should also be vigilant about the prospects of increased
joint ventures to capitalise on the foreign investment.
Certainly, it has the capacity as well as the
capability to meet the increase demand emanating from the UK and the
natural quality of its raw and hides is good enough to produce thick
leather and to convert it into quality finished products best suited
to manufacture quality value-added items of all sorts.
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Table 1
Exports of Three Core Categories of Leather for nine months ended
March 31, 2001
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July-March 2000-2001 |
July-March 1999-2000 |
%age Change |
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Leather (Tanned) |
$ 154 m |
$ 119 m |
+29.65% |
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Garments |
$ 324 m |
$ 252 m |
+ 28.4% |
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Footwear |
$ 26 m |
$ 21 m |
21.81% |
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Total |
$ 503 m |
$ 392 m |
28.43 % |
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Table 2
Major Markets of Tanned Leather Exports (1999-2000)
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Total Value: $ 175 m |
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Quantity: 12.898 m sq.
meter |
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Country |
Value |
%age share |
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South Korea |
$ 29.57 m |
16.89% |
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Hong Kong |
$29.18 m |
16.66 % |
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Italy |
$24.7 m |
14.% |
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Germany |
$ 20.5 m |
11.73% |
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France |
9.8
m |
5.6% |
The above five countries alongwith China, Spain,
Japan, USA, Portugal and Australia collectively contributed over 83
per cent or $ 145.6 million to the total tanned leather exports.
Tanned Leather exports during last five years:
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1995-96 |
$ 259 m |
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1996-97 |
$ 239.6 m |
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1997-98 |
$ 207.8 m |
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1998-99 |
$ 177.2 m |
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1999-00 |
$ 175.1 m |
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Table 3
Major Destinations of Leather Garments (1999-00)
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Total Value: $ 300 m
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Destination |
%age share |
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USA |
20.07% |
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Germany |
16.49% |
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UK |
13.19% |
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France |
9.6% |
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Spain |
5.16% |
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Netherlands |
4.39% |
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Sweden |
3.03% |
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Dubai |
2.56% |
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Hong Kong |
2.38% |
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Belgium |
2.13% |
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Japan |
1.96% |
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Canada |
1.79% |
The twelve countries listed above collectively
contributed 82.74 per cent or $ 248.3 m to the total leather garment
exports.
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