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1- NATIONAL BANK POISED FOR CONSOLIDATION & GROWTH
2- FOREIGN INVESTMENT IN PAKISTAN
3-
CORPORATE GOVERNANCE
4- PSF INCLUDED IN DTRE SCHEME
5- FOOTWEAR: LOCAL VS IMPORTED
6- CHINESE PRODUCTS: CHALLENGES FOR LOCAL BUSINESSES

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FOOTWEAR: LOCAL VS IMPORTED


China has become the major competitor in the local market

 

By SYED M. ASLAM
June 16 - 22, 2003
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The presence of competitively priced imported footwear and its widespread presence on the shelves of the local stores is costing the government millions in revenue loss, a situation made worse by the massive tax evasion by the local industry, the bulk of which is dependent on the informal sector.

Talking to PAGE, the Managing Director of Bata Pakistan Ltd., J. D. Hearns, expressed concerns that though his company enjoys just 11 per cent share of the footwear market in the country it contributes an disproportionately high 72 per cent share of entire taxes paid by the local footwear industry collectively.

Mr. Hearns, whom the PAGE had an opportunity to talk at the opening ceremony of Bata's new outlet at Bahudurabad, also said that the growing presence of low-priced imported shoes, finding its way into the country through legal but under-invoiced imports as well as finding its way illegally from many countries; particularly China, Taiwan and Iran, are adversely affecting local footwear industry of which Bata is the biggest and the most prominent player.

Bata, the market leader and the biggest shoe maker in the formal sector, is however, seems undeterred by the flow of under-invoiced and downright smuggled counterparts and has plans to expand its operations by remaining adamant not to compromise on quality. It will be opening up a new store at Tariq Road on the 20th of this month in Karachi and a 'very big store' at Liberty Market, Lahore on the 13th. It will also be opening a store in Dubai shortly.

For the year ended December 31, 2002, Bata's sales stood at Rs 2.2 billion including a gross export turnover of Rs 72.40 million. After paying the sales tax, discounts and commissions, the net sales totaled Rs 1.9 billion depicting a decline of 5 per cent over net sales of Rs 2.06 the previous year. The company contributed Rs 325.6 million to the national exchequers including sales tax of Rs 239.8 million, corporate income tax, customs duty and other taxes. It produced a total of 13.7 million pairs of footwear 4.54 million leather, 5.125 million thongs, 2.219 million plastic and 1.842 million rubber and canvas in 2002 which were 2 million less than 15.7 million pairs produced in the previous year. The company also imported 300,000 pairs of fashionable footwear from countries in the Far East to compliment its domestic collection.

 

 

The statistics of the market leader are provided to highlight the contribution made by Bata to the national exchequers in a country where the bulk of the share is enjoyed by the informal sector which fails to fulfil its tax liabilities despite being the greatest beneficiary. According to sources Service, another company in the formal footwear, enjoy about 5 per cent of the entire share of footwear market. The rest of the footwear market is dominated by the informal sector, compromising some 4,000 manufacturing units of all sizes, which pay minimal or no taxes at all.

Abdul Jalil, who has been a Bata distributor for last 70 years and who has inherited it from his father, blamed the low 20 per cent import duty the primary reason for presence of imported shoes in the local markets. "Manufacturers in the formal sector, which almost entirely contributes a lion's share in duties and taxes, are losing market not only to low-priced footwear imports made possible by liberal imports but also to informal taxes which contributes little taxes to the exchequers."

Putting the total value of footwear market in Pakistan at around Rs 20 billion, Abdul Jalil, who is the proprietor of Rasheed Shoe Company, said that while the imports of footwear is liberalised the local traders associated with the business, like himself, are find it increasingly hard to compete with the cheap imports. "The distributors have to pay the sales tax in advance and I myself have already paid Rs 7-8 million on the stocks which I have yet to sell.

"It is getting increasingly difficult for the footwear manufacturers in the organised sector to compete with the imports after contributing so heavy a taxes, and also subjected to heavy taxation at all stages from imports of raw materials to advance payment of sales tax by the distributors. Taxes make up as much as thirty-five per cent of the retail price of any locally manufactured footwear. I myself had paid Rs 7-8 million in sales tax on stocks which will take many months to sell to recover it."

China has not only become the major competitor in the local market as it footwear flows into the country fueled by low import duty and the massive under-invoiced and mis-declared shipments. It has also emerged as the main competitor of Pakistani footwear in the export markets. The situation would have serious repercussions on an already unstable base of footwear exports which has failed to develop despite immense value-addition that it offers to the leather footwear.

Despite the availability of quality tanned leather there have been hardly any serious attempts to increase the share of the value-added leather footwear in the overall leather and related exports. Leather footwear contributes negligibly to the overall leather-related exports trailing far behind exports of tanned leather, used by the importers to primarily used in the manufacture of high-priced value-added footwear, as well as leather garments. The decreasing share of local market by the footwear manufacturers in the formal sector would make the matters even more worse.