The leather sector continued its disappointing performance during the year. According to the latest Pakistan Economic Survey, leather product manufacturing in the Large Scale Manufacturing (LSM) index decreased by 7.91 percent in Jul-Feb FY18 as opposed to 19.6 percent in the same period last year.
Even though, the fall has somewhat been contained this year, the sector continues to face an existential crisis. Various factors have been at play here as Pakistan’s leather exports have struggled to compete in the face increased pressure from competitors.
An overview of the woes troubling leather manufacturing and exports in the country is first warranted following which these issues will be more closely analysed in this space in the weeks to come.
As consumer preferences have evolved, environmentally compliant products have become a major concern for the majority of leather buyers. To address this need, a Leather Working Group (LWG) was formed at the international level, to maintain and promote environmental compliance in production of leather commodities, which are to be subsequently traded. The State Bank of Pakistan in its recently release quarterly report, points out that only three manufacturers in Pakistan are members of the LWG. Disappointing numbers to say the least, especially when compared to India and China that have 88 and 76 manufacturers as part of the LWG.
It goes without saying that an ever increasing proportion of retailers and brands are relying on the LWG, which means the number of compliant LWG manufacturers in Pakistan needs to be raised on a war-footing basis. Other technical issues include laboratory testing to ensure quality of the products. According to the SBP, the government removed the 75 percent rebate in the policy for 2012-15, which puts stress on already low margins. The high cost of doing business has virtually affected every manufacturing in the country with textile and leather taking a particularly heavy toll.
Then there is the lack of diversification of existing product ranges over the years. Couple this with the rising cost of production and declining access to consumer markets for value added leather goods and it’s a perfect recipe for disaster.
This has resulted in an unfortunate outcome whereby Pakistani leather manufacturers are relying on exporting raw materials and intermediate items to competitor countries for further value addition. According to the SBP report, trade deals in international leather exhibitions last years done by Pakistani exporters’ mainly involved selling material for further processing involving production of shoes, garments and handbags in China. Other factors, which have not crept up recently but have plagued the leather industry for some time now, include the inefficient leather supply chain, the dearth of quality labour as well as lack of modern technology. More on all these factors in the coming weeks.
Comments
Comments are closed.