Export package: What's in it for leather?

With so much buzz surrounding textile and the latest package, its easy to forget that it wasnt for textile only; the Rs180 billion package is actually for all five export-oriented sectors: textile, leather, surgical goods, carpets, and sports goods. For now, lets look at the second-biggest earner in this list leather.

Leather and its related products (including footwear) account for nearly five percent of Pakistans annual exports (as of FY16). Much like everything else, this industry has also been on a continuous decline over the past several years for all the same reasons a higher cost of production; lack of investment and incentives; and competition from China, India, and Bangladesh.

The graph illustrates how every item has been on a decline for the past three years. As for the most recent data (5MFY17), only leather footwear seems to have shown an improvement (up 5.4% YoY). Everything else is going negative still, in both quantity and dollar terms.

Meanwhile, regional competitors are hammering us. An industry source said that Pakistans share in global leather trade has dropped below one percent, and Bangladesh has risen to our level of exports (around $1 billion) in just four years starting from around half that much. Moreover, according to certain media reports, the governments of China and India give duty drawbacks of 8.5 percent and 9.5 percent, respectively.

Still, our package might bring some good news. Much like cotton is now zero-duty for textile industry, so have raw hides become duty free for the leather industry. A source in the PLGMEA told BR Research that roughly 70 percent of leather is sourced locally, while 30 percent is imported. Similarly, leather garments will be getting a seven percent rebate. This could ease the pressure, provided the disbursements are swift and do not lead to another liquidity crisis.

However, it is believed that 85-87 percent of the cash support of the package will be going to the textile industry owing to its sheer size. That leaves very little for the remaining four subsectors to divide amongst themselves. Moreover, playing tit for tat, India is also expected to announce an incentive package for its leather industry. Time will tell how all this plays out.