Enhancing the Competitiveness of Pakistan’s Leather Industry

Enhancing the Competitiveness of Pakistan’s Leather Industry

The leather goods industry can widely be categorized into five categories; Leather Footwear, Leather Garments, Leather Gloves, Finished Leather and Other Leather Manufactures (bags, wallets, and so on). Pakistan’s leather industry, is the second largest export industry after textiles, contributing around 5.4% to exports in 2020. The government of Pakistan provides support to the leather garment industry by exempting custom duties on imports, enhancing duty drawback rates on leather garments, decreasing regulatory duties and initiating the project of Sialkot Tannery Zone. Automation of customs procedure has also been a welcome step by the industry. However, there is still a lot of work that needs to be done before the industry is able to flourish again.

Major Reasons Identified for the Lack of Global Competitiveness; 

• 1) Lack of Skilled Manpower: Shortage of trained manpower and a lack of vocational and technical training institutes. 

• 2) Lack of Supporting Industries & Heavy Dependence on Imports: Importing almost all inputs and accessories such as zips, linings, buttons, buckles, thread (Nylon and Polyester) increases lead time, costs and, makes the local leather garment uncompetitive. 

• 3) Issues in Preservation of Raw Leather: Lack of awareness about proper preservation techniques, unprofessional or inexperienced butchers, along with interrupted power and gas supply leads to excessive wastage of skins and hides. 

• 4) Lack of Certification: The LWG certification, among others, is vital for the leather industry now. However, lack of these certifications translates into important clients preferring other competitor countries. 

• 5) Need for Improving Country’s Image: Poor image of the country is reflected in the reluctance of buyers to visit Pakistan. 

• 6) Lack of Joint Ventures: JVs in the leather garment industry can help provide technical assistance to tannery and factory workers. Collaboration with foreign leather garment manufacturers would help the domestic industry access new technology & production processes, and improve labor skills, as well as boost exports. 

• 7) High Cost of Doing Business: Due to inconsistent government policies, complicated procedures and lack of transparency, cost of doing business in Pakistan is quite high.

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  Major Recommendations for Enhancing Competitiveness

• 1)Development of Sector Specific Training Programs: In collaboration with the private sector, the government should develop undergraduate specialty training programs in leather garment design, sewing, and finishing including associate’s and bachelor’s degrees. Calling in foreign technicians from time to time will also help the industry grow. 

• 2) Setting up Supporting Industry: The government needs to play the role of a facilitator and incentives should be given for setting up companies for providing accessories and components for the leather and leather garment industry. Preference should be given to JVs or 100% equity by foreign firms who work with global brands. 

• 3) Improving the Leather Value Chain: Awareness on raw skin and hide preservation should be created through media houses, seminars and other such programs. Establishment of centralized slaughterhouses should take place, especially during Eid-ul-Adha where trained professionals should be employed. For this purpose, research and development should be undertaken constantly to keep up with better practices. Most importantly, uninterrupted supply of gas and electricity to such industries should be ensured, especially during the peak season of Eid, which is imperative for smooth processing of hides and skins. 

• 4) Certifications: Since LWG certification is for tanneries, the government should allow subsidies on Individual Treatment Plants installed by tanneries. Furthermore, tannery owners should be incentivized to keep their certifications updated. 

• 5) Building the Country’s Image: Appointed trade facilitators, trade counselors and other stakeholders should be properly trained to arrange more business-to-business meetings with leather garment exporters and foreign buyers. Moreover, participation in trade fairs, attention to detail on presentation of stalls, and effective communication with foreign investors needs to take place.

• 6) Commercial counselors should be encouraged and incentivized to invite potential customers to Pakistani booths in international fairs. 

• 7) Promoting Joint Ventures: Pakistani ambassadors & Trade Counselors of different countries should encourage foreign investors to explore Pakistan for possible JVs and investment opportunities. For JVs to be successful, best governance practices, monitoring, tight control and check and balance exercises are vital. JVs under China Pakistan Economic Corridor (CPEC) should be looked upon. 

• 8) Lowering Cost of Doing Business: The five export-oriented sectors have been promised subsidized energy tariffs that stand at 9 cents/unit electricity and $6.5 per MMBtu for gas. This promise has not been fully honored for all exporters and the government must look into this matter promptly. In addition, these concessionary rates should be continued for the foreseeable future as fuel oil and gas tariffs play a major role in the output costs. 

Source: pbc.org.pk