Prime minister of Bangladesh, Khaleda Zia, inaugurated the long awaited Dhaka leather city project at a foundation laying ceremony on February 15.

The aim of the US$35 million Savar project is to relocate tanneries from existing overcrowded conditions in Hazaribagh in the centre of Dhaka to a new site near Savar, 25 kilometres north east of the city, thus greatly reducing pollution in the capital. Companies based in Chittagong and Jessore will also be relocated to the new complex.

The Savar site comprises 200 acres of land on the banks of the river Dhaleswari. It will be home to 95 industrial units and an estimated 100,000 jobs. A further 200 acres will be set aside for foreign investment in the leather industry.

There are several conflicting reports as to the completion date of the scheme, with estimates ranging from 5 to 10 years time. This is hardly surprising because the proposed development has been hanging around for years without real action taking place. The project will be implemented by the Bangladesh Small and Cottage Industries Corporation (BSCIC).

Facilities will include a modern effluent treatment plant, at a cost of approximately US$12 million. According to Zia, ‘there will be no health risks for workers and employees and their workplace will come as a great relief from the serious health hazards they are exposed to in the current outmoded tanneries.’

At the foundation laying ceremony, the prime minister sought cooperation from all the parties involved to maintain a stable and peaceful atmosphere in the interest of the country and declared the project a sign of the acceleration of Bangladesh’s economy. The prime minister also predicted a rise in export earnings once the new leather city is up and running.

However the project is rumoured to have already run into difficulty as tannery owners and the Bangladesh tanneries association have made various demands which the government is unable to meet. Unresolved issues include compensation for relocated workers, a health insurance scheme, risk adjustment policy for employees, and a code of conduct for tanners.

The new facility, with its common effluent treatment plant, is desperately needed as the area around Hazaribagh is densely populated. Over the past 50 years the leather industry has become a grave threat to the environment and health of the local community.

It is estimated that 186 of the 220 tanneries in Bangladesh are crammed into this 60 acre site. (NB: In compiling this report, each source has given conflicting information. Some reports claim that the decline of the industry is far more severe, with just 45 out of 213 tanneries now operating while the others have ‘turned sick’.)

Approximately 21,000 cubic metres of untreated toxic wastes are discharged into the canals and directly into the Buriganga River each day from the tanneries, making it difficult for aquatic life to survive.

Raw hides and skins

The tanneries concentrated in the Hazaribagh district have a capacity to process 94% of the total supply of hides and skins in Bangladesh. Many mechanised tanneries cannot operate at full capacity due to lack of funds.

The country’s leather industry also suffers from a lack of capital, high interest rates and absence of effective government support. One suggestion for improvement is that the government provide loans and establish mechanised abattoirs for scientific slaughtering and flaying to reduce post mortem defects in hides and skins.

During the festival of Eid ul Azha, 45% of Bangladesh’s annual quota of hides are produced. Money earned from the sale of sacrificial skins is distributed to the poor. About 5 billion taka is turned over during the season, a third of the country’s annual earnings. However, problems in the hide sector are exacerbated by gang members extorting protection money from traders. Another major hindrance is the smuggling of large volumes of hides across the border at various points.

Until 2004, 20-30% of Bangladesh’s hides and skins were smuggled into India in this way. Lack of funding has led to a boom in smuggling. Smugglers are favoured by retailers as wholesalers often lack sufficient funds to pay for consignments. Traders believe huge numbers of hides are being smuggled out of the country not only because of high prices given by the smugglers but also due to huge outstanding debts owed by tannery owners to the raw hide traders.

More recently, the government has taken action to prevent this and members of the Bangladesh Tanners’ Association and the Bangladesh Finished Leather and Leather Goods Association (BFLLFEA) claim that, although the smuggling continues, law enforcement was more successful in 2004. However, local cartels are apparently still keeping prices low, meaning small and seasonal traders are facing losses, while larger traders, tanners and exporters are reportedly making huge profits.

Reports suggest that low prices have led to hundreds of thousands of hides lying piled up in a semi-processed or poorly preserved condition in collection centres in the border districts. It is feared that these hides may be sold to Marwaris (Indian money lenders) for a slightly increased price and valuable merchandise will be smuggled out of the country meaning a loss of potential earning for Bangladesh.

There is currently no scientific preservation and processing system. Improper flaying of hides and skins cause US$150 million in losses in the leather sector per year. There are no fully mechanised slaughterhouses in Bangladesh and only 12-15% of slaughter takes place in semi mechanised abattoirs.

The remaining slaughter is carried out outside slaughterhouses by unskilled personnel. This results in irregular shape and knife cuts in hides which reduce the value of the leather. About 20% of raw materials are damaged due to lack of knowledge of preservation techniques. Delays in collection from rural areas to reaching the tanneries for processing exacerbates this problem.

Extortion and smuggling caused a rapid decline in the tanning sector in Chittagong, where the number of tanneries has fallen to 18. According to Tipu Sultan, chairman of BFLLFEA, within the next three months, the government will declare a leather policy designed to strengthen the industry and enable it to survive the tough competition from India and Pakistan.

A ban on exports of wet-blue has been in place for over a decade in Bangladesh, paving the way for the development of an industry focused on adding value. Although a number of export orientated businesses have gradually been established across the country, industrialists believe that this development is impeded by a lack of hides and skins.

The prime minister has stated that government policy has given priority to small, medium and cottage industries as well as export-orientated and import substituting industries. She urged the entrepreneurs of this sector to concentrate on enhancing the quality of products and broadening the range of design offered. Incentives have been provided for foreign investment.

A further measure suggested by the prime minister discouraged the establishment of offices, hospitals, clinics, educational institutions and commercial ventures in residential areas of those cities violating environmental rules and regulations. This measure would encourage protection of the environment and contribute to the controlled development of cities.

Export earnings

Hides are an important resource in Bangladesh, representing the country’s third largest foreign exchange earner. Reports vary widely on the amount of export revenue the leather industry generates. In 1973-74 exports totalled Tk1,140 million. The figure is now estimated to have grown to between US$210-320 million. 70% of exports are in the form of crust leather, 20% finished leather and 5% leather manufactured goods, totalling a volume of 20 million sq ft.

Leather is exported mostly to European countries such as Italy, Germany, France and Romania. Japan, China and Hong Kong are the major buyers in Asia. Industrialists believe that with the necessary infrastructural developments this figure could be increased by up to four fold.

Tanneries depend on imported equipment and chemicals which implies large import levies. Available capital is vital to maintain this supply.

Short term solutions

* Closure of the border with India until all the hides have been collected by tanneries in Dhaka or other processing centres within Bangladesh

* Better financing/funding to tanners and traders which would enable them to buy the stockpiled skins quickly.

* The government should establish measures to penalise tanners and traders who join cartels to keep prices low

* A task force should be set up to preserve raw hides in all the collection centres under the supervision of the Upazila Nirbahi officers and members of local Parishads.

In the longer term, tanneries could be set up in advantageous locations in the bordering areas and a comprehensive marketing system introduced for buying and selling hides which would, therefore, avoid stockpiling in the larger cities. The establishment of special training institutes on leather technology would create a source of skilled labour.

The various reports circulating differ greatly in their view of the current state of the industry. One states that tanners have had a good 2004 and expects a surge in the exports of leathergoods and finished leather products. Reports say that good weather conditions, improved law and order and availability of hides have enabled tanners to buy a large volume of hides. However, prices of leather chemicals have risen by 25% on the international market while local salt prices rose by a third, meaning smaller than expected profits.

According to Jalal Uddin Ahmed, assistant general manager, BSCIC, Dhaka, the Bangladesh leather industry suffers from a lack of quality control and marketing procedure. There is little innovation, minimal risk taking and potential new markets are not being explored. A dedicated professional marketing organisation is necessary.

Existing public bodies such as the Export Promotion Bureau, Board of Investment, Customs, and the Leather College are doing their best. The International Trade Centre (ITC) is currently investigating the possibility of setting up a footwear design and development centre in Bangladesh.

The Leather Sector Business Promotion Council was formed as part of the commerce ministry. Properly managed, this would assist tanners in increasing their competitivity in the international market. Ahmed echoed the prime minister’s call for the sector to work together to develop existing infrastructure and assist each other in purchasing, production and marketing. Ahmed believes that factors holding the Bangladesh leather industry back include: poor industrial infrastructure, back dated management practice, inadequate marketing and technological drawbacks. His suggestions include:

* Setting up a central effluent treatment plant for each tannery city

* Tanneries should strive to attain optimum quality to achieve TQM Total Quality Management leading to ISO standardisation

* Improve quality and quantity of output through transfer of technology and development

* Product diversification.