The sudden change of fashions in Europe from textiles to leather footwear, goods and garments and a buying spree by the USA have given a boost to Pakistan’s leather industry.

This is the opinion of Anjum Zafar, managing director of Eastern Leather (Pvt) Ltd and former chairman of northern zone of the Pakistan Tanners Association.

However, he pointed out that although Euro currency has gained strength European countries prefer to support East European countries as compared to Indian sub-continent markets.

At present around 60% of Pakistan bovine leather exports are to the Far East and the remaining 40% to EC countries and the USA.

Anjum Zafar said that Pakistan’s leather industry is facing tough competition from products coming from India and Bangladesh as well. He said: ‘We have a high cost of production due to the 12% devaluation of the Pakistan currency vis a vis the dollar, a 20-30% increase in the prices of raw skins during the last quarter and up to 15% increases in the cost of utilities such as petrol, gas and electricity. Still, he added, Pakistan has an edge over the neighbouring products due to better grai n and quality of the finished leather.

Anjum Zafar pointed out that domestic livestock production is not keeping pace with the growth of industry. Secondly, the quality of raw material is being down graded through an increasing incidence of diseases and no steps are being taken by the Animal Husbandry Department to check and control these diseases and improve the raw material. These could fetch much more in foreign exchange since Pakistan’s raw material has a very fine grain and is in good demand if it is disease free.

He said that following the Pakistan Government decision to allow the export of raw skins with a 20% export duty due to WTO regulations and government permission to import finished leather freely on demand by garments and leathergoods producers were not healthy signs for the finished leather tanning industry.

With the ever growing cost of production, cash liquidity of the industry depends mostly on the refund of duty drawbacks and sales tax from the customs and sales tax authorities. The Ministry of Finance wants to put more restrictions on the refund. There is currently a tussle between the ministries of commerce and finance on this issue.

Exporters are demanding that the refund of sales tax should be made not only for the goods exported but for all goods purchased by the manufacturer/exporter as was the practice until June 20, 2000.

During the period July – December 2000, the exports of leather manufactured goods were $245 million while the export of finished leather was of $99 million against exports of leather products of $122.4 million and leather of $78 million during the same period (July – December 1999. Thus there was a 30% increase in exports.

The export data of the last four years confirm that the export of finished leather has been on decline from $239 million in 1996-97 to $175 million 1999 – 2000. Similarly exports of leather garments have declined from $338 million in 1996-97 to $300 million in 1999-2000.

The leather sector is basically an export orientated sector. The major buyers of Pakistani leather and leather products are Ital,. Spain, Portugal, South Korea, Germany, France, UK, USA, Dubai etc.

In order to boost exports from the leather sector, the Ministry of Commerce has advised the Small & Medium Enterprises Development Authority (SMEDA) and the Export Promotion Bureau to develop outlines for Leather Vision 2005 and to present an action plan in consultation with the private sector.

Some incentives are to be provided by the government to the leather industry:

a)Notification regarding withdrawal of the 15% import duty on finished leather has been issued by the Central Board of Revenue

b) Central Board of Revenue (CBR) has issued instructions to its Collectors of Customs that accessories for garments (including textile, leather products and footwear) shall be cleared within 24 hours of import

c) Under enlarged scope of SRO 818/1/89, the case for import of ‘unit soles with heels, soles and heels for manufacturing of footwear’ is being processed

d) The Ministry of Commerce is also examining the feasibility of duty free imports of accessories and would take decisions aimed at boosting leather secto r exports

e) A high level committee is already working on the issues related to a regulatory framework with a view to avoid uncalled inspections/visits by various government functionaries. The committee is also working on proposing changes in federal/ provincial labour laws as these were out-dated

f) The Export Promotion Bureau is not only extending all out assistance in facilitating/sponsoring visits of delegations/ holding of exhibitions abroad as well as within the country but is also extending funds for various training institutes such as the National Institute of Leather Technology etc

g) In order to encourage manufacturers/exporters to obtain ISO 9001/14000 Certification for sustained export growth, the Ministry of Commerce, in collaboration with Ministry of Science & Technology, has announced an incentive of Rs200,000. The scheme has now been extended to June 2001

h) Most of the leading tanneries have already obtained ISO certification. Of these only 15 to 20 companies have been certified for ISO 14000 while the remaining have been certified for ISO 9000

The EPB is also planning to establish a leather footwear park/training facility at Charsadda for which the EDF Board has already sanctioned Rs14 million.

The Export Promotion Bureau is working on developing a national Leather Web Page as a part of launching a national marketing compaign which would facilitate an investor friendly environment for promoting the exports particularly that of the leather sector which is highly labour intensive.

The average consumption of chemicals by the leather industries is estimated to be around 30,000 tons costing about Rs3,000 million rupees ($50 million) out of which about 15 to 20,000 tons of chemicals are imported, mainly from Taiwan, China and Europe.

This was stated by Abrar Ahmad, chief executive of Reso-Chem, Lahore, a subsidiary of the Shafi Group of Tanneries, who said that they are the biggest producers of chemicals.

They are producing 2,000 tons of chemicals with imported petrochemicals, mainly from Taiwan and China. Their production range is used from wet-blue to finished leather and their share of production is about 6.5% of the industry’s requirements for chemicals.

Another Pakistani factory is Gulf Chemicals, Korangi, who are owned by Shahzad Riaz. Two overseas companies who are also producing chemicals locally as well as importing are Clairant & BASF.

At present, the country produces 7.4 million hides and 36.2 million skins with an average growth rate of 2.92% and 1.47% respectively.

With a 2% average annual growth, the sector has to import additional hides and skins to keep the tanneries running. Local availability of hides and skins and imports during the past nine years are shown in the tables.

Pakistan has begun importing Russian wet salted hides with thicknesses of 3 to 3.4mm for the shoe industry which wants to produce shoes without linings, according to S M Naeem, managing director of Siddiq Leather Works, specialists in bovine leather. Pakistan produces cow leather with a maximum thickness of 1.24mm.

S M Naeem said Pakistan is importing European cow leather for upholstery but also produces upholstery with buffalo leather which he believes has a better thickness as compared with cow leather.

In a major move to accelerate the inflow of foreign exchange in the face of dwindling foreign currency reserves, the State Bank has given a four month concession to all exporters including leather exporters. If they reclaim their overdue proceeds between January 15 and April 14 they will be entitled to the exchange rate prevailing on the date of realisation.

In a bid to double the exports of leather underthe 2005 vision programme the Central Board of Revenue (Minister of Finance) has exempted from sales tax the import of various types of raw and pickled hides, wet-blue and skins, finished leather and accessories, components and trimmings for leather articles for exporters only. The exemption is to clear the backlog exports of goods since November 2000.

21st Pakistan Leather Show 2001

Speaking at the inaugural function of the 21st Pakistan Leather Show, Pakistan’s Commerce Minister Abdul Razzak Dawood urged leather exporters to face the challenges of the highly competitive market. The Leather Show was organised jointly by the Pakistan Tanners Association (PTA) and Export Promotion Bureau (EPB).

The minister said that the EPB had helped the leather sector in providing financial support to the tune of Rs281 million; Rs49 million for the National Institute of Leather Technology, Rs80 million for the Kasur tanneries pollution control project, Rs33 million for the Leather Product Development Centre, Sialkot, and Rs119 million for the effluent treatment plant at Korangi.

With regard to the PTA complaint about under invoicing by importers of raw and wet-blue hides, he said they could consider forming a committee to look into the matter but they could not compel raw and wet-blue exporters to register with the PTA because there was a similar issue relating to rice exporters which is already under litigation.

As to the low livestock population and disease problems in animals affecting the value of hides and skins, the Minister said the PTA should formulate some proposals. The Ministry of Commerce and Ministry of Food, Agriculture & Livestock (MINFAL) would co-operate and would be asked to create mass awareness about animal health through electronic and print media.

The Commerce Minister expressed his concern about the industry’s poor performance in footwear and leathergoods and said that 50% of the world market goes to footwear whereas Pakistan’s share stands at only 5%.

Earlier Farrukh H Shaikh, chairman of the Pakistan Tanners Association, said that taking advantage of the present demand and fashion of leather garments, manufacturers had accepted the challenge and used this opportunity. As a result exports of leather garments had increased to $245 million for July to December 2000, compared with $183 million in the period July to December 1999, resulting in an increase of about 34%.

He said that according to some estimates livestock is growing at a rate of inly 2% which is a cause for alarm and concern. The country needs to tackle the issue of increasing the livestock population unlike controlling the human population.

Another issue which needs to be taken up is the spread of disease among cattle which is not only creating a shortage but also reducing the value of the hides and skins. It is estimated that the country is losing around 30% in value due to diseases and lack of knowledge and awareness.

Farrukh said major US corporations have drawn up strict rules for not doing business with exporters who do not comply with their social compliance requirements. Therefore,he said, it is essential for the leather industry to look at this issue seriously. There was a need for compliance before it causes harm to domestic business.

Tannery waste projects

Tannery waste is a major problem with the worst affected areas being Kasur and Sialkot in Punjab. Other affected areas are industrial areas in Lahore, Multan, Sahiwal etc.

The Commissioner of Multan Division, Najeebullah Malik, presiding over a meeting of the Environmental Protection Committee recently, expressed deep concern over the tanneries’ waste polluting underground water and the environment. He said that the whole city would turn into a pond of sewerage water within 30 years if the permanent solution to the menance is not found.

The Export Promotion Bureau has allocated Rs80 million for the Kasur tanneries pollution control project with chrome recovery. Kasur has a cluster of about 200 small and medium size tanneries.

In Sialkot, a project for cleaner production in tanneries with a capital cost of Rs23.3 million for over 200 tanneries has been initiated. The funds are to be provided by the Export Promotion Bureau out of the Export Development Fund and co-financed by NORAD to the tune of 12.5 million Norwegian krone in collaboration with the Pakistan Glove Manufacturers & Exporters Association, Sialkot. Potential sites have been identified and the technical suitability study of one site had been done. The land acquisition process is in hand.

The biggest treatment plant has been planned for Sector 7A Korangi Industrial Area, Karachi, which houses the largest cluster of medium and large tanneries. Gulzar Firoz, chairman of the environmental sub committee of the PTA Southern Zone, who is also a member of Federation of Pakistan Chambers of Commerce & Industry’s (Apex body) Environmental Protection Committee, told Leather International: ‘We have decided to go for it without the Dutch aid which was linked with conditions not acceptable to us.

He said that the PTA made extensive efforts to secure the foreign grant financing envisaged for the project. It was a lengthy and cumbersome process spread over several years. However, the option had to be finally abandoned when it became clear that it is not workable.

The contract for the civil engineering work has been awarded to Engineering Construction International, Karachi, at a cost of Rs187 million (about $3 million) It is hoped that construction will be completed within two years.

The design and technology for the treatment plant has been taken from Kaskonig, a Dutch firm which will supervise the construction and set up the treatment plant.

He said it has been decided to construct the CETP following a two-phased approach. Initially a plant with the total treatment capacity of around 43,000 m³ of wastewater will be built at a total cost of about Rs500 million. The plant will have capacity to treat 16,500 m³ of tannery effluent and 26,500 m³ of municipal sewage. The design of the plant allows for an increase in capacity on a modular basis to handle 27,500 m³ of tannery effluent and 44,000 m³ of municipal sewage in the future.

The project also envisages construction of chromium recovery plants within tanneries. Already three such plants have been operating in tanneries in Karachi for the past four years and their performance has been satisfactory. Installation of chromium recovery plants is an economically viable proposition as the plant pays back its entire cost in one or two years of operation.

Even at the reduced capacity it will be the largest industrial wastewater treatment plant in the country. The project includes construction of over 12 km of effluent collection and conveyance which will bring tannery effluent to the CETP from all the tanneries located in the tannery cluster. It is expected that with the completion of the project, the pollution problems associated with the Korangi tanneries will be solved. Additionally, the project will also treat a very large volume of municipal sewage presently being discharged into the Malir River without any treatment whatsoever.

The Korangi CETP project is widely regarded as a model project for the industry. It has received all the assistance and support from concerned quarters. The Sindh Environmental Protection Agency (SEPA) in particular has played a very commendable role in this regard and has supported the project all along since its inception. It is hoped that upon its completion the project will set a practical example for others to follow.