Finances impede tannery cluster progress

31 October 2008

The main obstacles to relocating tanneries from Hazaribagh to the Savar cluster are tanners' demands for compensation and the lack of a donor agency to finance the construction of a CETP. These two matters need to be resolved urgently and effectively.M Fakhrul Alam reports

Introduction The development of Bangladesh's leather industries has reached a zenith and it has been showing great potential in value added exports, particularly in the leather footwear and leathergoods sectors. Many leather footwear and accessories manufacturers in Taiwan, Japan, Hong Kong, among others, are establishing companies in Bangladesh as joint venture or even as 100% foreign investment. The price of locally available raw hides and skins is very high and for this reason 50% of the tanneries' annual production capacity remains idle. Therefore, establishment of duty free imports on raw hides, wet-blue and wet-white leather is advocated by the sector to enable businessmen to set up a wholesale raw hide market in the country similar to that which operates in Chennai. The current minister (of the caretaker government) appears to be concerned about this but it remains to be seen to what extent this concern is reflected in the annual budget for 2008-09. Construction of the new leather cluster at Savar, 20 km from the city centre, has been on-going since February 15, 2005, but only 40% of construction works have been completed so far. The site of the promised CETP remains vacant. At present the main obstacle preventing the relocation of the tanneries from Hazaribagh to the cluster is the demand by tannery owners for compensation from the government plus the lack of a donor agency to finance the construction of a communal effluent treatment plant. The political turmoil that Bangladesh has been experiencing continues to affect exports, imports and investments. A long awaited general election, scheduled for December, which would see the current caretaker government replaced, may provide the stability that industries such as the leather sector desperately need. Joint ventures Apex Tannery Group, Bangladesh's biggest leather and leather footwear producer, currently add value to the tune of approximately 95% as they export footwear processed from raw, but many tanneries in Hazaribagh export only crust leather so do not profit in terms of value addition. Taiwanese entrepreneurs who produced leather footwear and leathergoods in China are seeking to set up such industries in Bangladesh. This is due to the antidumping duties imposed in the international market and the fact that labour costs in China are predicted to double by 2010. Cheap manpower and availability of plentiful raw materials are said to be the main incentives for these joint ventures. So far twelve companies have been established as joint ventures. The largest leather footwear jv company is Apex-Adelche Footwear Industries Ltd. If the trend in the manufacture of leather footwear and leathergoods is to continue, local sources say the government should take the following measures: a) There must be long lasting political stability in the country b) Improve raw hide quality through the establishment of special cold stores in six locations around the country c) Duty free imports of raw, wet-blue and wet-white for all d) The new leather city should be declared a special export processing zone and expanded to encompass an additional 300 acres of land for shoes, leathergoods and leather chemical manufacturing units e) Establishment of an international standard CETP in the new Leather City Pollution management In 1980, Unido undertook a large project covering seven Asian countries including Bangladesh, for the control of tannery pollution. While India, Sri Lanka, Indonesia, Pakistan, Nepal and China all built ETPs and CETPs, Bangladesh has not been able to do so, reportedly because of the ‘bureaucratic attitude' among policymakers in the Ministry of Planning. In 2005, at the request of the Bangladesh Government, Unido again drew up a project for a central effluent treatment plant containing a solid waste dumping yard (SDY) and central chrome recovery unit (CCRU). Unido requested financial assistance from the Swedish International Development Agency (SIDA). The daily processing capacity of the CETP was fixed to 21,600m3. According to the project file, the total cost was US$785.80 million. SIDA agreed to finance the project and the SIDA team visited Bangladesh four times. However, Ministry officials submitted the project to the cabinet purchase committee for approval on September 9, 2007, as SIDA funding was being delayed. It was approved three days later. The Ministry put the work out to tender and recommended that the contract be given to a Singapore based Bangladeshi company WB - DCL. As a result, SIDA accused the Ministry of Industries of attempting to give the work to an unqualified company by publishing notice of the tender in a single newspaper in Singapore and they refused to finance the project. Furthermore, they said the company was not qualified to set up such a large scale CETP to international standard. The government subsequently set up an enquiry committee to see if there was any violation or want of transparency in awarding the tender, resulting in cancellation of the contract. The government has tried to involve SIDA again in financing the project. On a more positive note, the Bangladesh leather service centre is a project funded by the Italian government and implemented by the International Trade Centre (ITC) in order to train workers from various leather products companies. The service centre has been in operation since 2006. So far seventy people have been trained in courses lasting, on average, 45 days. Latest news Testing Bangladesh is to launch a global standard testing laboratory to test and certify exportable leather and footwear products to meet the demands of international buyers. Bangladesh will become a member of the International Laboratory Accreditation Cooperation (ILAC) as part of the process. Bangladeshi leather and footwear products manufacturers currently have to collect their testing certificates from Hong Kong, Italy, and Germany. Work on the leather testing laboratory, located at BCLT, Hazaribagh, is almost complete and is expected to be inaugurated on time. The lab was mainly financed by the Bangladesh government with some assistance from the Italian government. Syed Nasim Manzur, managing director of the country's leading footwear manufacturing and exporting company Apex Adelchi Footwear, said the nation has an urgent need for testing facilities. He added that exports of leathergoods and footwear would definitely increase as the local exporters become able to receive international standard certificates from local authorities. A base for global footwear companies Three leading footwear manufacturers from Taiwan: Genfort Shoes, Xin Chang Shoe and Super Protective, have signed an agreement with Bangladesh to relocate their units from China and establish them in the country. The companies will invest approximately US$118 million in the new facilities. Motives for the move to Bangladesh include the abundance of cheap and skilled labour as well as the relatively weak currency. In addition, a Korean company are planning to establish the world's largest footwear factory in Bangladesh. Expected to have 72 assembly lines, the factory will employ 15,000 people when completed and will produce more than 100,000 pairs of shoes per day, or 30 million pairs a year, for export. Work on the first industrial unit at the Korean Export Processing Zone (KEPZ) is expected to begin shortly and will involve an investment of US$70-100 million from Korean company Youngone Corporation, owners of the KEPZ. The corporation plan to install a further 500 industrial units in the zone. According to company chairman, Kihak Sung, a vast amount of infrastructure work needs to be completed prior to development of the site, including a workable bridge connection and steady supply of electricity and gas as the region has been experiencing acute power shortages in the last few years. The Youngone Group, who began operations in Bangladesh in 1978 and now achieve exports of around $300 million a year, recently set up a shoe factory in the Chittagong EPZ. Government policy The owners of leather and footwear companies in the Brahmanbaria and Kishoreganj districts have sought government aid to boost their trade in the region. The footwear industry has thrived in the two districts since the 1930s and today the demand for their products in local markets is on the rise. Presently, about 10,000 shoe factories are operating in the municipalities and seven unions of Bhairab Upazila and six unions of Brahmanbaria Sadar Upazila, employing 70,000 people. However, local entrepreneurs say they have been unable to expand their markets due to lack of working capital, necessary government sponsorship and marketing facilities. The owner of a local footwear factory said they could do better if the government and NGOs provided them with bank loans on flexible terms, and helped them procure required raw materials and other ingredients to produce footwear items.  In May, the government appointed a committee, headed by the industries secretary, to look into the problems and potential of the export-orientated leather sector. Representatives of the sector demanded that the government should allow imports of raw hides free of duty and value added tax to meet an impending shortfall of the raw hides required for catering to the needs of the local industry. They argued that the country's growing leather industry would face a raw materials crisis once the planned Leather Industry Estate at Savar was fully operational and enhanced the sector's capacity. The industry leaders, however, told the adviser that the progress in setting up of the estate was very slow.

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