According to the recently released leather export numbers by the Pakistan Bureau of Statistics (PBS) leather exports show lacklustre growth for the 2MFY19 period. Leather gloves and leather footwear registered growth of 1.8 and 12 percent respectively. However, leather garments which account for the bulk of leather exports went down by 7 percent on a year-on-year basis.
The monthly numbers are much more optimistic where leather gloves and leather garments recorded growth of 40 and 20 percent respectively. Growth has mostly been volume based whereas prices have seen a downward trend. This could be explained by the depreciation of the rupee whereas the rebates awarded under the government incentive package might also have played a part in boosting quantities.
The high cost of production has hampered growth in leather exports according to industry stakeholders who have called for bringing down the electricity and gas tariffs at par with regional competitors including Bangladesh, Vietnam and India. However, the government’s decision to exempt zero-rated sectors including textile, leather, sports and surgical goods from the increase in gas prices to lower their cost of production will be beneficial for the sector going forward.
Smuggling of live animals to Afghanistan has also created problems and puts pressure on supply of hides and skins to leather manufacturers. Last year, large quantities of hides and skins were damaged due to inadequate preservation mechanisms, increasing reliance on imported raw material. Note that the Eid season accounts for around 40 percent of the total raw material accumulated from local sources.
There has also been a dearth of investment in balancing, modernisation and replacement (BMR) by most local players which have argued against the imposition of 4 percent custom duty as well as 17 percent sales tax on import of machinery. This has resulted in is only three leather manufacturers in Pakistan being members of the international Leather Working Group (LWG),while India and China have 88 and 76 respectively. Brands and retailers are increasingly sourcing orders from only those manufacturers which follow guide-lines of the LWG.
Falling leather prices internationally over the last three to four years has also forced leather exporters to realise large losses on their inventory stockpiles which has hampered any fresh investment or expansion.