Why Bangladesh continues leather import despite having abundance of it

Infograph: TBS

Despite having an abundance of rawhide, Bangladeshi exporters spend Tk1,000 crore (approximately $100 million) annually to import finished leather certified by the Leather Working Group (LWG), putting pressure on the country's depleting foreign exchange reserves, which dropped from $48 billion in August 2021 to around $20 billion now.

Industry experts point to domestic tanneries as the root cause of this challenge, citing their current inability to meet global standards. This shortfall is primarily attributed to the lack of fully functional central effluent treatment plant (CETP) at Savar Tannery Industrial Estate.

Mohammed Mizanur Rahman, director at the Institute of Leather Engineering and Technology, University of Dhaka, told TBS, "Approximately 3.5% of the global leather industry's demand for raw materials is met from Bangladesh. However, the country's export of leather and leather products constitutes only 0.7% of the total global export."

"Even with the ready availability of raw materials, their utilisation is hindered by the absence of LWG certification. As a result, there is no avenue for increasing exports. To boost the leather industry's exports, factories must align with global standards," he added.

Sonjoy Saha, project director at Bangladesh Shoe City Ltd, established in a shoe industrial park in Gazipur, told The Business Standard, "When accepting orders for leather products from major global brands, they stipulate that the products must be made using leather from LWG-certified companies."

"Our company, Five-R Footwear Ltd, needs LWG-certified finished leather to manufacture exportable products. Only a few companies in the country hold LWG certification, and at times, they are unable to supply finished leather. As a result, we have to import leather from LWG-certified companies. We require 5-10 lakh square feet of finished leather every year," he added.

According to a study by the Bangladesh Investment Development Authority (Bida), leather and footwear manufacturers mostly refrain from sourcing raw materials from local companies due to the absence of a central effluent treatment plant (CETP) at Savar Tannery Industrial Estate.

As a result, Bangladesh is unable to fully harness its export potential while simultaneously expending a significant amount of foreign currency to procure raw materials from overseas sources, it added.

The country's export earnings from the leather sector were $1,223.62 million in FY23, according to the Export Promotion Bureau.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said Bangladesh has huge export potential for the export of leather and footwear because of its abundance of raw materials - rawhide.

"But we could not avail it because of the absence of a central effluent treatment plant. This is a complete failure of BSCIC (Bangladesh Small and Cottage Industries Corporation)," Syed Mahbub told The Business Standard on Monday.

According to the LWG website, in Bangladesh, only six companies got their certification, including Apex Footwear, one of the market leaders in the country.

The other LWG certification holders are ABC Leather, Riff Leather, SAF Industries, Simon Tanning Inc (Bangladesh), and Superex Leather Limited.

Except for Simon Tanning, all of the companies' factories are located outside of the much-discussed Savar Tannery Industrial Estate.

According to the Bida report, there are 139 LWG-certified companies in India, 103 in China, 68 in Italy, 60 in Brazil, 24 in Taiwan, 17 in Spain, and 16 each in South Korea and Turkey, and 14 in Vietnam.

Syed Nasim Manzur, managing director of Apex Footwear and president of the Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh, said all developed countries, including the US, Japan and the EU, demand transparent and sustainable supply chains.

"This requires high levels of compliance, such as supply chain security audits, due diligence audits, the implementation of the Consumer Product Safety Commission (CPSC), the NIRAPON Fire Safety Standard, and LWG certification," he added.

Global leather market

According to data from Fortune Business Insights, an international research institution, the global leather goods market was valued at $440.64 billion in 2022. It is projected to grow to $738.61 billion by 2030."

Bida found problems in Savar CETP

In 2003, the Industries Ministry initiated the Tannery Industrial Estate project at a cost of Tk1,079 crore. A total of 199 acres of land were acquired at Hemayetpur in Savar for the project, and 154 tanneries were allotted plots.

The project was undertaken by the government to develop a compliant leather industrial city with modern facilities to attract foreign investment and increase exports by preventing environmental pollution.

Despite significant spending, the construction of a common chrome recovery unit, essential for preventing environmental pollution, remains incomplete. Additionally, due to a lack of resource generation through solid waste management, the project has not obtained permission from the Department of Environment. Consequently, companies in this estate are unable to obtain LWG certification.

The CETP is yet to be fully operational, and there is no permanent arrangement for a solid waste disposal site or dumping yard.

According to the Bida report, tanneries were relocated from Hazaribagh to the Dhaka Tannery Industrial Estate under the Bangladesh Small and Cottage Industries Corporation (BSCIC) in 2017, following the High Court's directive.

Of the 162 tanneries allocated to this industrial estate, 140 are currently in production, producing wet blue, crust, and finished leather.

Bida's report revealed that the tanneries are unable to obtain the internationally recognised LWG certificate, preventing them from exporting their leather to Europe or the US or selling it to well-known brands. As a result, they are compelled to sell at a considerably lower price to buyers in China or other countries.

Industry insiders say that as a result, local tanneries are selling leather to China, India, and other nations at a reduced price, approximately 50-60% lower than that in Western markets.

Actions to be taken to control effluent discharges in tanneries

According to the Bida report, having an effluent distribution system is one of the prerequisites for obtaining LWG certification. Each tannery must limit water use and production in line with the prescribed effluent discharge maximum limits.

Regarding the chilling system for the preservation of raw hides, during the peak period following Eid-ul-Azha, nearly half of the total annual consumption is tanned in the initial three months, and the remaining nine months process the other half. This results in a significant average difference in the effluent (3500–17,000 cubic metres per day) during peak and off-peak seasons, putting pressure on the CETP design and hindering treatment.

To address this problem, extending the peak time to five months instead of three could be achieved by implementing a government or private sector chilling system for the storage of raw hides. This would extend the processing time and decrease the amount of effluent reaching the CETP during peak hours.

Md Shaheen Ahamed, chairman of the Bangladesh Tanners Association (BTA) and managing director of Anjuman Trading Corporation Ltd, told TBS that the prime minister has assigned the responsibility of the Savar industrial city to her secretary. The goal is to explore ways to optimise its utilisation and expedite the process of obtaining LWG certification.

"We have started work to obtain the LWG certificate. This includes enhancing the factory working environment, minimising water consumption, and implementing energy-saving measures. We are actively working on further development in these areas," he added.