Leather industry showing rising investment graph

Investment in leather goods and footwear has been rising significantly, thanks to more and more foreign and Bangladeshi investors pumping in money as production cost has gone up in competitor countries, say industry insiders.

Moreover, Bangladeshi entrepreneurs are investing in compliant factories to produce high-quality footwear that will eventually reduce the dependence on the import of leather goods, added industry insiders.

Mohammed Nazmul Hassan, vice president of the Leather Goods and Footwear Manufacturers' and Exporters' Association of Bangladesh (LFMEAB) and managing director of Leatherex Footwear Industries Limited told The Independent, “Founded in 2000, Leatherex is a 100 per cent export-oriented leather footwear industry in Bangladesh with a production capacity of 800,000 pairs of shoes and sandals yearly.”

Leatherex is operated under technical collaboration with Japan, Italy and Taiwan, he added.

Every year, 15–20 new leather product and footwear factories were being opened in the country, he noted.

Alliance Footwear and Leather Industry Ltd yearly exports 15 lakh pairs of shoes and 10,000 leather bags. An investor from Poland was planning invest Tk 15 crore in Bangladesh, as they were wrapping up their business in China due to high wage costs, said Mahbubur Rahman, manager of Alliance Footwear and Leather Industry Ltd.

China is still the biggest leather product sourcing country in the world, but if any buyer wants to buy leather footwear from China then 17 per cent import tax would have to be given to the Chinese government.

 “We export footwear at zero per cent tariff rate and that’s perhaps another reason why foreign buyers are eager to come to invest in Bangladesh,” he said.

According to the data of the Leather Goods and Footwear Manufacturers' and Exporters' of Bangladesh (LFMEAB), wages have increased in competitor countries like China by 19 per cent, followed by Vietnam, 14 per cent; India, 13 per cent; and Indonesia, 30 per cent.

Because of higher wages, a lot of foreign leather products and footwear manufacturers have been compelled to shut down their businesses in those countries, said LFMEAB officials.

Saiful Islam, president, LFMEAB, said that physical investment was coming in. For instance, Pou Chen, a leading footwear manufacturer of Taiwan, had already started operating in Bangladesh.

VKC, a famous Indian footwear manufacturer, too, had come to Bangladesh, followed by the Farida Group, footwear and finished leather manufacturer, added Islam.

The LFMEAB informed that the spade work had already started and the factory, spread over 1,00,000 sq ft, was expected to open by March 2019. The factory would have the capacity to produce approximately 3,000 pairs of shoes a day.

ECM Footwear Ltd, (ECMFL) is a 100 per cent export-oriented leather shoe manufacturing venture based in Bangladesh.

It takes Tk 80–100 crore to set up a Ready Made Garment (RMG) factory but about Tk 25¬30 crore is needed to build a footwear factory. The RMG set-up is already there in the country but the footwear industry is still untapped, said Labik Kamal, director of ECM Footwear Ltd.

So, he felt, there was a huge opportunity for the footwear industry to grow.

The domestic demand of leather footwear and goods was worth about Tk 16,000 crore but 40 per cent of the demands are met by importing goods from abroad, said LFMEAB.

The leather footwear sector registered a steady positive growth of 4.54 per cent with USD 264.28 million in the first ten months (July–November) of the current financial year (FY2018–19) compared to USD 252.81 million during the same period in FY2017–18, according to the Export Promotion Bureau (EPB) data.

Saiful Islam explained the reasons behind the steady growth and told The Independent that the footwear industry was maintaining growing trend because of three reasons—factories that produce footwear in Bangladesh were all environmentally compliant, meaning they conformed to environmental laws, regulations, standards.

Secondly, “We are highlighting the benefits of investment in this sector as well as the growth prospects in the longer term. As a result, in 2017–18, 20 new export-oriented footwear factories have come up and started operations in Bangladesh,” he added.

Finally, the labour cost in China was increasing. As a result, they were shifting to high-tech industries, prompting investors to move to a cost-competitive manufacturing base and Bangladesh was proving to be most lucrative option, he said.

Bangladesh exported footwear to the European Union (EU) member countries, Japan and North America.

About the challenges faced by the industry, he said, “There are a couple of challenges which need to be addressed such as reducing the lead time to 45 days, establishing more compliant footwear factories and long-term policy support.”

The leather sector was the country’s second largest export earner, mopping up over USD 1 billion and employing about one million people directly and indirectly, he added.

Competitive pricing, low labour cost and available raw material provided Bangladesh opportunities to grab the global leather market, he added.

“If long-term sustainable policy support is implemented, it's possible to achieve a growth level of 15- 20 per cent instead of 4.54 per cent,” he added.

Abdul Momen Bhuiyan, Sr. vice president of LFMEAB, too, said rising labour costs in China were prompting investors to move to cost-competitive manufacturing bases and Bangladesh was currently the most lucrative option.

He pointed to another reason, saying already Chinese investors had invested in around 15 new export-oriented footwear factories in the Chattogram Export Processing Zone (CEPZ), where they were manufacturing footwear and exporting their products abroad. This reflected the long-term growth prospects.

Bangladesh manufactured footwear for the renowned brands like Timberland shoes, Wolverine, Sterling shoes and many more brands, he informed.

“Finally, factories producing footwear in Bangladesh are environmentally compliant—they conform to environmental laws, regulations and standards,” said Abdul Momen Bhuiyan, who is also the Deputy Managing Director (DMD) of Apex Footwear Ltd.

Explaining the opportunities before this sector, Bangladesh Tanners’ Association (BTA) chairman Shaheen Ahmed said owing to the availability of raw materials, 350 million sq ft of leather is produced annually in Bangladesh. Of this amount, 20–25 per cent goes to meet the domestic demand, while the rest is exported.

The government considers "leather goods and footwear" as one of the main growth generators for the country that would help it to cross the middle-income threshold. It is now the country’s second largest export-earning industry.

According to LFMEAB, approximately, 220 tanneries, 2,500 footwear manufacturing units and 90 large firms make leather goods and footwear mainly for export.

Bangladesh exports leather goods and footwear mainly UAE, Argentina, Austria, Australia, Belgium, Canada, Switzerland, Chile, China, Germany, Denmark, Italy, Spain and Finland.