These are worrying times for Pakistan's leather industry. The State Bank of Pakistan (SBP) in its recently released annual report emphasised the need to tackle the issues being faced by the sector in a prompt manner. Leather manufacturing plunged by 17 percent in FY17 compared to a 6.9 percent increase in FY16.
The downward trajectory has intensified with leather garments declining by 16.8 percent in FY17 as compared to decreasing by 6.5 percent in FY16. Leather gloves dived by a whopping 28.6 percent in FY16 while declining by 5.1 percent in the previous year.
In its analysis the SBP has cited a variety of factors that are behind the leather sector's dreary performance. A pertinent issue which this column has also flagged has been the incessant smuggling of live animals to neighbouring Afghanistan which puts pressure on supply of hides and skins to leather manufacturers.
Other factors, which have not crept up recently but have plagued the leather industry for some time now, include the inefficient leather supply chain, the dearth of quality labour as well as lack of modern technology.
Due to Eid falling in the hotter part of the year, large quantities of hides and skins were damaged due to inadequate preservation mechanisms, increasing reliance on imported raw material, the SBP noted in the report. It is pertinent to note that the Eid season accounts for around 40 percent of the total raw material accumulated from local sources.
In this regard, the federal government has announced removal of the custom duty on imports of raw materials such as skin and hides in the recent budget to provide some relief for the industry although this should have come sooner.
As far as balancing, modernisation and replacement (BMR) go the culprits are the host of custom duties levied on various machinery used in different production processes. There has been imposition of a 4 percent custom duty as well as 17 percent sales tax on import of machinery.
To add to the woes is the high cost of doing business which has affected every sector in the manufacturing industry. The government does not help when it also creates delays in refund processing with the rates of duty drawbacks and rebates already low in Pakistan as compared to regional peers. Although reassurances have been made, these have not materialised into action.
In the face of such dire challenges, it then comes as no surprise that exports have suffered and domestic demand is being increasingly met by Chinese imports. The government's announcement of the export promotion package with a rebate of 7 percent on selected leather products, although welcome is again too late. Export shares once lost in today's cutthroat global market are very difficult to reclaim.
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