Leather industry: dealing with its own demons

It is now leathers turn to whip the economy. With the global economy at the brink of another meltdown, Pakistans exports are likely to be affected directly this time. This export-oriented sector accounts for about four percent of total exports not only earning huge amounts of foreign exchange, but also providing employment opportunities to about 0.3 million people.

However, the economic anguishes globally and locally are now perforating the exports of the country. Going forward, the widening of trade gap by more than $1.7 billion for 5MFY12 vis-à-vis 5MFY11 leaves no room for presumptuous export figures. Eyeing the trend, Chairman Pakistan Tanner Association, S.M. Naseem, makes no mistake when he expects a massive decline in the leather exports. FY11 saw an increase in total leather and leather goods exports by more than 25 percent, as they were able to fetch better export prices. The largest contributions were by leather gloves and leather garments. Leather exports for 5MFY12 increased by almost 15 percent versus the same period in FY11, However, a slowdown of 10 percent in leather exports is likely for FY12. The early signs of this slowdown can be seen from the meager month-on-month increase in exports of 0.44 percent in November. Bleak outlook for the export market and especially the leather sector would not have emerged if the country were not going through the toughest energy crisis of all times. The severe power shortage and gas crisis have led to the cancellation of massive orders by major leather importers. Shutdown of factories is next in this chain of events. To ad to the upheaval, the eurozone crisis pumped by the European countries can wreak havoc to the trade balance for FY12. Spain and Italy, who are amongst the major importers of finished leather, leather garments and shoes, are at the verge of being pushed into sovereign default. Not much can be promised as tumbling commodity prices, rising input costs and softening of demand in China, another prime importer, strengthen the fears. Not to forget the floods of 2011 that led to livestock losses. Give the countrys wobbly export position, expectations about a decline in exports is rendered realistic.

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Leather Exports - Nov FY12
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                                                         Jul-Nov
($ in the thousand)       Nov FY12  Oct FY12      FY12      FY11
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Leather                     40,028    40,482   203,955   212,680
Leather                     38,621    39,456   199,565   146,448
Leather                     23,550    22,937   125,995   100,911
Leather gloves               5,175     6,169    29,802    18,797
Other leather manufactures   9,896   10,35 0    43,768    26,740
Leather                      6,877    5,21 4    36,025    23,315
Total leather export        85,526    85,152   439,545   382,443
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Source: SBP