DIAGNOSTIC STUDY LEATHER SECTOR

Mar. 12

DIAGNOSTIC STUDY LEATHER SECTOR

An explanatory micro analysis of changing markets and products Prepared By
Muhammad Umar Ashraf

3/12/2013

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Table of Contents
INTRODUCTION ............................................................................................................................................. 3 GLOBAL RANKING OF PAKISTANS LEATHER SECTOR .................................................................... 6 SECTORAL PROFILE........................................................................................................................................ 6 Leather Industry Network ......................................................................................................................... 7 HISTORY OF SECTOR: ................................................................................................................................ 8 PRODUCTION PROCESS ............................................................................................................................. 9 RAW MATERIALS FOR PRODUCTION PROCESS ..................................................................................... 9 PRODUCTION OF HIDES & SKINS ................................................................................................. 11 Hide and Skin Quality .......................................................................................................................... 12 Enviromental Challenges ............................................................................................................................ 17 Pictures of Treatment Plant at Royal Leather .................................................................................... 18 Competitive Advantages of Leather Industry ............................................................................................. 18 Supply Side Advantages .......................................................................................................................... 19 Demand Side Advantages ....................................................................................................................... 21 Regulatory / policy related advantages .................................................................................................. 21 Impediments to Export ............................................................................................................................... 31 SWOT Analysis of Pakistan Leather Industry .............................................................................................. 34 FUTURE OF LEATHER INDUSTRY IN PAKISTAN ............................................................................................ 36 Introducing Brand Names ....................................................................................................................... 36 Focusing on Footwear Sector.................................................................................................................. 36 Tackling Environmental and Labor Issues ............................................................................................... 37 Control on Smuggling & Diseases of Livestock ....................................................................................... 37 Reduction of Duties on Machinery ......................................................................................................... 38 Suggestions ................................................................................................................................................. 38

DIAGNOSTIC STUDY LEATHER SECTOR 2013

INTRODUCTION
Leather is one of the first manufactured materials, and the Leather Technologist can claim to be a member of an ancient profession. Leather has long outgrown in its practical purpose and today is regarded more as a luxury than a necessity, particularly in the affluent West. Its global industry is valued at about 214.11 Billion US$1. Most of the producing countries are developing countries, yet China and Italy are the leading producing and exporting nations in the world with Global share of 37.5 % and 13% respectively2. The industry is buyer driven, with producing countries manufacturing in line with specifications, guidelines and technical advice provided by the buyer countries. Regarding Pakistan, leather industry is the second largest export earning sector after textiles. Currently, this sector contributes around 1.048 US$ billion3 in the year 2012. The leather industry occupies a prominent place in the Pakistan economy in view of its substantial export earnings, employment potential and growth. The Pakistan leather industry, one the most vibrant sector of the countrys economy, is well-structured and spans various segments, such as tanning and finishing, footwear and footwear components, leather garments, leather goods, including saddles and harness. Well recognized in the international market, the Pakistan leather goods constitute about 4.42% per cent of Pakistans export earnings4. This sector has the potential to increase the exports volume by diversifying in different range of products as it is

1 2

Trade Map Report on strengthening competitiveness of South Asia Sept, 3-4 2012 3 Pakistan Bureau of Statistics 4 Pakistan Tanners Association

DIAGNOSTIC STUDY LEATHER SECTOR 2013

contributing significantly to national exports. However this sector has experienceddecline in exportsas compared with the last year5. This shows that the leather sector is suffering from the economic crisis despite of several incentives in the three year trade policy (2009- 12). Some of these incentives include: 1. Export Investment Support Fund for procurement of expert advisory (JE Austin Report) 2. Establish design centers (Pakistan Institute of Fashion and Design) 3. Establish research and development centers in Karachi and Sialkot Sr # Commodity Exports in Exports in Exports in Exports in Exports in Million US$ Million US$ Million US$ Million US$ Million US$ 2007-08 1 Finished Leather 2 Leather Garments 3 Leather Gloves 4 Leather Footwear 5 6 Others Total 10.18 1220.121 11.97 959.146 14.08 867.504 16.07 1086.584 15.897 1048.675 105.36 102.88 67.07 80.92 80.04 161.17 152.26 101.89 120.31 165.94 528.15 392.54 342.66 404.25 341 415.26 2008-09 299.49 2009-10 341.8 2010-11 465.015 2011-12 445.798

Pakistan Bureau of Statistics

DIAGNOSTIC STUDY LEATHER SECTOR 2013

1400 1200 1000 800 600 400 200 0 Exports in Million US$ 2007-08 Exports in Million US$ 2008-09 Exports in Million US$ 2009-10 Exports in Million US$ 2010-11 Exports in Million US$ 2011-12

The above graph shows that before 2010-11, there was continuous decrease in export earnings of leather industry in Pakistan, which decreased from $1.22billion in the year 2007-08 to $0.959billion in 2008-9, to $0.867billion in 2009-10. This trend was reversed in 2010-11 and increased to $1.086billion in 2010-11but again decreased to $1.048 billion in 2011-126.

The growth of this sector depends upon the value addition of its products and this sector also has the capacity to export the value added finished leather like garments, gloves, footwear and sports goods. The number of tanneries in Pakistan has increased from 529 in 1999 to 600 in 2003 and to 800 at present7. Located in Karachi, Hyderabad, Lahore, Multan, Kasur, Faisalabad, Gujranwala, Sialkot, Sahiwal, Sheikhupura and Peshawar, the increase in the number of tanneries can be attributed to increase in demand of tanned leather in the world markets till the fiscal year 2007-08. However, a majority of tanneries are small and medium sized and over
6 7

Pakistan Bureau of Statistics Report on Leather Sector by PITAD

DIAGNOSTIC STUDY LEATHER SECTOR 2013

80 per cent of them are located at Karachi and Lahore due to availability of skilled and semiskilled labor and technicians and a developed market for hides and skins in both the cities. Against a capacity of producing 90 million square feet of tanned leather, the tanneries are presently producing only 60 million square feet tanned leather per year8. GLOBAL RANKING OF PAKISTANS LEATHER SECTOR 9

ARTICLE

POSITION

FINISHED LEATHER

TH

15

LEATHER GARMENTS

TH

LEATHER GLOVES

ND

LEATHER FOOTWEAR

TH

50

LEATHER GOODS

ND

52

SECTORAL PROFILE
Pakistan is considered to be the hub of producing high quality Leather and Leather Products, and there are about 800 Tanneries10 in the country actively engaged in producing best quality
8 9

do SMEDA

DIAGNOSTIC STUDY LEATHER SECTOR 2013

finished leather of Cow, Buffalo, and Sheep & Goat skins. Pakistan is rich in agricultural products and has a large livestock population which plays an important role in the economy of Pakistan by producing around 13.938 Million Hides and 49.492 Million Skins per annum in 20111211. The quality of goat skins, cow, buffalo hides in Pakistan is satisfactory. The type of sheep skins we have in Pakistan is better in respect of grain, substance and compactness of fibers12. Leather manufacturers & exporters are determined to increase export of quality finished leather and leather products. And the industry is playing their positive role in invigorating WTO regime with quality consciousness and full sense of responsibilities to uphold the impeccable image of Leather Industry of Pakistan as being the most significant contributor or the countrys GDP and foreign exchange earnings, The Leather Industry of Pakistan is employing more than 500,000 peoples directly and indirectly13.

Leather Industry Network

The leather industry network in Pakistan comprise of the following: Livestock (Cattle, Buffalo, Goat) Slaughter houses Raw Hide/Skin Collection Tanning Industry Leather Industry Other Allied Industries Export Market
10 11

As per PTA Economic Survey of Pakistan 12 As per PTA 13 do

DIAGNOSTIC STUDY LEATHER SECTOR 2013

The other small industries that can co-exist within this network are the glue and manure manufacturing industries that utilize the bones and discarded organs of the slaughtered animals respectively. Besides, operating in close co-operation with the slaughter houses are corporations that have built their services and products around the meat-consuming market processors of meat into various forms of fast food, processed meat transporters, deep freezer manufacturers, cattle feed 'enhancers', drug manufacturers who sell 'meat growth hormones' and antibiotics for cattle and even agribusiness' banks that will give loans only for cattle 'producing'. Thus the leather industry network appears to offer numerous possibilities for the establishment of other small enterprises

HISTORY OF SECTOR:
The history of the leather industry in Pakistan dates back to the beginning of the 20th century when hand-made leather was produced in Kasur by using flour and vegetables. Raw hides and skins were exported to many countries around the world. The trend from cottage vegetable tanning to wet blue initiated in the early 50s14 . During 1950s, some well-equipped tanneries were set up at Karachi and Lahore, whileduring 60s and 70s more units were established at Hyderabad Kasur, Sialkot, Multan,Sahiwal and Gujranwala. Starting with the production of picked and vegetable tanned hidesand skins, the tanneries, today, are producing not only wet blue and crust, but also fullyfinished leather. The leather industry consists of six sub-sectors namely, Tanning, Leather, Footwear, Leather Garments, Leather Gloves, Leather Shoe Uppers, and LeatherGoods. The industry started

14

As per PTA

DIAGNOSTIC STUDY LEATHER SECTOR 2013

production of finished leather in the early 70s. Production of leather products such as garments and footwear started in the mid 70s.

PRODUCTION PROCESS
RAW MATERIALS FOR PRODUCTION PROCESS

The following are the types of basic raw materialswhich are being used by this industry:
Buffalo

Generally, the hides are thicker and wrinkled on the shoulder. They have a coarse grain whilst the fiber structure is loosened15.
Goat

Goatskins, as compared to sheepskins, have a very tight fiber structure and are easily recognized. They show a characteristic grain pattern. The structure of goatskins allows its use in the more durable type applications in the manufacture of gloves and shoes 16.
Cattle

In this family are included bulls, cows, oxen, veals and calves. The bulls and the cows are respectively full-grown male and female. Their hides are large and the weighing goes from 16 kg to 37 kg, bull hides may weigh more. The hides of Veals come from younger animals and weigh 6,5-11,5 kg. The skins of calves come from young animal and the weighing goes from 2,5 to 5,5 kg. The main difference between calfskins and cattle

15 16

(ICT Leather Book) do

DIAGNOSTIC STUDY LEATHER SECTOR 2013

hides, from a structural point of wiew, is the fineness of grain. Calf skins have a very fine structure as compared to cattle hides and are usefull for the finest of leathers17.
Sheep

The sheepskins show different characteristics depending on the breed. Australian Merino is known for the quality of wool. Unlike his wool, the quality of skin is very bad because it contains a large grease amount and the fiber structure is weak. Merino skins present ribness on the grain. The english sheepskins, called Domestic, have a fine grain. The fiber structure is compact. These skins, suitable for garment leather, are exported in pickled state. New Zealand sheepskins do not present the typical defects of Merino breed. They are suitable for garment leather. These skins are exported in the pickled state. The sheepskins from Middle East (Syria, Lebanon, Iran, Saudi Arabia, ecc.) are suitable for garment and glove leathers. In fact, these skins have a strong structure, fine grain and contain less fat. They are exported in the pickled conditions. The sheepskins from South-Africa, known as glovers, are exported in pickled conditions. They are suitable for high quality garment leather. The grain pattern is fine and the structure is compact and strong. In Nigeria there are especially cross-bred skins. The skin structure is suitable for shoe leather, being strong. The grain structure is fine and the fat content is much low. These skins are exported in wet blue state. Pakistani Sheep skins are considered best for leather garments as the raw material obtained is softer to touch.

17

(ICT Leather Book)

DIAGNOSTIC STUDY LEATHER SECTOR 2013

PRODUCTION OF HIDES & SKINS 18

MILLION PIECES

ARTICLE

2007-08

2011-12

HIDES (Million pieces)

12.200

13.9

SKINS (Million Pieces)

45.300

49.49

100 90 80 70 60 50 40 30 20 10 0 HIDES (Million pieces) SKINS (Million Pieces) 2011-12 2007-08

18

Economic Survey of Pakistan

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Hide and Skin Quality

Raw material quality is a prime concern of tanners the world over. The tanning industry and the downstream industries which it supplies - footwear, furniture, automotive, clothing, leather goods are entirely dependent for their raw material on supplies of cattle hides and sheep skins, plus a small number of goat and other skins. While supplies and quality of hides and skins are vital to the tanning industry, they are just by-products for the meat, dairy or wool industries. In order for many companies in the leather industry to be competitive, they specialize in producing particular types of leather - for example high quality and high performance leathers. However the potential benefits can only be fully realized when the hides and skins available to the industry reach a consistent quality, allowing tanners to buy with confidence that the material will be suitable for the manufacture of leather to meet their target markets. The quality of leather that the tanner can produce is determined primarily by the quality of the raw hides that he buys. The value of the hide depends on the end use to which the leather goes. This eventually has to be reflected in what the tanner pays for his raw material. The quality of the hide or skin is to a large extent related to the amount of damage to the grain (or "outside") surface. The damage may be due to skin parasites that affect the live animal, related scratch, husbandry practices on the farm or in transport of the live animal (scratches, bruising, or dirt contamination); it may be due to damage during slaughter or removal of the hide; or it may be caused by inappropriate handling or inadequate preservation techniques. Most types of damage can be reduced or avoided altogether by better management of the animal or the hide

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Flaying

After the animal is killed the first operation is to remove the hide or skin. This is called flaying. In Pakistan, normally it is done by hand. Small skins are pulled by hand from a hanging carcass, resulting in a skin that presents itself as a sort of tube, which can be compared to a coverall. Pulling a skin by hand produces rather good qualities flay. With large animals or small animals (calf) whose skin is particularly firmly attached to the meat this sort of flaying is not possible, and one has to resort to flaying with the assistance of a knife. Hand flaying is done simply by detaching the hide with a knife from the fat or meat of the carcass. The less fat or meat is attached to the hide or skin, the better it is for the butcher who sells the meat as it is obvious that the price per kilo of a hide is far less than that of the meat. The closer the flaying knife is held to the hide, the more likable it becomes that flay damage is done to the hide19. However hand assisted mechanical flaying has been introduces in Pakistan, like in Zenith Associates, hand assisted mechanical flaying is done. It takes less time and produces a better quality hide or skin

19

(ICT Leather Book)

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Picture of Hides and Skins Fleshing

Whether a hide is removed by hand or machine, there will always remain some meat and fat on the hide. Removing of this meat and fat is called fleshing
Salting

There are different methods for preservation of hides and skins; however in Pakistan salting is adopted.
Grading of Hide

Hides can be graded as follows20 #1 Hide - A #1 hide is a hide free from holes, cuts, deepscores or gouges more than half way through the hide, visiblegrain defects and broken grain (over 1 inch long) and having a correct pattern. #2 Hide - A #2 hide is a hide that contains either (1) one to four holes, cuts, deep scores or gouges in an area located insidea straight line drawn through the break in the hair of the fore and hind shanks(Lower part of leg) (2) a grain break over 1 inch, (3) an area of warts no larger that 1 square foot #3 Hide - A #3 hide is a hide that contains either (1) five or more holes, cuts, deep scores, or gouges in an area located inside a straight line drawn through the break in the hair of the fore and hind shanks, (2) one hole or cut over 6 inches, (3) an area of warts or open grub holes larger than 1 square foot. A machine-damagedhide will be considered#3 hides if at least 50 % of the surface area of the hide is present and usable for leather manufacture.
20

(Standards Governing the Export of North American Cattle Hides, sept 2005)

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Pre-Tannage

The first stage in pre-tannage is to restore the original moisture to the skin, which will allow all the subsequent processing to be done correctly. The lime is then used to clean the hide structure by removing some types of proteins and giving a degree of swelling. There is a loosening, or destruction, of the epidermis including the hair. The fibre structure is opened up and fats are partially removed as soaps. After the hair is removed, the alkaline swelling is removed and there is a further opening-up of the fibre structure by enzymes. The hide, or skin, is often called pelt in these pre-tannage stages
Pickling

Pickling is done to prepare hide or skin for tanning. It is done by adjusting the level of acidity in salt solution. This controlled acidity is needed to allow penetration of tanning materials through all the thickness uniformly and to combine correctly. If this was not done, the tanning materials would react too strongly on the outer layers, not penetrate deeper and the appearance of the surface would be damaged. The leather would also not be tanned correctly.The hide, or skin, is often called Pickle at this stage.
Tannage

The object is to convert the pickle into leather by creating a more stable structure, which will

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Picture of Wet Blue

not putrefy and maintain an attractive appearance. In Pakistan most of the tanneries adopt chrome tanning, whereas M/s National Tannery also has option of vegetable tanning. The hide,or skin, is often called wet Blue at this stage.

Picture of Tanning Process Re-Tannage

The object is: to produce different types of leather from the one semi-finished leather, which is usually wet-blue. The retannage optimizes the serviceability of the leather, adapting it to meet fashion requirements and the demands of customers. It also creates a dried (crust) leather to allow satisfactory finishing of the dried leather surface.

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Finishing

The object of finishing leather is to improve its serviceability by protecting it from damage by water, soil and mechanical action. At the same time, it adds value by improving the surface appearance so much that the leather becomes attractive to look at and attractive to touch and feel; any of the surface defects below the finish cannot be seen or considered by the buyer, or the ultimate user of the leather product. Experience and an appreciation of colour effects are needed to achieve the desired results. Finishing can modify the shade, gloss and handle of the leather, improve its physical properties and hide any defects or irregular appearance. It is heavily applied to corrected grain leathers and to splits in order to imitate full grain leathers and often used to obtain fashion effects on all leathers. The lowest grades of leather need the most finishing work, compared with the minimum amount of finishing for the best grades

Enviromental Challenges
The tanning industry in Pakistan uses machinery which are out dated and believed to beimported from various countries in the 1970s and 1980s. Though, the country tookadvantage of these second hand machines by bringing in a large amount of foreign earnings,it failed to create a friendly environmental atmosphere in the process. A large part of thecountry is subjected to air pollution due to the burning of residual into the atmosphere. Thispollution has a dangerous effect on the health of the local population, mainly in the cities ofKarachi, Kasur and Sialkot. The leather industry has implemented many progressive interventions and technologies in thepast to deal with its numerous environmental and energy challenges. Some representatives of association of leather industry i.e. Pakistan Tanners Association (PTA) have long

DIAGNOSTIC STUDY LEATHER SECTOR 2013

beenfacilitating a number of initiatives to address the environmental issues of the industry. Like Agha Saidain has installed treatment plant in his factory Royal Leather to treat water coming out of his tannery.

Pictures of Treatment Plant at Royal Leather

Competitive Advantages of Leather Industry

The leather industry can benefit from several characteristics of the Pakistani Market and the corresponding advantages they offer. Some of these advantages are:

Supply side advantages

o Availability of low cost skilled labour o Abundance of raw material o Availability of supporting institutions

DIAGNOSTIC STUDY LEATHER SECTOR 2013 Demand side advantages

o Large and growing domestic market

Regulatory / policy related advantages

o Government Support

Supply Side Advantages

Availability of low cost skilled labor

Pakistans advantage as a source of low cost, skilled labor is quite relevant to industries such as manufacturing of leather goods and footwear, which are relatively labor intensive. Pakistan has among the lowest cost of labor among key footwear producing countries.

Labor costs in leading Footwear producing countries 21Rs./ hr Euros/ hr

Korea Taiwan Hong Kong Portugal Brazil Indonesia Romania China

21

7.01 Euro/hr 5.75 Euro/hr 5.26 Euro/hr 5.16 Euro/hr 1.46 Euro/hr 0.68 Euro/hr 0.68 Euro/hr 0.58 Euro/hr

(Indian Leather Sector Network Report)

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Vietnam Thailand Pakistan India

Availability of Raw Materials

0.58 Euro/hr 0.48 Euro/hr 0.19 Euro/hr 0.19 Euro/hr

Pakistanhas thelarge population of cattle, buffaloes, goat and sheep. Live Stock Population in Pakistan (Million Numbers)22 Fiscal Year 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Cattle 22.8 23.3 23.8 24.2 29.6 30.7 31.8 33.0 Buffalos 24 24.8 25.5 26.3 27.3 28.2 29.0 29.9 Sheep 24.4 24.6 24.7 24.9 26.5 26.8 27.1 27.4 Goats 50.9 52.8 54.7 56.7 53.8 55.2 56.7 58.3 Camels 0.8 0.8 0.7 0.7 0.9 0.9 1.0 1.0

Availability of Supporting Institutions

Pakistan has institutions that support the leather industry in specific areas such as productdevelopment, design and R & D. These institutions enable capability building in theindustry and help it become globally competitive. Leather Products Development
22

(Annual Report of PTA, 2008-2009)

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Institute (LPDI), Sialkot and National Institute of Leather Technology (NILT), Karachi are premier training and service providers for the leather sector of Pakistan. Northampton University of UK has agreed to work with the leather sector of Pakistan and has already signed a Memorandum of Understanding (MOU) with NILT to further enhance its capabilities.23

Demand Side Advantages

Large Domestic Market

Pakistan has the large domestic market and consequently it represents a large and growing market for leather goods.

Regulatory / policy related advantages

Year
1990-1991

General intervention
State bank agreed to the establishment of full-fledged and independent sunregional office capable of handling cash and attending to the export finance matters Insurance reforms

Specific intervention
A grant of RS.2 million to Pakistan tanners association for the establishment of leather institute

machinery for footwear and

23

(Austin, Leather Sector of Pakistan)

DIAGNOSTIC STUDY LEATHER SECTOR 2013

commission proposed an independent corporation with a larger capital base, which will aim at specialized attention to credit based exports setting up of a committee for the simplification of export procedures has been proposed to be headed by secretary management (services division) and included representatives from MOC,EPB,CCI&E and FPCC&I

leather manufactures was exempted from import duty and sales tax

In order to guide traders, the ministry proposed to publish imports and exports manuals containing all rules and regulations and procedures framed under the provision of import and export control act

DIAGNOSTIC STUDY LEATHER SECTOR 2013

1950

1995-1996

special tariff concession(10% customs duty with no sales tax) has been proposed.

1996-1997

Exemption from the payment of excise duty on refinance credit were extended in Toto to all export products Exports would be allowed subject to registration of export contracts with EPB to monitor exports and ensure equality

Export finance borrowings were exempted from the payment of excise duty 1998-1999 A ban on the export of raw hides, and skin and wet blue

DIAGNOSTIC STUDY LEATHER SECTOR 2013

leather imposed earlier was proposed to be lifted (amidst strong reaction from European tanners and also to meet WTO regulations), however an export duty @20% on their exports has been proposed to protect the local industry and to meet the requirements of domestic consumption Duty drawback for finished leather, leather made ups were corrected and enhanced

In order to enhance export of value added leather garments, it was proposed that duty free and tax free import of accessories up to 5% of the FOB value of exports may be allowed for

DIAGNOSTIC STUDY LEATHER SECTOR 2013

the value added garments 2001-2002 Foreign currency export finance facility will be introduced to enable exporters to meet their import requirements by borrowing from the facility at LIBOR 2%. Repayments will be made from their export proceeds Inclusion of leather manufactures and footwear to the list of items that have zero rating of Dollar exports to Afghanistan

Exemption to exporters with total export of less than $1 million from export development surcharge

Establishment of warehouses in major cities around the world to market the products of exporters through binded stores to ensure quality and in time delivery. Partial funding

DIAGNOSTIC STUDY LEATHER SECTOR 2013

will be provided from the EDF.

Setting up of a scheme funded by EDF to help exporters acquire SA 8000 certification that will help them for purchases by major buying houses

To develop a linkage between production and markets setting up of special organizations has been proposed for the furtherance and development of the entire range of activities from production to export marketing for leather products

2003-2004

Establishment of an up gradation fund to be managed

DIAGNOSTIC STUDY LEATHER SECTOR 2013

under public-private partnership to finance the initiatives for technological up gradation social environment and security compliance, setting up combined effluent and waste water treatment plants For technical management and export marketing ,consultancy services will be provided at the enterprise level on 50:50 cost sharing basis from the up gradation fund, however for declining sector like leather contribution from fund may go up to 75%.

Launching of a new scheme has been proposed to enable exporters to acquire brand

DIAGNOSTIC STUDY LEATHER SECTOR 2013

names, support will be provided to exporting companies for obtaining bank loans at concessional rates under the prudential regulations of SBP

It has been proposed to hold an annual mega event in Karachi EXPO and Lahore EXPO to be called PAKISTAN EXPO where all products of Pakistan with an export potential will be put on display To enhance retention by the exporters to the extent of 10% of their export earnings for international advertisements, commission etc, which was previously 5% Financial assistance for

DIAGNOSTIC STUDY LEATHER SECTOR 2013

acquiring ISO certification will be continued To reduce cost of electricity for industrial sectors ,it was proposed that WAPDA may be asked to allow off peak hours rates and bulk rates for industrial consumers

2006-2007

6% R&D support was proposed (background

2007-2008

It was proposed that zero rating of sales tax or duty drawbacks as well as federal excise duty refund against goods exported to ISAF and defense logistics agency may be allowed on production of receipts issued by Afghan customs authorities confirming that they have received the goods, which will

DIAGNOSTIC STUDY LEATHER SECTOR 2013

be reconfirmed by the representatives of the agency located in Pakistan It was proposed that duty free import of footwear samples for exporters to meet their export commitments may be allowed and this facility be extended to manufacturers as well, to improve the quality and keep them abreast with latest fashion 2008-2009 In order to assist exporters to comply with environmental standards 6% mark up subsidy on loans to set up in-house effluent treatment plants has been provided

It was also proposed that that the subsidy given from EDF may be increased to 8% or

DIAGNOSTIC STUDY LEATHER SECTOR 2013

50% of the markup, whichever is lower

Cost of hiring consultants for benchmarking studies will be continued on cost sharing basis

Impediments to Export
Leather and leather garments industry of Pakistan have serious challenges to survive in International market. High tech. must be used to improve the quality of products and for this purpose skilled labor force is also required. This is a serious issue and need to be addressed as early as possible. There is a growing need to prepare labor force having capacity to produce leather garments on scientific lines and to meet the demands of international market.

Leather garments in Pakistan are made mostly from low grade and medium grade leather and good quality leather is mostly exported and is not available for high value added Leather garments and products. These sectors will lose their market shares in global markets as they have stiff competition with China and India, if leather is not

DIAGNOSTIC STUDY LEATHER SECTOR 2013

made available in good quality. The quality of raw hides and skins generally depends upon the quality of livestock. The hides and skins removed out of young and healthy cattle may be taken as the best in its quality provided the conditions in which these are removed and also their collection, preservation and storage is satisfactory. In fact, there are many factors which affect the quality of leather at pre-slaughtering, during slaughtering and post-slaughtering stages. It is estimated that around 20-25 per cent of the hides and skins are affected by pre-slaughtering damages, like skin-cuts, rashes, diseases, injuries etc.

Cost of production is very high in Pakistan. Utilities and taxes make our products uncompetitive due to high cost in international markets. Pakistan can capture the lost market share by reduced cost of production.

Most of the developed countries faced slump after the incident of 9/11. Similarly buyers from Pakistan shifted their purchase from the local industry; therefore the local industry suffered a lot. These buyers shift their production from Pakistan towards China and India. Similarly nowadays due to global recession, the purchasing power of the consumers declined and as a result the demand also decreased of leather products. This resulted in overall decline in the exports of leather products from Pakistan.

Leather tanneries in Pakistan produce all three categories of waste: wastewater, solid waste and air emissions. However, wastewater is by far the most

importantenvironmental challenge being faced by Pakistan's tanneries.

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Wastewater: Although the exact quantity varies widely between tanneries, anormal requirement of around 50-60 liters of water per kilogram of hide issuggested. The consumption of water is as high as three times the suggested requirement. Theoverall water discharge also demonstrates a high degree of seasonal and dailyfluctuation. For most part, the current practice is to discharge this water into thelocal environment without any treatment. Solid Waste: Two types of solid wastes (tanned and untanned) are generated from leather production processes. Solid waste include dusted curing salts, raw trimmings, wettrimmings, dry trimmings, wet shavings, dry shavings, buffing, and packaging material. Itis estimated that for a tannery averaging 10,000 kilograms of skins per day, a total ofsome 5,500 kilograms of solid waste would be produced per day.In general, it is found that solid wastes from tanneries (except for dusted salt) have secondaryusers in the local market. Glue manufacturing and poultry feed makers are a major usergroup of this waste. However, an important problem with this use is the presence of chromium in it. The use ofchrome contained solid waste for poultry feed preparation could cause serious healthproblems for poultry consumers. Air Emissions: There are two sources of air pollution from tanneries in Pakistan. Thefirst relates to emissions from generators (diesel-based and operated only duringpower breakdowns) and from boilers. Ammonia emission during processing and washing of drums, thoughintermittent but important has adverse effects on workers health.Hydrogen sulphide emission during mixing of acid and alkaline wastewater in

DIAGNOSTIC STUDY LEATHER SECTOR 2013

drain is also aserious health hazardous. Segregated discharge of acidic and alkaline effluent can help toavoid the hydrogen sulphide gas emission.

SWOT Analysis of Pakistan Leather Industry

SWOT analysis for leather sector based on the information already provided in this article isgiven below.
STRENGTHS

Existence of more than sufficient productive capacity in tanning. Easy availability of low cost of labour. Exposure to export markets. Managements with business background become quality and environment conscious. Presence of qualified leather technologists in the field. Comfortable availability of raw materials and other inputs. Massive institutional support for technical services, designing, manpower developmentand marketing. Exporter-friendly government policies. Well-established linkages with buyers in EU and USA Pakistan is an emerging market There is abundance of raw material for converting into value-added products
Weakness

Low level of modernization and up gradation of technology and the integration of developed technology is very slow. Low level of labour productivity due to inadequate formal training / unskilled labour.

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Lack of modern finishing facilities for leather. Highly unhygienic environment. Unawareness of international standards by many players as maximum number of leather industries are SMEs. Difficulties in accessing to testing, designing and technical services.
Environmental problems.

OPPORTUNITIES

Scope of supplying finished leather to multinationals around the Globe. Growing fashion consciousness globally. Use of information technology and decision support software to help eliminate the lengthof the production cycle for different products Product diversification - There is lot of scope for diversification into other products,namely, leather garments, goods etc. Growth of international and domestic markets of leather sector.
Threats

Export of Wet Blue is the major threat for Pakistan Leather Industry Stiff competition from other countries like India and China etc. Non- tariff barriers - Developing countries are resorting to more and more non tariffbarriers indirectly. Improvement in quality to adapt the stricter international standards. Fast changing fashion trends are difficult to adapt for the Indian leather industries.

DIAGNOSTIC STUDY LEATHER SECTOR 2013

FUTURE OF LEATHER INDUSTRY IN PAKISTAN

Introducing Brand Names
Leather and Leather products from Pakistan have carved a respectable place in the worldmarket. Some of leather products from Pakistan especially leather jackets are much indemand but under the foreign renowned brand names. Made-in-Pakistan label and brandsborn in Pakistan have yet to come. Steps need to be taken by the industry in this regard.Renowned Pakistani firms need to register trade marks with respect to the leatherproducts they manufacture. In light of the Agreement on trade related aspects ofintellectual property rights (TRIPS) of WTO, Pakistan through Trade Marks Ordinance,2001, provides effective protection and rights to the owner of trade marks.

Focusing on Footwear Sector

Footwear, the largest segment of the leather industry around the world has beensurprisingly neglected in Pakistan. Foreign franchised companies have become householdnames in Pakistan. This is despite the fact that the entire stuff and skill they use belong toPakistan. Moreover, having a strong industrial base, Pakistan's leather industry looks treadingwithout shoes. This vacuum in leather industry calls for the attention of the industryleaders to bridge the gap to give a comprehensive look to the leather and leather productsindustry in Pakistan. One of the options to enter the field of footwear sector is to seekpartnership with international brand producers by offering them attractive incentives.

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Tackling Environmental and Labor Issues

Regarding environmental concerns of WTO, the industry has made little progress in thisregard. Combined effluent treatment plants need to be built so that hazardous chemicalsfrom the tanneries do not affect the environment. Moreover, the industry needs to tackleall the labor issues to which the consumers in the importing countries are sensitive to. Itneeds to be ensured that the leather industry in Pakistan adheres to the working conditionrequirements that have been developed by certain international bodies, particularly, theassociations of leather industries in the importing countries of the west. Under the WTOregime, member countries can impose penalties or restrict imports from exportingcountries whose industries do not observe environmental/labor concerns or socialcompliance.

Control on Smuggling & Diseases of Livestock

Leather manufacturing sector in Pakistan can also suffer because of massive smugglingof livestock to other countries, shortage of raw material and absence of the organizeddairy farming in the country. Steps should be taken to overcome these problems Moreover, diseases in the livestock in Pakistan can prove hurdle in the manufacturingand exports of finished products of leather. Concrete measures need to be taken toovercome this threat to the livestock as a result the live animals are suffering fromdifferent diseases that damage the quality of the leather and tarnish the image of productsat international level.

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Reduction of Duties on Machinery

The duties on the import of tanneries related machinery need to be further reduced. Themachinery made locally is technologically inferior which not only increases the cost ofproduction but restrains from developing at par with the international market.

Suggestions
The enclosed tables shows the ranking of Pakistan in the in the export of leather products and footwear, There is, sufficient, a room for improvement in this sector. According to different exporters and exporters associations, Pakistani exports value can increase easily, if the following steps are taken The custom duty on shoes should be increased to promote local industry. The items of shoes locally produced and mainly used by poor people should be exempted from sales tax. Leather garments should be given R&D support. A separate industrial estate can be established for leather sector Duty draw back rates should be increased Tanneries should be encouraged to establish treatment plants like Royal Leather. Adopt minimum export price (MEP) for wet blue. Increase the regulatory duty from 20% to 50 % on the export of raw and wet blue hides. Invoices for the export of wet blue should be in sqft only and no invoices showing rate per kg or per piece may be accepted Temporarily ban the export of wet blue for the time being. Temporarily banning the export of this item is also allowed under WTO. If we consider article XI of GATT which

DIAGNOSTIC STUDY LEATHER SECTOR 2013

deals with "General Elimination of Quantitative Restrictions", and which is No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party .

If temporarily banning the commodity is not feasible then take the following steps Adopt minimum export price (MEP) for wet blue Increase the regulatory duty from 20% to 50 % on the export of raw and wet blue hides Invoices should be in sqft only and no invoices showing rate per kg or per piece may be accepted

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Enclosures

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Global trade in this specific product (000 US$)

List of Top Ten Importing markets for Leather Skins and Hides exported by Pakistan
Importers World Hong Kong, China Italy China Republic of Korea Turkey Indonesia Viet Nam Germany Spain India Exported value in 2009 270343 74028 30693 34454 23922 8604 2342 10430 11315 8331 8419 Exported value in 2010 415652 123777 47711 46999 37878 18174 8240 12706 13345 9964 12877 Exported value in 2011 467882 124096 65464 47862 45812 22986 15680 15042 14188 13560 12975

List of Top Ten Importers for Leather Hides and Skins

Importers World China Italy Hong Kong, China Germany Viet Nam Republic of Korea Spain Romania Mexico Turkey Imported value in 2009 19696498 4462401 2196942 2222573 927774 671769 584137 508648 603686 407801 295996 Imported value in 2010 26318987 5939141 3345410 3074092 1118101 921602 801396 587485 619983 538037 473295 Imported value in 2011 31190450 6845256 4325884 3434813 1325193 1043223 939438 847626 738680 736585 722179

List of Top Ten Exporters for Leather Hides and Skins

Exporters World Italy United States of America Hong Kong, China Brazil Germany Australia Exported value in 2009 20875761 3861293 1863363 1770915 1160770 911195 599207 Exported value in 2010 30144143 4631449 2905178 2300335 1742435 1166005 889757 Exported value in 2011 32067394 5361757 3326049 2546528 2045753 1433039 1021900

DIAGNOSTIC STUDY LEATHER SECTOR 2013

India Spain Argentina France 562082 591480 662843 502693 789832 753118 1001060 712619 1014617 983297 925833 903402

List of Top Ten Competitors of Pakistan for Leather Skins and Hides imported by Hong Kong
Exporters World Italy China India Republic of Korea Brazil United States of America Argentina Chinese Taipei Pakistan Thailand Imported value in 2009 2222573 456982 162559 207453 140069 139918 141112 99504 97289 70922 73123 Imported value in 2010 3074092 601665 257393 314546 187895 183190 195366 142012 113035 111414 109907 Imported value in 2011 3434813 676362 372509 314199 213123 200766 190640 124765 120321 114270 99117

List of Top Ten Competitors of Pakistan for Leather Skins and Hides imported by Italy
Exporters World France Brazil United States of America Spain Nigeria India United Kingdom New Zealand Germany Netherlands Imported value in 2009 2196942 198254 279219 105486 97035 108722 81439 78296 91894 95523 49640 Imported value in 2010 3345410 372141 393234 202269 131852 166939 124739 129703 117651 139046 92991 Imported value in 2011 4325884 482944 467653 301419 192674 188250 184070 172084 171426 165559 138354

List of Top Ten Competitors of Pakistan for Leather Skins and Hides imported by China
Exporters World United States of America Australia Italy Brazil Imported value in 2010 5939141 1078745 498459 639872 489577 Imported value in 2011 6845256 1386636 698247 705623 529814 Imported value in 2012 7122340 1529623 695348 637983 590988

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Republic of Korea India Chinese Taipei Argentina Thailand United Kingdom 395546 257884 429151 242778 191129 120704 434165 301049 360083 206567 170491 204165 456066 386398 312882 212233 185375 183913

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Global trade in this specific product (000 US$)

List of Top Ten Importing markets for Articles of Leather exported by Pakistan
Importers World Germany United States of America France United Kingdom Spain Netherlands Belgium Italy Sweden Turkey Exported value in 2009 577907 78826 94338 47258 40615 59713 26158 31512 17293 16347 24676 Exported value in 2010 618842 107664 92057 54481 41385 53091 28933 33000 20154 20548 19240 Exported value in 2011 681344 130267 103113 53172 43047 42473 39634 35854 23240 23096 19279

List of Top Ten Importing markets for Articles of Leather

Importers World United States of America Hong Kong, China Japan Germany France Italy United Kingdom Republic of Korea Spain China Imported value in 2009 46246922 8556312 4302467 4811544 3083516 2884366 2468775 2412702 936915 1412144 713070 Imported value in 2010 54061734 10523583 5063690 5145376 3435322 3216013 2754961 2694140 1324876 1498963 1122977 Imported value in 2011 64884625 11718948 6203205 5711096 4143760 3967905 3226210 3063531 1778521 1733745 1687188

List of Top Ten Exporters for Articles of Leather

Exporters World China Hong Kong, China Italy France Germany Exported value in 2009 42950283 15115638 5463149 4373436 4278317 1761635 Exported value in 2010 51747360 20845585 6015987 5033873 4867508 1819172 Exported value in 2011 65767666 26892327 6895327 6818456 6256370 2182638

DIAGNOSTIC STUDY LEATHER SECTOR 2013

India Viet Nam United States of America Belgium Netherlands 1417471 653502 1131887 1133935 646639 1446996 856880 1209977 1139326 731007 2023911 1425108 1356600 1324976 1167685

List of Top Ten Competitors of Pakistan for Articles of Leather imported by Germany
Exporters World China India Italy France Netherlands Viet Nam Pakistan Switzerland Turkey United Kingdom Imported value in 2009 3083516 1438961 318461 269423 147109 101949 114594 85885 59041 80658 44565 Imported value in 2010 3435322 1560932 350448 296480 173789 122127 124892 102646 62658 88393 60358 Imported value in 2011 4143760 1775617 446163 368279 218645 209766 151537 138841 94736 88820 64887

List of Top Ten Competitors of Pakistan for Articles of Leather imported by USA
Exporters World China Italy France Viet Nam India Indonesia Mexico Philippines Thailand Pakistan Imported value in 2009 8556312 6323190 559203 323830 196047 247282 107915 88417 70429 68372 84942 Imported value in 2010 10523583 7950373 602979 384803 282865 270547 142131 80655 82818 80868 79387 Imported value in 2011 11718948 8515850 811800 448028 388653 326467 152930 110185 95933 93581 91056

List of Top Ten Competitors of Pakistan for Articles of Leather imported by France
Exporters World China Italy Spain India Imported value in 2009 2884366 1193163 664812 181182 151366 Imported value in 2010 3216013 1412360 682207 181292 182869 Imported value in 2011 3967905 1596757 1038698 265238 206195

DIAGNOSTIC STUDY LEATHER SECTOR 2013

Viet Nam Belgium Germany Pakistan Tunisia Turkey 85100 62773 53496 62326 36711 47736 84527 66311 55718 72738 44227 47669 103052 79787 70483 68087 57338 54922

DIAGNOSTIC STUDY LEATHER SECTOR 2013

List of Top Exporters of Pakistan

S/No. Name of Exporter(s) Export Performance in Pak Rs. Export Performance In US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $

01.

M/s. Nova Leathers (Pvt) Ltd., Karachi Rs.

5,055,599,007

59,115,985

02.

M/s. Din Leather (Pvt) Ltd., Karachi

Rs.

2,494,341,353

29,054,646

03.

M/s. EPCT (Pvt) Ltd., Lahore M/s. Muhammad Shafi Tanneries (Pvt)
Ltd., Karachi

Rs.

2,072,782,287

24,268,988

04.

Rs.

1,736,029,562

20,299,691

05.

M/s. H. Sadar Ali Akhtar Ali (Pvt) Ltd., Lahore M/s. Dada Enterprises (Pvt) Ltd., Lahore M/s. Noor Leather Garments (Pvt) Ltd., Karachi M/s. Eastern Leather Co. (Pvt) Ltd., Lahore M/s. Royal Leather Industries (Pvt) Ltd., Lahore M/s. Multan Hide Co. (Pvt) Ltd., Multan M/s. Siddiq Leather Works (Pvt) Ltd., Lahore

Rs.

1,522,091,700

17,848,167

06.

Rs.

1,521,400,800

17,790,000

07.

Rs.

1,376,690,828

15,473,652

08.

Rs.

1,282,800,000

15,000,000

09.

Rs.

1,282,212,491

14,993,130

10.

Rs.

1,138,000,000

13,306,829

11.

Rs.

1,174,103,611

13,196,624

12.

M/s. Khas (Pvt) Ltd., Karachi

Rs.

1,123,908,007

13,142,049

DIAGNOSTIC STUDY LEATHER SECTOR 2013

13.

M/s. Prime Tanning Industries (Pvt) Ltd., Sheikupura

Rs.

1,104,278,000

US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $ US $

12,912,512

14.

M/s. Leather Coordinators, Sahiwal

Rs.

1,098,200,000

12,841,441

15.

M/s. Hafiz Tannery, Karachi M/s. Premium Leathers (Pvt) Ltd., Lahore

Rs.

1,021,450,880

11,944,000

16.

Rs.

1,015,909,367

11,879,202

17.

M/s. MIMA Leather (Pvt) Ltd., Karachi M/s. Muhammad Ashraf & Sons, Karachi M/s. Khawaja Tanneries (Pvt) Ltd., Multan M/s. Leathertex Gloving (Pvt) Ltd., Lahore M/s. HMB Tanneries (Pvt) Ltd., Lahore

Rs.

957,995,211

11,202,002

18.

Rs.

855,200,000

10,000,000

19.

Rs.

855,200,000

10,000,000

20.

Rs.

772,351,645

9,031,240

21.

Rs.

654,300,000

7,354,164

22.

M/s. Mahmood Brothers, Karachi M/s.Universal Leather (Pvt) Ltd., Karachi M/s. M. Muhammad Shafi& Co., Karachi M/s. Khas Industries (Pvt) Ltd., Karachi

Rs.

580,915,565

6,792,745

23.

Rs.

571,960,240

6,688,029

24.

Rs.

535,892,693

6,266,285

25.

Rs.

342,080,000

4,000,000

26.

M/s. Hussain Leather Craft, Karachi.

Rs.

285,890,737

3,342,969

DIAGNOSTIC STUDY LEATHER SECTOR 2013

27.

M/s. Blooming Leathers, Karachi M/s. Unique Tanning Industries (Pvt) Ltd., Lahore

Rs.

131,637,450

US $ US $ US $ US $

1,539,259

28.

Rs.

70,550,000

824,953

29.

M/s. Chawla Tanneries, Kasur M/s. Permair Leather Pakistan (Pvt) Ltd., Lahore

Rs.

66,797,300

750,785

30.

Rs.

43,784,000

511,974