1. Introduction

 

The leather industry in Pakistan is a fast developing industrial sector of the country both in terms of its qualitative as well as export growth. Over the years this industry has achieved such a remarkable position in the economic development of the country that it now ranks the second biggest export-oriented industry of the country. This industry has always been positioned on its commodity status in its quality both the home and abroad.

 

The main factor behind its development lies on the fact that the efforts of tanners in the country are aimed at increasing the promotional and marketing expertise which always result in the raw materials prices being more immediately reflected in the selling price of leather. That is why the sector’s initial trend of exporting the raw/pickled/wetblue hides and skins has now given way to imports for value addition which now constitutes 25 per cent of the total export demand of leather and leather made-ups.

 

1.1.        Inputs to the Industry

 

Pakistan which is rich in natural resources has a predominantly agricultural economy and has a large livestock population producing around 5.80 million hides and 42 million skins per annum. As with hides, production of sheep and  goat skins is running ahead of reported slaughter. Output of goat/sheep is projected to rise from 34.6 million pieces in the year 2000.

 

The quality of goat skins, cow and buffalo hides in Pakistan is quite satisfactory but there is always a scope for improvement. The type of sheep skins we have in Pakistan is better in respect of grain, substance and compactness of fibers.

 

The hides and skins production in the country has been steadily increasing yet it has not kept pace with the increase demand of leather. As a consequence the Government has allowed duty free import of raw hides and skins/pickled and wet blue leathers and it is further exciting to say that the government has now under its incentive package allowed duty free import of finished/crust leathers in order to give boost to this export sector. Every one in the industry and trade and at the government level have realized the need to import raw hides and skins from abroad as they know that further development in the leather industry depends on the imported raw materials as the availability of raw materials in Pakistan is not sufficient even for the export capacity existing at this moment.

 

1.2.        Exports

 

The Leather Industry in Pakistan is basically export-oriented. During the year 1984-85 our exports were US $190,526 million, which progressed during the last 10 years and raised to US $848 million during the year 1997-98.

 

A statistical data collected form the source of the Statistical department of Export Promotion Bureau, showing export figures of last 5 years for finished leather and leather made-ups are given in Table.

 

Value in (000US$)

S. No.	Items	Value 1993-94	Value 1994-95	Value 1995-96	Value 1996-97	Value 1997-98
1.	Tanned leather	257,887	241,139	222,615	224,302	272,227
2.	Apparel & Clothing of leather	204,826	256,791	322,211	338,718	294,602
3.	Leather gloves	40,468	65,946	61,992	37,532	44,869
4.	Leather manufacturers N.S.	7,645	10,628	14,611	12,284	8,976
5.	Leather footwear	9,827	16,252	15,002	15,630	27,135
	TOTAL	502,433	590,756	636,431	628,466	647,809

 

In accordance with the Government’s policy, the leather industry has been able to export its quantum of 90 per cent in the form of leather and leather products to the International markets. However, during the last couple of years the export of leather and leather footwear has shown considerable growth which for the last many years have been under-going from continuous declining trend. Besides as per previous years export figures, wherein 50 per cent of the total export was contributed by the Leather Garments, have now changed its trend and accordingly during the period 1997-98 (July-June) export figures shown that the finished leather export have developed than last year which indicates that the world leather importers imports for its manufacturing units of leather garments, gloves & footwear etc.

 

However, as per above indication, the decline in exports from Pakistan of Leather Garments is mainly due to slackness in the International Demand as well as continuous market recession. But, with the liberal policies of the government coupled with the recent incentive package announced by the Government for the leather sector industries, the industry is anticipating an improved conditions in near future.

 

Besides, the government of Pakistan has initiated various other measures for the promotion of the Leather Sector Industries with the joint efforts of the International Agencies like UNIDO, UNDP. Adequate attention is being paid to the training courses for leather footwear and leather products industry. The Government as well as private Institutions are imparting training in the above fields.

 

Experience has shown that countries like Korea, China and Thailand have successfully utilized this opportunity and have built big capacities in this sector. We in the leather sector industry must realize the growth potential of this sector. The Government on its part has to realize that merely withdrawal/reduction of import tariff on machinery is not going to the sufficient. It must also liberalize the import of components as well as make availability of funds on easy terms. This sector needs much bigger capital investment and should be provided with funds at a low interest rate during the next 5 years to encourage the leather made ups industry.

 

1.3.        Investment in the Industry

 

Heavy investment were made in shoe making by entrepreneurs and many modern shoe factories were installed in the country but unfortunately these factories could not come into production from the day one. Their failure was due to non availability of materials and spares required for mechanized shoe production. The very high import duties imposed on these materials made our shoe prices in-competitive in the international markets. These impediments restricted the growth of footwear industry in Pakistan and we lost the export market to countries like Indonesia, Philippines, Malaysia, Thailand and India. The utilization capacity in comparison to estimated installed capacity and annual production have maintained regular growth, as shown in the Table 2.

 

CAPACITY UTILIZATION

 

Item	Crome Tanned (M. Sq. Mtr.)	Vegetable Tanned (M.Kgs)
Installed capacity Production Capacity Utilization	47.58 40.32 84.74%	28.18 22.00 78.06%

 

The Leather produced in Pakistan and exported worldwide are far more better than quite a number of tanneries in Europe. Had our finished leather quality not been standard and consistent we would not have been today able to export our leather to those countries like Japan, USA, Germany, Spain, Italy and Portugal.

 

Pakistan being predominantly and agricultural country have large Livestock population with steady growth in its annual production. The basic raw materials for the tanning industry, that it hides and skins are derived from this livestock which accounts for about 31 per cent of the agricultural value added and about 7 per cent of the total GDP. Based on the information gathered from various sources estimated Livestock Population of Pakistan as given inTable3.

 

ESTIMATED LIVESTOCK POPULATION OF PAKISTAN

 

(`000 heads)

Livestock Type	1993	1994	1995	1996	1997	Annual Growth rate
Cattle	17,550	17,800	18,150	18,437	18,700	1.5%
Buffalo	15,800	15,950	16,000	16,115	16,350	2.3%
Sheep	30,500	32,100	32,150	33,102	34,250	3.2%
Goat	36,100	37,200	39,120	40,734	42,100	3.6%

 

 

Although our Livestock has steadily grown over the years as per above figures, the growth rate was in between 1.5 to 3.5 per cent which can make the situation more acute for our leather industry in future.

 

The Leather and leather made-ups industry in Pakistan is assuming increasing importance and is a significant contributor to our foreign exchange earnings. Availability of adequate raw materials to feed the leather industry is of critical importance to its growth and expansion.

 

At present approximately 15 to 20 per cent of the cattle and buffaloes and around 50 to 60 per cent of sheep and goats are slaughtered each year. As the indigenous supply of hides and skins is not sufficient to meet the demands of the tanning industry, raw hides and skins are imported. An estimated production of raw hides and skins are given in table 4.

 

ESTIMATED PRODUCTION OF HIDES AND SKINS

 

(Number in million)

PRODUCT	1993-94	1994-95	1995-96	1996-97	1997-98	% Growth
HIDES:
Cattle	2.18	2.19	2.20	2.21	2.22	1.3%
Buffalo	3.49	3.55	3.60	3.66	3.70	2.4%
TOTAL:	5.67	5.47	5.80	5.87	5.92	1.8%
SKINS:
Sheep	14.90	15.50	16.00	16.55	17.20	3.2%
Goat	20.20	20.85	21.50	22.45	23.20	3.5%
TOTAL:	35.10	36.35	21.50	39.00	40.00	3.2%

 

1.4.        Environmental Concern

 

As  with other developing countries of the world, the production of leather is continuously being pressurized with the increased environmental demands and our tanners have to be responsible in processing and procedures for which a realistic evaluation has to be given to the proportion of our Research and Development to the safety of  the chemicals we use, the work practice involved, safely in the place and all aspects of pollution control and waste disposal.

 

For the abatement of the above, Pakistan has now embarked upon establishment of Common Effluent Treatment Plant for Tannery waste at Korangi Industrial Area wherein a big cluster of tanning units exists. The resultant cost of addressing such concern is further impost on our country which accept global responsibility for its finished leather and the processing procedures employed.

 

We are however, proud to say that the tanners in Pakistan and many of us have long traditional ties to this industry. There is also a new generation of tanners with enthusiasm and new ideas, willing to make a commitment to the future of the tanning industry.

 

1.5.        Duty Drawbacks

 

The duty drawback system has been criticized by exporters as causing the amount resulting in liquidity crunch for them. The recent government decision to expedite the payment of duty drawbacks will come as a relief to exporters and pave the way for promoting exports. An analysis of the latest government decision is presented here in order to unveil the adequacy of the new procedure.

 

Duty drawback is one of the incentives available to exporters on much items which are produced from duty-paid imported raw materials. On such exports, rebates are allowed by the government to the sent of import duty and sales tax on imported raw materials. Duty drawback has assumed significance  lately on account of stagnation in exports and attempt to the over the crises. Export during the first eight months of the current and rose by a meager 2 per cent to $ 4,055 million over $ 4,946 million the corresponding period last year, notwithstanding the devaluation of 7 per cent October 28 and cumulative over 10 per cent during the year. According  to latest reports, foreign exchange reserves the declined to $ 1,300 million.

 

1.6.        Central Board of Revenue

 

The Central Board of Revenue prescribed effective March 4, 1996, a revised procedure regarding payment of duty drawbacks through the scheduled banks which are authorized dealers of foreign exchange in condition to customs treasuries. There the new system, customs will  the papers within seven days but not later than 21 days and them to the designated bank such through which export has made. The concerned bank branch will claim refund from the State Bank within 48 hours or two clear working days. Upon receipt from the State Bank, the concerned branch will pay the exporter the duty drawbacks in 24 hours or one working day.

 

This will fulfill the long standing demand of the exporters that they should be paid through the banks rather than customers which takes a lot of time to their dismay and disillusionment. In discussions with bank officials who felt satisfied with the new procedure, it was revealed that there are 600 bank branches including private and foreign banks which will be involved in the process of payment of duty drawbacks. This will enable the exporters to get their refunds quickly and tide over the liquidity problem which they were facing particularly in case of small exporters in respect of ready-made garments, sport goods cutlery and leather goods.

 

 

 

2.             Classification of the Leather Industry

 

Leather and leather based industries contributes around Rs. 10 billion to the national treasury. Our main competitors in the world market are India, Turkey, China, and Far Eastern countries like Japan, S. Korea, N. Korea, Hong Kong and Taiwan etc.

 

The leather industry can be divided into two man parts: Leather tanning industry and leather products industry which can be further classified n the following sub-sectors:

 

A: Leather Tanning industry:

 

1)  Hides and Skins (Hides mainly of cattle and buffaloes and skins mainly of sheep and goats)

2) Leather manufacturing sub-divided into

1. a) Tanning
2. b) Finishing

 

B: Leather Products industry

 

1)  Footwear

2)  Garments

3)  Gloves

4)  Leather Sports Goods industry

• Other leather products which include travel bags, brief cases, wallets, industrial belts and host of other time.

 

Leather and its products industry is among the fast expanding industries in Pakistan’s economy. Pakistan is one of the leading producers in the world and a well known and dependable source of its supply.

 

The situation is not much satisfactory with respect to the rate of leather industry in Pakistan in the sense that the production of leather and leather goods does not commensurate with the number of factors established here also because investment at a large scale is not taking place with the expected required rate.

 

 

3.             LEATHER TANNING INDUSTRY

 

3.1.        PRODUCT QUALITY

 

The quality of Pakistani leather product, in general, is not as good as those produced by countries like Japan, Korea, Taiwan and Thailand, although it compares favorably, in some cases, with Indian and Bangladeshi products.  Pakistani meshed leather is of high quality and in-house improvements are also being mad in a few tanneries. However, the quality of finished products, specially in the area of designing, needs particular attention.  Pakistan’s share in the export of shoe uppers is also relatively limited and offers great potential for expansion.

 

3.2.        TRAINING , RESEARCH AND DEVELOPMENT

 

The tanning industry is a highly labor intensive industry; labor is extensively employed in the initial stages of the tanning process while greater skills are required at the finishing stage .  Although a number of foreign qualified /trained personnel are working in leather tanners , they have mostly acquired their skills through on the job training or are the sons and relatives of those few tannery owners who could afford to send them abroad for training.  Their is little use of in-house vocational training, an important means of up-grading the skills of production personnel and recruitment in developed countries.  The larger mechanized units with greater resources at their disposal, are in a better position to proved their personnel with a comprehensive rang of training facilities.  Not only do mechanized units use a larger number of trained personnel pr unit, they also tend to rely more on non-family foreign and locally trained personnel.  Semi-mechanized units, on the other hand prefer to send family members for foreign training, in order to ensure that the large amount of money spent is not wasted by the loss of personnel drawn away by the inducement of higher salaries from competitors.  The preference for the use of family members places a manpower constraint on the ability on semi and non-mechanized units to expand.  It is in the small to medium-sized sector that the training provided to production personnel is particularly unsatisfactory.  institutional  support is essential to meet the requirements of this sector.

 

3.3.        EXPORTS

 

The average quality of leather produced in Pakistan has improved and the competitiveness has made a better value for the money spent.  In fact, Pakistan has been producing and exporting leather which is comparable in quality with the leather produced by countries like Germany, USA, Spawn, Italy, Portugal and Japan. Pakistan has experienced double digit growth rate in the export of leather and leather products over the last many years.  Now Pakistan competes directly with countries like India, Korea, Italy and Spain.  With the increase in manpower cost in other countries the export of value-added products from Pakistan has increased manifold.

 

Important changes took place in the composition and direction of exports of leather and leather products in the 1980’s.  The share of finished leather, which increased during the early 80’s, also started to decline during the second half of the decade as more of it was diverted towards the production of leather products. Leather jackets is today the single largest item in the leather and leather goods exports. After having achieved a transition from exporting mostly semi-finished leather to a stage where products account for over 50% of total exports, the next logical step is to diversify these products.

 

3.3.1.   EXPORT OF FINISHED LEATHER

 

The export of finished leather from Pakistan has maintained more or less the same level as in the past.  Production of leather has increased but simultaneously consumption by value-added products manufacturing units has increased leaving a smaller quantity available for export.  With the closure of tanneries in Europe it is expected that the same equipment would move to other countries including Pakistan which is competing against countries like Thailand, Malaysia and Indonesia.  The current foreign investment policy of Pakistan government has started attracting foreign investment and the quantum would grow in due course.

 

3.3.2.   FUTURE STRATEGY

 

The analysis of products composition markets and price trends lad  us to suggest a future export strategy that should nuclide the following limits:

 

• The North American market, specially after the implementation of the North American Free Trade Agreement (NAFTA) , offers great potential for further exports.

 

• The Far Eastern countries, South Korea, Hong Kong and Taiwan, will grow in their absorption capacity for leather and offer great potential for Pakistani exports to these countries.

 

• Their is a need to enlarge the export bas as the industry has ignored a number of products that offer excellent potential for large scale value added production.

 

The defined products are : Shoe uppers, watch straps, belts and clothing accessories, traveling bags wallets, hand bags and other utilities.

 

Although the share of finished leather in the export of leather and leather products is expected to further decline with the increase in its us in leather products at home, total export earnings can be increased by improving the quality of finished   leather .

 

3.3.3.   EXPORT CONSTRAINTS

 

The industry is directly affected by the recessionary conditions n the international markets posing a short term constraint on exports. A long term constraint which s regarded as a more important indigenous constraining factor, is the fiscal policy regime, which includes direct and indirect taxes on outputs and inputs and rebates provided to the industry. Production bottlenecks and exchange rat policy are the other constraining factors faced by the industry. Inadequate capacity and declining competitiveness were seen as the least significant constraints by the survey respondents.

 

3.3.4.   EXPORTS FINANCING

 

Lower cost, longer repayment and larger amounts, are cited as the three most significant advantages that access to bank borrowing has over informal market credit. Bank borrowing was also considered to be a more stable source of funding. While large size units had less need to external funding having ample cash resources of their own, the small and medium many positive steps and size units required greater access to bank financing and a number of suggestions were made in this regard. It was suggested that the export limit for refinancing should be revised with greater emphasis being placed on value-added products.

 

3.4.        INCENTIVES

 

To encourage the export of finished leather and leather products the government has  offered various incentives . Duty drawback rates of the imported raw material used in the production and manufacture of leather and leather products have been revised. Import of machinery for tanning is allowed. Moreover, there is no custom duty on such machinery. Concessionary credit at 8% is allowed for an extended monetary period.

 

The industrial incentives provided by the government are of two types, area specific and industry specific. Among the area specific incentives are the tax holidays, exemption from custom duty, deferment of duty, sales tax concessions, and sales tax rebates. Underdeveloped areas which include whole of Balochistan except Hub chowky, whole of NWFP, Northern areas, Azad Jammu & Kashmir and the divisions of   D.G. Khan  and Bahawalpur n Punjab and those of Larkana and Sukkur in Sind enjoy 8 years tax holiday and exemption from custom duty and sales tax on imported equipment.

 

The following steps have been taken by the government to discourage the export of raw hides and skins and encourage export of finished leather:

 

1. The export of raw hides and skins has been banned.
2. The export of wet-blue from cow hides and cow calves has been banned.
3. The export of wet-blue from goat / sheep skin and buffalo hides is subject to a levy of 30% of export duty.
4. Higher rates of custom rebate have been given on export finished leather and leather goods.
5. Duty free import of tanning machinery under BMR has been allowed.

 

3.4.1.     TAX CARDS

 

The Federal Export Promotion Board presided over by the Prime Minister on February 29,1996 decided to simplify the payment of duty drawbacks to exporters which has been hanging for a long time. It has also been decided to introduce tax card system with a view of further simplifying the procedure. The tax card system, already in vogue in Thailand, is expected to enable the exporters to obtain their entitlement through tax cards at export stage and to subsequently utilize them for payment of government taxes and dues.

 

These tax cards would also be transferable in prescribed cases. According to knowledgeable sources, under the tax card system, relevant data on exporters is recorded on computerized card at a glance which entitles them for export rebate and tax deduction. Although there is also record in Pakistan but it is on case basis whose retrieval is next to impossible. On the other hand, under practice prevalent in Thailand, the tax card system is handy, computerized and kept in duplicate, one copy with the government and another with the exporter. Because of being foolproof, there is little chance of fraud or manipulation. Such a system, if introduced in Pakistan, will go a long way in simplifying the irksome procedure which will be beneficial for both the government as well as the exporters.

 

3.4.2.   FISCAL AND MONETARY INCENTIVES

 

• Under the export finance scheme, the commercial banks will provide export finance to exports at the pre-shipment, as well as the post-shipment stage at concessionary rate.

 

• Income and from export is exempt up to 55% from income tax. This facility is also admissible to commercial exports of manufactured goods.

 

• Import of machinery up to Rs. 5 million to export oriented industries is allowed subject to the submission of Bank guarantee by the

 

• In order to provide latest technology to leather industry for improving export prospects, LIDO was established. LIDO has played a pivotal role in raising the exports of leather sector.

 

• Duty free import of specified machinery and plant under BMR / new projects in the new industrial estates of NWFP and Balochistan.

 

3.5.        CONCLUSION

 

The leather sector has made great achievements during the past decade, due to both government and private initiative. However, if it is to avoid stagnation and seize the opportunities available for further rapid growth in the future, the industry and the government will have to work closely together to overcome the constraints the sector faces today.

 

4.             LEATHER MANUFACTURING SECTOR

 

The leather manufacturing sector consists of the following sub-sectors:

1. FOOTWEAR
2. LEATHER GARMENT
3. LEATHER GLOVES
4. LEATHER GOODS WHICH INCLUDES:

Sport Goods, Wallets, Briefcases, Purses, Handbags, Suitcases And Other Leather items.

 

4.1.        LEATHER INDUSTRY’S PARTICIPATION IN INTERNATIONAL FAIRS

 

Pakistan tanners Association arranges participation in the various international leather fairs regularly with the joint efforts of the Export Promotion Bureau, Government Of Pakistan.  This exposition helps in promoting and projecting the Pakistan leather and leather products.  The fairs in which PTA arranges participation of its members are:

 

1. Paris International Leather Fair
2. Hong Kong International Leather Fair
3. Cologne Fashion Fair
4. Osaka Fair, Japan
5. Munich Fair
6. NAMSB Fair
7. SEHN Fair

 

Besides the above, on PTA’s recommendation, members also get permission to participate in other international fairs held in different countries.  These exhibitions assist  greatly in promoting export markets, creation of new avenues and intensifying of efforts to boost exports of the country.

 

Participation in the above international fairs and exhibitions is being subsidized by the Export Promotion Bureau and it helps greatly in augmenting our exports of leather  and leather made ups in the respective markets.  This subsidy is extended as a source of encouragement for small exports

 

5.             LEATHER FOOTWEAR INDUSTRY

 

The footwear industry in Pakistan is an example of the industry with tremendous potential which has been suffering due to lack of cohesion among the industry.  Today, internationally, the footwear industry is moving towards the developing countries such as Taiwan and Korea as they are amongst the largest producers of shoes.  India and Thailand are the latest examples of the countries where footwear export led growth has shown startling results.  Countries such as UK, Germany and USA are reducing their own show production because of the high cost of labor and other inputs.

 

The footwear industry is a labor intensive industry which enjoys growth in both domestic and international markets.

 

At present , renowned manufacturing firms are:

Bata Pakistan Ltd.

Servis Shoe industries Ltd.

191 medium sized footwear units

 

5.1.        VARIETIES PRODUCED IN PAKISTAN

 

Pakistan’s footwear industry presently produces almost all the varieties of shoes and sandals for men, women and children which include the following:

 

1. Leather footwear for men
2. Leather shoes for women
3. Artificial leather shoes
4. Footwear for children
5. Sandals for men and women
6. Heavy duty boots for army and police
7. Sports shoes
8. Joggers
9. Safety footwear
10. Rubber shoes

 

5.2.        PROJECTED DEMAND

 

In projecting the demand for leather footwear , an WACP’s study on leather has taken into account a pr Capita compound rate of 3%, population rise of 3% and a growth rate of 8-10% in exports.  Based on this parameters , the projected demand of leather footwear is given in the following table.

 

Table-3-3

PROJECTED DEMAND OF LEATHER FOOTWEAR

( in million pairs)

Year	Domestic Demand	export	Total Demand
1992-93	71.421	2.032	73.453
1993-94	75.764	2.235	77.999
1994-95	79.540	2.340	81.880
1995-96	83.510	2.450	85.980
1996-97	87.978	2.608	90.586
1997-98	92.685	2.775	95.460

Source: PLTJ April to June 1990

 

5.3.        EXPORT OF FOOTWEAR

 

Contrary to it’s potential and efforts by the shoe manufacturers and govt., the export of leather footwear has not shown any remarkable improvement.  Lately, the govt. has removed various duties and taxes payable on the import of shoe manufacturing machines and it is expected that investment in this sector will increase in due course.  Most of the leather exported from Pakistan goes to shoe manufacturers and with the increase in shoe manufacturing facilities in Pakistan it could be used in the country.

 

With the introduction of IMS production , the industrial base has increased .  As the quality of leather for shoe uppers is improving, its export to developing countries as well as other countries is improving.

 

The share of footwear in export of leather sector was 0.82 % which is not at all satisfactory.  Following are the reasons for low export figures of footwear:

 

1. Short supply of superior quality leather.
2. Comparative high cost of imported machinery.
3. Non-availability of good quality auxiliary material and accessories required for the manufacture of footwear.
4. Shortage of trained manpower.
5. Non-availability of creative designers.
6. Lack of export marketing intelligence.

 

5.4.        PROBLEMS

 

• Buffalo leather is being used in Pakistan for the manufacture of soles. This sole has not proved to be suitable for wet climate in western markets.

 

• There is a wide gap in the design being followed by the industry and the very changing pattern of design in foreign markets.

 

• Of the total production of footwear in the country, almost 61% is contributed by small manufacturers. They are not aware of the importance of quality and are not able to maintain their standards.

 

• The biggest constraint at present is the scarcity of skilled labor and middle management in this industry.

 

• The industry is also lacking in modern standard of packing.

 

 

• Market research is conspicuous by its absence which if present can be of proper guidance to industrial undertakings on reliable data on demand , price, design and other aspects of marketing.

 

5.5.        INCENTIVES

 

1. There is a facility of duty drawbacks on export of footwear
2. Exemption of customs duty on the export of plant and machinery which is not manufactured locally.
3. Exemption of income tax to the industrial units.
4. Grant of loans through financial institutions at concessional rates of interest for purchase of local machinery.
5. Export refinance scheme on the export of footwear.

 

6.             LEATHER GARMENTS INDUSTRY

 

The world demand for leather garments has been steadily rising.  At present S. Korea is a leading country in the export of leather garments with a share of 20% in the total world trade, while Pakistan’s share is only 2%.

 

Leather garments business , nourished into an industry in Pakistan in mid 80s, and has involved as one of the major manufactured export products of the country.  Pakistan has been exporting quality leather garments to Europe and to the USA.

 

The leather garments are manufactured on small or medium scales and all production is oriented for export which is mainly concentrated in Karachi.  The industry is generally producing jackets and coats.  A few years ago , there were only 5 garment making units with a capacity of 240000 pieces pr annum operating.  A major breakthrough has been achieved in the last 10 years or so and now there are about 85 big units operating in the country.

 

6.1.        EXPORT MARKET

 

The export market for leather garments is fairly diversified.  Major buyers of leather garments are Germany, USA, UK, France and Sweden.

 

The world demand in general has been quite depressed for some years or so because of world recession and various regional wars.  In addition , some developed countries have imposed strict quota rules and are restricting imports from developing countries.

 

6.1.1.   EXPORT OF LEATHER GARMENTS

 

Having the advantage of low manpower cost and better quality leather , export of leather garments has experienced a growth from US $ 67.48 million in 1992-93 to US $204.83 in 1996-97.  With the passage of time the availability of skilled labor has improved.  With the use of improved leather quality, improved designs and modern stitching machinery, manufacturers are able to produce better garments which fetch a higher price pr unit.

 

The following table shows the dollar value of the leather garments exports during the years 1992-93 to 1996-97.

 

Export Figures of Leather Garments

Type	1993	1994	1995	1996	1997	Avg Gth %
Jacket	938450	1675800	1142400	1496200	3236700	36.5
Trousers	28465	11100	45600	31560	124300	45
Skirts	311354	380900	350480	690250	194740	15.5
Long-Coats	21555	249360	375490	845550	232440	80
Vest & Oth	71851	62340	108480	189820	201030	30
Total	1371675	2379500	2022540	3253380	3989210

Source: NMC Field Survey

 

 

The above mentioned garments are being exported to a large number of countries.  The table given below shows who the main imports of our garments are and their share in our total exports of leather in the year 1990-92 and 1995-96:

 

Country	1990-92	1995-96
USA	5.3	16.5
UK	7.8	26.4
Germany	46.3	3.1
Franc	6.9	5.1
Sweden	2.1	3.2

 

6.2.        KEYS TO SUCCESS

 

For achieving success in the export of leather garments four suggestions are given. These are as follows

 

1. Product should be in accordance with the required taste and design.
2. Perfection, that is, size, fittings and measurement are most essential
3. Prices should be competitive
4. Promptness- nothing can be more disastrous than late deliveries of products.

 

6.3.        REBATES / INCENTIVES

 

In the trade policy, leather garments has been exempted from income tax. Other incentive now offered includes exemption from custom duty, sales tax, surcharges, and Iqra charge on imported raw materials used by the leather garments industry. Additionally, import of accessories have also been exempted from custom duty, thereby enabling the manufacturers to make liberal imports to meet the growing requirements of these materials.

 

Duty drawback rates of the imported materials have also been increased in response to the demand from manufacturers and exports of leather garments.

 

6.4.        SUGGESTIONS

 

The organized tannery units should assess the garment industry or they themselves should participate in the manufacture of value-added goods. As far as the import of sheep skin is concerned, it should be in large equipment, which is not possible for small and medium tanneries as it needs surplus staff for inspection.  Bigger commercial imports should come forward and enter into the import trade of hides and skins.

 

The duty drawback and rebate on export of finished cow leather and leather garments is not sufficient enough to attract one to switch over to cow / buffalo finished leather garments.

 

According to some industrialists, leather industry needs exemption of all labor laws including EOBI, as being done in the carpet industry.

 

Because of high prices of leather garments from Pakistan, most of the European buyers are now buying from India.  The export incentives in India is 27%, whereas in Pakistan it is 10%. The government should bring rebate at par with the duty drawbacks, particularly keeping in view the devaluation of Indian currency with recent past due to which the Indian industry has become more competitive than others.

 

What is necessary that income from export of value-added items should be totally exempted from Super tax / Income Tax.

 

7.             LEATHER GLOVES INDUSTRY

 

The other possible sector where great development and increase in exports can be made is the production of high quality gloves. Today the biggest producers of the gloves are Philippines, Taiwan, and some East European countries like Romania. There is a need to carry out a study to value at the potential of this sector.

 

The types of gloves being produced can be divided in the following four major categories:

 

• Industrial working gloves
• Fancy / dress gloves
• Sports gloves
• Ski gloves
• Boxing gloves
• Karate gloves
• Hockey, Cricket, Football gloves
• Others Cycle, Motorcycle gloves.

 

7.1.        PRODUCTION OF GLOVES

 

Production of fashion or dress gloves, as well as high quality golf gloves has not yet developed in Pakistan despite attractive marketing prospects and availability of local raw material. Most of leather gloves produced in the country are exported. Local consumption is only 5%. The production is concentrated in Sialkot which makes 70 to 80% of the country’s output. The latest production of gloves was 3055 thousand dozens during 1996-97, the breakup of which is as under:

 

Type of gloves	Production	Export
Industrial	1244595	1185329
Fancy	1189600	1132953
Sports	621584	591985
Total	3055779	2910267

Source: IRS Study.

 

7.2.        EXPORT OF LEATHER GLOVES

 

The leather gloves sector is currently the second largest sector of the leather products manufacturing industry in terms of export earnings.  The bulk of this trade is in industrial gloves of all types.

 

Export of Gloves

	(Quantity in millions)	(Value in mn of Rupees)
Year	Quantity	Value
1992-93	33.52	541.500
1993-94	34.99	601.292
1994-95	39.04	687.572
1995-96	38.72	749.091
1996-97	49.11	1055.340

Source: Federal Bureau of Statistics and EPB.

7.3.        DEMAND PROJECTIONS  OF LEATHER GLOVES

 

Exports in the last five years increased on an average rate of 20.7%. On conservative bass, the demand has been projected at 10% per annum as follows:

 

Projected Demand

		(Quantity in millions) (Value in mn of Rupees)
Year	Quantity	Value
1989-90 (base)	49.11	1055.340
1990-91	54.02	1266.000
1991-92	59.42	1518.000
1992-93	65.38	1823.000
1993-94	71.90	2187.000
1994-95	79.09	2624.000
1995-96	87.00	3148.800
1996-97	95.70	3778.600

 

7.4.        QUALITY OF GLOVES

 

The production of high value-added quality dress gloves and sports gloves in Pakistan is almost non existent.  Most of the leather being utilized in production of fancy / sports gloves is relatively cheap priced and is tail-end grade leather and so are the accessories which are used in this production.  For the production of industrial gloves, reject quality of leather is used.

 

The quality and quantity of production suffers a great deal due to lack of appropriate equipment, as well as good quality accessories.

 

7.5.        RECOMMENDATIONS

 

There is a need to organize manufacture of gloves on properly mechanized systems.

 

Production of dress gloves requires highly skilled workers, special sewing machines, and other equipment, as well as accessories material for example lining and other ornaments.

 

Following incentives and facilities for this sub-sector have been suggested:

• More favorable rates of duty drawbacks for leather gloves as compared to those for leather .
• Income should be fully exempted from tax.
• In addition to machinery, import of raw material be exempted from taxes / duties.
• Exemption from labor laws, EOBI, Social security.
• Air freight subsidy to the extent of 50% of AWB value.
• Payment of drawbacks through commercial banks.

 

Given the excellent quality of gloves available in Pakistan, it should be possible to boost this trade through more concentrated marketing and attention to fashion trends.

8.             LEATHER GOODS INDUSTRY

 

Articles of leather in various forms are being made in this sub-continent from time immemorial.  The technical definition of the leather goods encompass all those articles in which one cares owns belongings, personal papers, money or shipping, etc. The items, therefore, that fall under the heading leather goods are: wallets, purses, briefcases and folios, lady’s handbags, shopping bags, suitcases and attachecases, make-up cases, hat boxes, and it also includes all gift articles and desk sets.  Leather goods industry does not include footwear, leather garments, leather gloves, leather sports goods, saddlery and leather industrial such as pikers and industrial belts.

 

Leather goods industry is basically a handicraft type of industry.  Therefore, it is established on a small scale / cottage level.  Even in developed countries, the majority of manufacturers do not employ more than 30 people.  The reason being that a lot of hand work is involved.  In our country the units are so small that they fall in the range of cottage industry. Most of the small manufacturers a working in there homes and sometimes the entire family is involved in the fabrication of the end product.

 

8.1.        MAJOR CONSTRAINTS

 

In the following paragraphs are discussed the major constraints as mentioned in “Leather Goods: an appraisal “ (PLTJ Dec. 1989) in the development of this traditional sub-sector of the leather industry.

 

8.1.1.   LABOR LAWS

 

According to the industry circles, the biggest hurdle in the way of expansion of this industry are labor laws.  They argue that it is virtually impossible for any small entrepreneur to honestly maintain the various records required by the countless departments involved.

 

8.1.2.   RAW MATERIAL / OTHER REQUISITES

 

The most important raw material for the leather goods is leather.  Leather of good quality is not available in the market and is currently being supplied to the foreign markets.

 

In addition to the non-availability of good quality leather, other important requisites such as thread, edge coloring, cement. finishing lacquers, straw and cardboards, metal fittings and fixtures, hand tools and tapes are cleared to be not freely available.  Moreover, it is impossible for a small manufacturer to keep all the raw material required in stock all the time.  Neither can he import some of these because the exports do not entertain small orders.  He is, therefore, forced to use whatever he can conveniently get.

 

8.1.3.   FASHION / DESIGN

 

The market for leather goods is subjected to continuous change in fashion, style, color and leather texture.  Therefore, leather goods designer have to be familiar not only with the manufacturing process but also with the market in which he will sell.  It will be possible only when we have facilities available at the Pakistan Design Institute.

 

8.1.4.   MANUFACTURING CONSTRAINTS

 

In order to improve quality and increase production capacity there is a need to import various machines, tools and technology.  At present, the entire industrial system is working for the benefit of those who can invest in crores, since the import structure is quite complex and hinders genuine small manufacturers to entire the already difficult field of establishing a leather goods industry.

 

8.2.        INFERENCE AND RECOMMENDATIONS

 

The field of leather goods, no doubt, has unlimited potentials because it has countless number of articles of consumer interest.  The following steps are recommended to boost our production and exports of leather goods:

 

• There should be some check on free exports of finished leather
• The feeder industries may be established side by side by giving special concessions to all this  who want to come ahead.  It suggests that LIDO should be entrusted with the task of importing and distributing all such materials which are not readily available in the country.
• Rationalization of import duty / taxes on raw material
• Tax holiday to all cottage / small and feeder industries
• Leather goods manufacturers demand that this sub-sector , like in case of leather gloves, should be exempted from labor laws.
• Duty free import of machinery / tools.
• Training of craftsmen
• Each sub-sector of the leather sector should be considered separately. Separate committees should be formed for leather, leather garments, leather goods, leather gloves and footwear.

 

Rationalization of tax rebate structure so that at least the same percentage of rebate should be paid on leather goods exports as on other leather products.

 

TABLE OF CONTENTS

 

1. INTRODUCTION__________________________________________ 1

1.1.    INPUTS TO THE INDUSTRY____________________________ 1

1.2.    EXPORTS_____________________________________________ 2

1.3.    INVESTMENT IN THE INDUSTRY_______________________ 4

1.4.    ENVIRONMENTAL CONCERN__________________________ 7

1.5.    DUTY DRAWBACKS___________________________________ 8

1.6.    CENTRAL BOARD OF REVENUE_______________________ 9

2. CLASSIFICATION OF THE LEATHER INDUSTRY____________ 10
3. LEATHER TANNING INDUSTRY___________________________ 12

3.1.    PRODUCT QUALITY__________________________________ 12

3.2.    TRAINING , RESEARCH AND DEVELOPMENT__________ 12

3.3.    EXPORTS____________________________________________ 13

3.3.1.    EXPORT OF FINISHED LEATHER____________________ 14

3.3.2.    FUTURE STRATEGY_______________________________ 14

3.3.3.    EXPORT CONSTRAINTS____________________________ 15

3.3.4.    EXPORTS FINANCING______________________________ 15

3.4.    INCENTIVES_________________________________________ 16

3.4.1.    TAX CARDS_______________________________________ 17

3.4.2.    FISCAL AND MONETARY INCENTIVES______________ 18

3.5.    CONCLUSION________________________________________ 18

4. LEATHER MANUFACTURING SECTOR_____________________ 19

4.1.    LEATHER INDUSTRY’S PARTICIPATION IN INTERNATIONAL FAIRS___________________________________ 19

5. LEATHER FOOTWEAR INDUSTRY_________________________ 21

5.1.    VARIETIES PRODUCED IN PAKISTAN_________________ 21

5.2.    PROJECTED DEMAND________________________________ 22

5.3.    EXPORT OF FOOTWEAR_____________________________ 23

5.4.    PROBLEMS__________________________________________ 24

5.5.    INCENTIVES_________________________________________ 24

6. LEATHER GARMENTS INDUSTRY_________________________ 26

6.1.    EXPORT MARKET____________________________________ 26

6.1.1.    EXPORT OF LEATHER GARMENTS__________________ 27

6.2.    KEYS TO SUCCESS___________________________________ 28

6.3.    REBATES / INCENTIVES______________________________ 28

6.4.    SUGGESTIONS_______________________________________ 29

7. LEATHER GLOVES INDUSTRY____________________________ 31

7.1.    PRODUCTION OF GLOVES____________________________ 31

7.2.    EXPORT OF LEATHER GLOVES_______________________ 32

7.3.    DEMAND PROJECTIONS  OF LEATHER GLOVES_______ 33

7.4.    QUALITY OF GLOVES________________________________ 33

7.5.    RECOMMENDATIONS________________________________ 34

8. LEATHER GOODS INDUSTRY_____________________________ 35

8.1.    MAJOR CONSTRAINTS_______________________________ 35

8.1.1.    LABOR LAWS_____________________________________ 36

8.1.2.    RAW MATERIAL / OTHER REQUISITES______________ 36

8.1.3.    FASHION / DESIGN________________________________ 36

8.1.4.    MANUFACTURING CONSTRAINTS__________________ 37

8.2.    INFERENCE AND RECOMMENDATIONS_______________ 37

 

40

 

 

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International Trade Prospects of the Leather Industry