Focused approach required for export diversification

Bangladesh needs to diversify its export basket and reduce single-product dependency. 

The leather, leather goods and footwear sector is the second-largest export earning sector in the economy,  however it falls far behind in revenue when compared to the ready-made garment (RMG) sector. 

In light of global brands looking for new manufacturing destinations for footwear and leather goods, and our neighbouring countries growing their international market share in this sector exponentially,  what can Bangladesh do to propel export growth and investment in this sector?

One step could be the establishment of a common or central bonded warehouse facility to support small-scale industries. This will enable small and medium enterprises to have access to raw materials without going through the red tape of attaining bond licences. 

It will also lead to local producers becoming export-ready and give them the opportunity to scale up their operations. Countries like Vietnam and India have successfully implemented central bonded warehouse facilities which has been a great help to smaller scale manufacturers. 

Another issue of concern which is posing a serious risk both nationally and internationally is the issue of the Effluent Treatment Plant (ETP) not functioning properly in Tannery Industrial Estate in Savar, Hemayetpur. 

The relocation of the tanneries have been completed, however the ETP built is not equipped to deal with the solid and liquid waste discharged during the tanning process, especially from raw hide to wet blue stage.

In order for the ETP to be functional, major retrofitting work needs to be undertaken by a contractor with previous experience in setting up ETP in other countries. Currently, a successful ETP model is being run in Savar EPZ area, where a functional ETP is running under a private contractor and the operations are overseen by the BEPZA authority. 

Such a Private Public Partnership (PPP) model may be replicated for the tannery area as it has already proven to be successful. It is important to get the ETP model correct in the current tannery area before proceeding to establish further new tannery estates as it will compound the image and environmental concerns that the sector already suffers from. 

Due to the ETP issue and non-compliance issue of the tannery estate, Bangladesh is unable to cash in on its highest competitive advantage - availability of local raw material - for the leather goods and footwear manufactured in the country. 

Having a well functioning ETP would enable the sector to cash in on the availability of local raw materials and would be a game changer which will herald exponential growth in the sector.

Another factor that needs to be addressed in order to bring about growth momentum in the sector is the establishment of vertical local supply chains through FDI, which will help product manufacturers reduce their lead times and enhance speed to market capabilities. 

Bangladesh has a huge potential for manufacturing non-leather products and footwear as the international market size for these products is considerably larger than that of leather products and footwear. 

However, Bangladesh cannot fully tap into this opportunity due to the lack of a strong local supply chain. We currently have to import almost all raw materials for this industry.

The standard turn-around time from order placement to ex-factory in Bangladesh is 90-120 days, whereas in countries like China, Vietnam and India it is 40-45 days. This is only possible because backward linkage industries such as sole, hardware, zipper and PU manufacturers have set up local supply chains which enables them to get access to raw materials faster.

To achieve this, we require foreign investment and policy support to attract investors to set up facilities here. This would help us establish a robust local supply chain and reduce lead times, making us more competitive in the global market as a manufacturing country for non-leather accessories and footwear.

This sector has a tremendous potential for growth and has the ability to generate exponential positive multiplier effects in the economy through job creation, product diversification and value-added manufacturing. 

With the right kind of policy support and policy continuation of existing facilities, it would well be possible to turn this into a $5 billion sector by 2029.

Amrita Makin Islam is the deputy managing director of Picard Bangladesh Limited and director of Leathergoods And Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB).