Leather industry in tatters following global slowdown

Published: September 29, 2015
Government’s inability to refund claims has led to liquidity crunch. PHOTO: PPI

Government’s inability to refund claims has led to liquidity crunch. PHOTO: PPI

KARACHI: The economic slowdown in major economies of the world is now badly affecting Pakistan’s leather industry. The situation is further exacerbated as the industry failed to benefit from plummeting prices fetched for leather hides on Eid due to a liquidity crunch.

Low sales of finished leather products in the world over during the last few months have disturbed the business cycle of Pakistan’s leather industry. Resultantly, despite abundant availability of raw material, the industry failed to accumulate the required number of sacrificial animal hides this Eidul Azha, an annual Muslim festival, during which the industry gets most of its raw material.

This means that the market situation will remain similar over the next 12 months as the cash-strapped industry is unable to use the previous year’s stock of raw material.

The situation also resulted in a sudden fall of 40-50% in the prices of animal hides this year because of dampened demand and excess supply of the raw material.

The average price of cow hide dropped to Rs1,500 to Rs1,800 from as high as Rs3,000. The situation was similar in case of goat skins where average price dropped to Rs250 from Rs400-500.

Former Pakistan Tanners Association (PTA) chairman Gulzar Feroz said, “The situation of leather industry in Pakistan today is similar to what we are seeing in the international market”.

There is an overall slowdown in world’s leather industry due to low sales of leather products. For instance, the average price of an American cow skin is down by up to 60% and a New Zealand’s sheep skin is down by 70% according to some estimates, said Feroz.

Officials say the industry is also facing a liquidity crunch because mammoth sales tax refunds are stuck with the tax machinery. The industry wanted to cash the opportunity to buy cheap hides this Eid but it was unable to do that.

According to estimates, leather industry collects over 60% of its annual raw material on Eidul Azha every year. Moreover, the quality of hides collected during Eid is considered as top-notch.

There are about 800 tanneries in the country. According to PTA, leather industry directly employs about 500,000 people, contributing 5% to GDP and 5.4% to the overall export earnings of Pakistan.

Published in The Express Tribune, September 29th, 2015.

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