More than one and a half year after the Generalised System of Preferences (GSP) Plus came into effect, the country’s leather export numbers suggest the sector has yet to reap benefits of the concession.
“Pakistan got a huge incentive under the EU’s GSP Plus scheme in which it could export its leather products with zero percent duty, but instead of increasing exports, trade in this sector has largely remained stagnant,” said Pakistan Tanners Association (PTA) Chairman Gulzar Feroz.
“As modern processing units take over the world, dynamics of the leather industry swiftly change and without innovation you lose your edge,” Feroz said in an interview with The Express Tribune. The GSP Plus scheme allowed Pakistan to export over 90% of its products on zero percent duty to 28 EU countries. Pakistan has clearly failed to take advantage of this duty concession.
Instead of increasing, Pakistan’s leather exports to the EU have declined to $1.19 billion from $1.27 billion, down by 6.3%. This happened at a time when Pakistan’s overall exports to the EU jumped over $1 billion in the first 12 months after getting GSP Plus scheme.
Problems of the industry
Leather industry’s core problems are not very much different from the problems faced by the country’s other industries.
The industry has abundant raw-material but it still lacks proper value addition that can fetch a higher rate of return on its products. Just like other industries of Pakistan, the additional burden of security challenges and the shortage of electricity in the last decade have further dampened its prospects to compete with its regional rivals.
Now, due to the economic slowdown, especially in Europe, demand of different leather products especially leather garments have been depressed for quite some time. This has caused more trouble to Pakistan because leather garments make up about half of the total value added leather exports of the country.
“Leather garment sales have completely collapsed which is a serious problem for the industry. In such a situation, Pakistan needs to look for other avenues and concentrate on those products that can generate demand even in tough economic conditions,” he stressed.
Footwear to the rescue
One such sub-sector is footwear where Pakistan can not only increase its exports but also sustain its exports in challenging economic situations of the world. Feroz believes footwear is a sub-sector where huge space of improvement is available. He says Pakistani footwear companies should technically collaborate with other global footwear makers in countries such as Italy, Spain and Portugal to further improve their designs and quality.
“Better marketing, government support schemes or low cost of production can be reasons why India and Bangladesh are able to increase their exports,” said Feroz, asking why Pakistan cannot compete with regional rivals?
Despite such a gloomy export performance in the last decade, Feroz is still hopeful of a turnaround in the leather sector. “There is so much potential of value addition in the leather industry of Pakistan that despite the economic slowdown in the world, the country can double its exports within three years,” he stressed. However, Feroz says this is only possible when the government views this sector as an asset.
“Leather exports are going to decline by 20-25% in the first six month (Jul-Dec) of the ongoing fiscal year 2015-16. Something has to be done at the government level to stop this trend,” he warned.
The writer is a staff correspondent
Published in The Express Tribune, October 19th, 2015.