Bangladesh is on the way to becoming a middle earning country. So there are some emerging sectors which are carrying out the caravan of economic development. Bangladesh is attracting increasing interest from international investors as an emerging preferred low-cost manufacturing hub in Asia with a steadily growing economy, abundant, easy to train and affordable young labor force, preferential market access and strategic geo-economic location. It also offers exciting investment opportunities under its liberalized Industrial Policy, export-oriented, private sector-led growth, and the new specialized economic zones (SEZ) being offered. Among them, the leather and footwear industry is most important. The rising international investment ratings highlight the growing attractiveness of Bangladesh as an investment destination for the leather and footwear sector.
Leather Industry Overview
Bangladesh leather industry is well established and ranked second in terms of export earnings. Because of its high-value addition and huge growth and employment opportunities, the leather sector has already been declared a thrust sector of the country. Bangladesh accounts for a 3% share in the global leather & products market. Almost 95% of its annual output is being exported. The export of leather and leather products increased manifold over the past decades. The compound annual export earnings crossed the billion-dollar mark in the year of 2013-2014. The composition of leather and leather goods from Bangladesh underwent a structural change. Whereas in 2008, 62% of all export earnings from the sector came from finished leather, by 2014, this proportion came down to 39%. The growth of the footwear industry has increased from 20% of total export earnings in 2003 to 43% in 2015. Products such as fabric-based footwear are also now being produced in Bangladesh for global retailers. Because of sustained growth performance and its increasing competitiveness in producing quality products at least 51 foreign companies have shown interest in establishing footwear units in Bangladesh.
Global Footwear Industry
Given the rising global demand for footwear which is expected to reach USD 211 Billion by the end of 2018. (Source: Transparency market research), Bangladesh has the potential to tap into the growing market by offering quality output.
Emerging Footwear Export
Bangladesh’s footwear export has doubled during 2010-13 and continues to rise further as illustrated below. Bangladesh is involved in the export of components at various stages of the footwear value chain ranging from raw materials to work-in-progress such as soles and finished goods like shoes. The sector has been growing over the last 5 years with exports increasing by 46% in 2011 followed by a healthy 25% growth in 2013. Recently, total export has exceeded USD 1 billion mark for the leather sector which has been due to rising global demand and renewed interest amongst local entrepreneurs for manufacturing footwear. Some international investors have forayed in the sector setting up factories in local Export Processing Zones (EPZs).
As illustrated above, Bangladesh has the potential to accommodate relocating footwear units from China, due to Bangladesh’s inherent input cost advantages. However, Bangladeshi labor needs to undergo the learning curve to improve their efficiency and productivity.
Bangladesh has a distinct advantage in footwear production as it is involved in all stages of the value chain from raw leather to the final product. The annual export of these components is expected to reach a value of USD 5 billion within the next decade.
Bangladesh is set to emerge as the next manufacturing hub for the global footwear industry. The cheap labor is prompting top manufacturers to relocate their factories in the country. The good news is that a number of foreign investors, as well as buyers, have already shown interest in Bangladesh’s leather and footwear sector. Recently, the president of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association (BFLLGFEA) informed all concerned that three large investors in the footwear sector from Taiwan would set up footwear factories in the Dhaka and Chittagong Exporting zones. The buyers from the EU, as well as other very highly developed industrial nations like Japan, have reportedly been showing importance in Bangladeshi leather products. All these developments look promising for the local footwear industry. The Export Processing Zones at present have 18 shoe and leather goods factories but there are at least seven large factories under construction, mostly owned by big manufacturers in the shoe world. The factories under construction include Korean company Young one’s footwear complex which is said to be the largest in Asia.
The local footwear industry is experiencing an annual growth rate of 21 percent, according to a spokesman from another apex organization, Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LGFMEAB). However, to continue the trend, the present level of growth has not only to be attained; it also has to be taken to a still higher level, if Bangladesh is to match the success of its immediate competitor, Vietnam. According to newly released statistics from the Export Promotion Bureau of Bangladesh, footwear exports from the country grew from US$61 million in the period of July-November 2007 to $85 million in the same period of 2008, recording a growth of 39 percent. In the first four months of the 2010 fiscal year there has been $98 million worth of exports, a 65 percent increase from the same period last year. Growth in exports is due to the low production cost in Bangladesh compared to its neighboring countries: China, India, and Vietnam, who also have a very well entrenched leather and footwear export industry. Orders which earlier used to be given to China or India are now being handed out to footwear manufacturers in Bangladesh because they are able to produce low-priced but quality shoes, which have now found its way into key markets in the EU and Japan.
Bangladesh has a large domestic raw material base and is moving towards building an environmentally sustainable production of processed rawhide and leather products. Availability of a youthful, skilled and semi-skilled labor force and qualified leather technologists. International brands like Adidas, Aldo, Timber Land, Marks & Spencer, Steve Madden, Espirit, ABC Mart, Nike, and K-Mart Sears, etc. are sourcing leather goods or footwear from Bangladesh. Can utilize tariff-free access to the European Union (through the EU’s Generalized System of Preferences, GSP), Canada, Australia, and Japan. Emerging as a sourcing place for leather goods and footwear production. Giant leather export countries such as China, are shifting their production units in Bangladesh due to increasing production costs. Almost 90% of value addition is possible. EU initiatives in the leather industry for standardized and distinctive designed products by the sophisticated technological production system.
The government has identified leather as a thrust sector for export to exploit the country’s full potentials in this sector. Duty-free import of all types of raw materials and machinery. Concessional duty on import of specified machinery for the leather sector. Support in the form of tax holidays, duty-free imports of raw materials and machinery for the export-oriented leather market, bonded warehousing along with other policy supports. 90% of
loans against letters of credit and funds for export promotion. Export credit guarantee scheme. Domestic market sales of up to 20% are allowed to the export-oriented businesses located outside of EPZ. Export subsidies are granted ranging from 5% to 15% on selected products.