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Exports of leather and leather garments.

Exports of Leather & Leather Garments

Exports of leather during the last five years showed an average annual increase of 21.6 per cent up from Rs. 2,385.1 million in 1984-85 to Rs. 6093.6 million in 1989-90. The share of leather in the total exports of leather and leather products was 46.0 in 1984-85. This share increased to 59.2 per cent in 1989-90. Pakistan will have to make an effort to increase value-added products like shoes, gloves, leather jackets and leather goods and ultimately completely stopping the export of leather.

Exports of Leather
 (Rs. in (%)
Year million) increase
1984-85 2,385.1
1985-86 2,980.4 +24.9
1986-87 4,153.7 +39.3
1987-88 5,127.8 +23.4
1988-89 4,835.2 -5.6
1989-90 6,093.6 26

Average Annual increase 21.6%

From the above table it will be seen that upsurge in exports was very quick. The reason was that duty free import of leather machinery enabled the industry to install modern sophisticated leather finishing machinery. As a result Pakistan tanning industry started producing finished leather which was acceptable in all foreign markets. Italy is the main buyer of Pakistani leather taking a share of 38.93 per cent of total exports. Its share was 44.43 per cent in 1986-87. Japan's share has also declined from 11.29 per cent in 1984-85 to 5.08 per cent in 1989-90 share of Federal Republic of Germany has also widened from 2.48 per cent in 1984-85 to 7.17 per cent in 7.17 per cent in 1989-90. South Korea and Portugal have also widened their respective share.

Exports of Leather Garments

Leather garments showed an average annual increase of 16.8 per cent during the last five years as shown in the following table.

Exports of Leather & Leather Garments

Year Leather Garments Total
1984-85 2,385.1 2,794.0 5,179.1
1985-86 2,980.4 1,266.6 4,247.0
1986-87 4,153.7 1,761.5 5,925.2
1987-88 5,127.8 2,384.1 7,511.9
1988-89 4,835.2 2,759.2 7,594.4
1989-90 6,093.6 4,191.1 10,284.7

Exports of Leather Clothes and Accessories
 (Rs. (%)
Year million) increase
1984-85 2,794.0
1985-86 1,266.6 -54.6
1986-87 1,761.5 +39.0
1987-88 2,384.1 +35.3
1988-89 2,759.2 +15.7
1989-90 4,191.1 +51.9

Average increase 16.8%

Leather Units on KSE

Karachi Stock Exchange has five leading leather units on its list while one is in the process of listing. These are:

- Bata Pakistan Limited - Hilal Tanneries Limited - National Tanneries Limited - Service Industries Limited - Universal Leather & Footwear Industries Limited.

Total networth of these companies stood at Rs. 616 million. While sales in 1989 of the 5 companies stood at Rs. 2,640 million. Individual write-ups on these companies are given in the following paragraphs.

Bata Pakistan Limited

The company was established in 1942, as a project of Bata India at Calcutta. In 1951, the project was taken over by a Private Limited Company under the title of Bata Shoe Company (Pakistan) Limited, Batapur. It produces shoes comprising Rubber, Leather and Plastic footwear. It has over 650 retail stores, agencies and wholesale depots and it also produces cycle tyres and tubes. Bata Pakistan Limited, by means of long term agreement with Bata Limited Toronto Canada shares with other Bata Companies the facilities and assistance provided in the field of technology and marketing by its parents office. In addition, Bata Pakistan Ltd. is permitted to use the Bata registered trade mark, thus contributing its ability to export its products throughout the world.

Capital Structure

The authorised capital of the company is Rs. 100 million divided into shares of Rs. 10 each. Against this the paid-up capital stood at Rs. 75.60 million. The company was listed on Karachi Stock Exchange in 1979. The paid-up capital increased to the present level mainly by issue of bonus shares, and remains unchanged since 1986.

Sales & Pretax Profit of Bata

(Rs. in million)
 Ratio of
 Pretax PP to
Year Sales Profit Sales %
1986 786.12 67.96 8.64
1987 916.02 75.61 8.25
1988 1,077.36 87.94 8.16
1989 1,234.58 103.16 8.35

Source: Balance Sheet

Sales showed a sharp rise of 56.9 per cent in 1989 over the sales of 1986 up from Rs. 786 million to Rs. 1.234 million. The export performance during the year was Rs. 76.7 million as compared to Rs. 87.6 million in 1988. This included export sales of leather amounting to Rs. 15.7 million as against Rs. 14.1 million in 1988. Total production of shoes during the year from factories at Batapur was 13.9 million pairs as against 14 million pairs in 1988. Distribution network in 1989 was streamlined. To increase the company's participation in the domestic market, 22 new retail agencies were opened. As on December 31, 1989 the distribution network consisted of the following.

Distribution Network in 1989
Retail Stores 229
Retail Agencies 131
Distributors 6
Wholesale Depots 19
Registered Dealers 368

Source: Balance Sheets

Service Industries

Incorporated as private company and converted into public limited company in 1961, the company purchased a shoes manufacturing firm Service Pakistan (Registered) located at Lahore. The company continued the production of Service brand shoes and built another shoe factory at Gujrat. A plant for manufacture of ankle boots was added in 1973. The shoes manufactured at Muridke Unit under the Brand Don Carlos were well received in the domestic market. Manufacture of motor cycle tyres and tubes was also taken up by Service.

Capital Structure

The paid-up capital of the company

stood at Rs. 82.842 million against the authorised capital of Rs. 200.0 million divided into shares of Rs. 10 each.

Sales and Profits

Sales showed a rise of 5.71 per cent during the year 1989 up from Rs. 671 million in 1988 to Rs. 709 million in 1989. Export sales were affected due to adverse climatic conditions in Europe. Another difficulty in Export was that of non-availability of vessels from Karachi Port. Many shipping lines have reduced their services from Karachi to other ports. Due to increase in input cost, i.e. the cost of electricity, gas, transportation, the company was losing competitive edge in export. Local sales were affected due to law and order situation in the country particularly in Sindh.

Sales & Pretax Profit of Service

(Rs. in million)
 Ratio of
 Pretax PP to
Year Sales Profit Sales
1986 423.5 28.0 6.6
1987 505.2 25.1 4.9
1988 671.3 30.6 4.5
1989 709.7 27.7 3.9

Source: Balance Sheets.

Incentives for Exports

Leather exports stood at Rs. 9,190 million in 1989-90. In order to boost export of leather, leather goods and tanning products, the government has decided to give a number of facilities to the manufacturers including exemption from Custom Duty, Sales Tax, Surcharge and Iqra surcharge, for the materials like elastic wobbing, lining materials, thread, wobbing materials, fur lining materials, zips zip fasteners, buttons buckles and decorative fittings, etc.

In this connection, a notification has been issued by the Central Board of Revenue to ensure easy availability of accessories for leather garments. Cutting dies of leather sheet upper/footwear, gloves card fibre board for making patterns, plastic, nylon cutting board, paper patterns etc., have also been exempted from payment of Customs Duty. Instead for preparation of analysis card by the manufacturers using the facility of manufacture in bond for each item, now a certified master analysis card for all goods to be manufactured and exported shall be prepared.

The manufacturer-cum-exporter (using the facility of manufacturing in bond) of leather garments have been allowed the facility to operate the store of imported raw materials themselves and Customs staff will not secure storage under lock and key. The Customs staff, therefore, shall not escort transport of goods meant for export to the examination sheds at the ports or airports, in respect of the consignments the value of which is less than Rs. 100,000. Duty draw-back rates of the imported raw materials used in the production or manufacture of leather and leather goods have been revised, as demanded by the Pakistan Tanners Association. The requirement of submission of undertaking or bond etc. regarding value of the consignments meant for export for the purpose of sanctioning of the export rebate has been dispensed with.

The Collectors of Customs have been directed to accept the declared value of goods exported to high tariff countries. Instructions have been issued by the CBR to trace out the missing rebate claims and settle the same expeditiously. Clicking presses imported by tanning and leather and leather goods manufacturing units shall be released free of duty. The duty exemption will not be denied to such units merely because some of the clicking presses have multiple uses. Extension of time limit for bonding of imported goods from six months to one year, as demanded by the association has also been allowed. Previously under SRO 57(I)/85, spare parts upto 2 per cent of the RMR entitlement of leather exports, were allowed to be imported duty free. Later on this facility was withdrawn. PTA demanded restoration of this facility. The demand of the association has been met and a notification to that effect has been issued.

Pakistan Tanners Association listed the following demands for leather goods to boost their exports. a) A 5 years strategy be worked out after serious and sincere study to arrest the declining trend in exports from Pakistan. b) Increase in credit ceiling under refinance scheme be given to the members of Pakistan Tanners Association. c) Import of goods into Pakistan without Letter of Credit be allowed in line with exports to Pakistan. d) No mid term changes in Import Policy, taxation measure or other changes should be made during the year. e) Exclude the Export Industry from the General Sales Tax as it will create hindrance in smooth working of the export industry. f) Retrospective payment of Customs duties and refund of Sales Tax on export of Leather Garments, Leather Shoe Uppers be announced from the date of its application as allowed for leather. g) Operation of Rule-7 of SRO. 69(1)/70 dated 17.4.70 immediately be simplified to make easy the operational difficulties. h) Import of Spraying Machine for tanning industry already imported before the issue of SRO.247(10/89) dated 16.3.89 be exempted from payment of Sales tax. i) 50% Air Freight subsidy to all sorts of products made of leather be given to ensure quick delivery.

Project Profile of Leather Garment Unit Land

Land measuring six acres will be sufficient for the project. The idle site will be one where there is easy availability of raw material, developed infrastructure and relief in tax and tariff policies.


The machinery mostly imported for the project can be divided under three heads cutting sewing and finishing. The items are: Round Knife, Die Cutting Machine, Single Needle Lockstitch Machine Head & Motor, 2 Needle Lockstitch Organised Aplit Neeedle bar Head & Motor, High Speed Single Needle Lockstitch with built in Trimming Devices Head & Motor, High Speed Safety Stitch Machine Head and Motor, Single Needle Lockstitch Machine with Large Hook Head & Motor, High Speed two Needles Lockstitch Industrial Sewing Machine with Large Hook and Reverse Lever Head & Motor, High Speed Single Needle Lockstitch Industrial Sewing Machine Equipped with Compond Feed Device Cylinder bed, Rotary Hook-Head & Motor, Leather Skiing Machine Head, Metal Button Caulking Machine, Electric Steam Irons, Round Knife Hand Cutter, High Speed Lock Stitch M/C with Builtin Trimming Device Head & Motor, Tables, Stools, Racks and Trolly, Electric Transformer/switch boards, Diesel Generator and other miscellaneous equipment.

Raw Material

The raw material required is good quality finished leather, which is available in abundance within the country. Other items are Zips, buttons, lining and fixing inter-lining materials, synthetic fibre padding material, thread, adhesive solution. Zips buttons and fusing materials are available in the local market through imports, whereas other items are manufactured locally. In all 430 persons will be needed to run the project. Except for 11 managerial and non-managerial staff, there will be need for 300 skilled personnel and 119 semi skilled and unskilled workers.

Financial Outlay

The total cost of the project according to IACP study, is estimated at Rs. 96.931 million, which is inclusive of Rs. 47.152 million as the net working capital. Among the fixed cost, Rs. 14.500 million would be needed for machinery, out of which the foreign exchange component will be Rs. 10.800 million. In the operating cost, Rs. 565.217 million will be required for raw material at 100 per cent capacity utilization in the fifth and final year of operation, starting with Rs. 339.130 million at the 60 per cent capacity on start. The estimated fixed and variable salaries work out to Rs. 11.174 million and Rs. 2.326 million respectively, at 100 per cent capacity utilization. Income analysis shows that a net profit of Rs. 17.336 million, will be generated in the first year, leading to income of Rs. 42.729 million. in the final year. The internal financial rate of return (IFRR), according to the study, works out as 31.49, and the payback period as 2.42 years.
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Title Annotation:Pakistan's leather industry
Publication:Economic Review
Date:Jan 1, 1991
Previous Article:Leather industry in Pakistan.
Next Article:Pak Leather Crafts Limited.

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