Pakistan Leather Exports Witness 7% Decline in FY23, But There’s Hope Ahead

 

Leather is a durable and flexible material made from the skin of animals, primarily cattle. It is commonly used in the production of various goods, including clothing, footwear, accessories, and upholstery. Leather is valued for its strength, longevity, and aesthetic appeal. The process of turning animal hides into leather involves several stages, including tanning, dyeing, and finishing. Different types of leather, such as full-grain, top-grain, and bonded leather, offer varying qualities and characteristics, making leather a versatile material for a wide range of applications.

In FY23, Pakistan’s leather exports experienced a 7 percent year-on-year decline, dropping to $887 million from $953 million in the previous year. Notably, tanned leather exports saw the most significant decrease, falling by 19.4 percent from $208 million to $167 million.

Pakistan ranks 6 th amongst large population countries. It is blessed with a youthful population as more than 60% of its growing population is below the age of 35 years. This demographic dividend can be turned into uplifting the country’s economic situation which has been affected badly by the twin of chaos faced by the country, i.e., economic & flood (environmental disasters). 

It was followed by an 18 percent decline in other leather manufacturers and an 11 percent reduction in leather garments respectively, while leather gloves exports also shrunk by two percent. But leather footwear exports surprisingly rose by 14.07 percent to $142 million in FY23 compared to $124 million during last year according to the data released by the Pakistan Bureau of Statistics (PBS).

The current Government inherited, an economy in April 2022, which was facing tremendous macroeconomic imbalances on both domestic & external sides: the economy was loaded with historic high levels of public debt, trade deficit, mounting twin deficits & supply-side disruptions due to global factors including geo-political tensions. Economic growth of 6.1% achieved, in 2022-23, was primarily consumptionled, which triggered the national import bill to cross an untenable level of US$ 84 Billion. Consequently, foreign exchange reserves were depleting, domestic currency was depreciating at an alarming pace, supply-chain disruptions were glaring due to floods 2022; and the Russia-Ukraine conflict had further pushed the economy into stagflation. To tackle these challenges of unusual nature, The current Government opted the policy of import compression to avert the sovereign default, besides several rigorous measures to keep the IMF programme on track. Owing to these factors, economic activity contracted during 2022-23 and an economic growth of 0.3% has been recorded with sectoral contributions of 1.5% from Agriculture, -2.9% Industry and 0.9% Services. This growth rate, though very low as compared to our true potential nonetheless, demonstrates resilience of the people & economy of Pakistan. In this backdrop, the Annual Plan 2023-24 focuses on resolving these issues besides removing the constraints to economic growth. We look forward to putting the economy back on growth trajectory during the next year with GDP growth target of 3.5% derived from strong sectoral performance, i.e., 3.5% Agriculture, 3.4% Industry and 3.6% Services. The growth prospects are positive for the next fiscal year with the revival of economic activity to pre-floods 2022 level, improved political stability after General Elections 2023, expected fall in global commodity prices, improved energy supplies, and better business & investment environment. The Federal Public Sector Development Programme (PSDP) 2023-24 has once again been brought to Rs 1150 Billion, i.e., the level we achieved in 2018. Moreover, we have devised a 5Es Framework to turnaround Pakistan and most of its initiatives are well aligned with the Public Sector Development Programme (PSDP) 2023-24. Moreover, the China-Pakistan Economic Corridor (CPEC) has been revived after an inactivity during the previous regime. CPEC has the potential to further augment GDP growth and transform Pakistan into a regional economic hub. In such restrained fiscal circumstances, this development outlay reflects the Government’s resolve regarding its development agenda of reviving economic growth & creating job opportunities for the youth. Furthermore, the Government intends the private sector to be the main engine of growth for the economy. It recognizes that for ii complementing private sector efforts, it is essential that Government steps in as an enabler to remove the bottlenecks that impede private sector investment & growth. At the end, I would like to appreciate the efforts, professionalism, and hard work of the Secretary, Ministry of Planning, Development & Special Initiatives and his team for preparing a very objective & growth-oriented Annual Plan 2023-24. 

Despite its substantial potential and well-established industry, Pakistan’s contribution to global leather exports remains below 0.5 percent. The country’s leather industry ranks as the second-largest export-oriented sector, offering considerable opportunities for value addition and higher perceived pricing, given its luxury and untapped niche market.

Tariq Ismail emphasized that while leather jackets and other garments have become luxury items, footwear exports have increased as they are a necessity for people of all economic classes. PLGMEA has consistently opposed plain leather exports, recognizing its low value and the need to import precious raw materials from abroad.

The government and industry collaborated to establish two institutes, the National Institute of Leather Technology in Karachi (1998) and the Government Institute of Leather Technology (GILT), to provide highly skilled professionals to industry. However, both institutes have reportedly become dysfunctional due to a lack of funds, and they have also been absent from discussions.

Footwear

Overall, from July 2022 to April 2023, Pakistan exported 21.70 million pairs of shoes, worth 148.4 million US dollars. These figures indicate a 38.49% increase in volume and a 14.08% growth in value, as compared to a similar period in the previous fiscal year.

In particular, the Asian country shipped 8.58 million pairs of leather shoes in this ten-month period, generating 117.6 million US dollars, up by 29.75% in volume and by 14.43% in value, on a comparable basis to the same period of fiscal 2021-2022. This segment accounted for roughly 79% of footwear's total exports.

Macroeconomic Framework

Fiscal year 2022-23 witnessed a challenging economic environment in which the economy experienced a slowdown due to devastating floods, external sector vulnerabilities, high interest rates, contraction in large scale manufacturing, modest export growth & revenue shortfalls. Real GDP recorded a marginal growth of 0.3% during 2022-23 against the target of 5%. Agriculture sector grew by 1.5%, Industrial sector contracted by 2.9% and Services sector grew paltry by 0.9% against respective growth targets of 3.9%, 5.9% and 5.1%. Per capita income increased from Rs. 313,337 to Rs. 388,755 per annum in nominal terms. High interest rates resulted in decline in investment-to-GDP ratio from 15.7% to 13.6% with decrease in both public and private investment-to-GDP ratios. National savings increased from 11.1% of GDP to 12.5% mainly because of lower availability of foreign savings due to massive improvement in the current account deficit. Fiscal year 2023-24 is challenging and the revival of growth will depend on political & macroeconomic stability, external account improvement, supportive monetary and fiscal policies and expected fall in global oil and commodity prices. Overall economic growth for 2023-24 is projected at 3.5% with expected contribution by agriculture sector (3.5%), Industrial sector (3.4%) and Services sector (3.6%)

Balance of Payments

Current Account Deficit (CAD) declined by 76% during 10 months of fiscal year (MFY23). On external front decline of 13% export and 23% import is recorded during the ten MFY23. Trade deficit declined around 30% during the period under consideration on the back of high import compression. Services balance improved by 91.4% on account of 39.7% decline in services imports. Remittances also declined by 13% during ten MFY23. Net inflows of FDI and PFI also remained negative. Gross official reserve plunge from US$ 11,937 Million to US$ 5, 674 Million during the last ten months of FY23

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Governance & Institutional Reforms

Governance is a cross-cutting issue, therefore, perhaps the single most important factor to ensure objectives of effective service delivery. During 2022-23, the Government has taken several initiatives to improve governance indicators and making government open, transparent, accountable, and responsive to citizens. An amount of Rs. 14.7 Billion including foreign aid of Rs. 1.0 billion has been proposed for the governance sector in PSDP 2023-24. The allocation indicates an increase of 5.8% over the last year’s allocations. The reforms programmes/initiatives in the areas of the performance management system, smart governance, civil service reforms, judicial & criminal justice system including alternative dispute resolution, rules and procedures, domestic resource mobilization through revenue reforms, public financial management, xxiv accessible and transparent government, effective management and coordination of Flood Emergency Reconstruction and Resilience Project and restructuring of public entities including State Owned Enterprises (SOEs) will be continued.