Leather’s difficult times

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External challenges like the latest perk of US and China trade war, revised FDI policies besides slow interest of the international market is continuing bleeding local and foreign trade of the Ethiopian leather industry.
The leather sector is one of the major historical sources of hard currency like coffee, while this day it has been substituted by other commodities like horticulture and khat.
The Leather Industry Development Institute (LIDI) stated that the latest trade war between the two world’s biggest economies has affected the export of leather and leather goods.
Berhanu Sirjabo, public relations head of LIDI said that the country’s export has been affected by the trade war between the US and China, who imposed tariffs on each other’s imports.
The public relations head claimed that the trade war affects the country’s revenue directly and indirectly. Both sides would buy our products and export to each other’s country, but this has now slowed due to the tariff that both countries imposed on each other in the past few months.
Experts at the Ethiopian Leather Industries Association (ELIA) said that the sector is going through a serious problem locally even though the international trend like the US China trade war is also pressuring the sector externally.
The leather sector actors are strongly arguing that the leather sector has declined in the past five years, despite the government’s statement that it has shown a slight improvement in investment and export revenue.
Local tannery owners who requested anonymity claimed that the government has been deliberately or ignorantly affecting the sector through its policy which was amended in the past years.
“The sector has been built for nearly seventy years and was expected to brew better achievements in these days, but the reality is different,” they complained.
Yared Alemayehu, owner of Wallia Leather and Leather Products and former president of ELIA, said that the problem in the leather sector is very wide and directly pointed to the government’s policy.
“In the sector we the local actors have over a half century of experience, but all of a sudden in the past five years it has collapsed. It has to be asked why the collapse occurred,” Yared said. “If the problem is seen in one or two factories it would likely be due to mismanagement by the companies but the problem is seen in all actors. Therefore, the government body considers that it is a problem of mismanagement by local companies and lack of competition with FDIs’ that invested in the sector around a decade ago,” he added.
That has caused stakeholders to develop incorrect policy in the sector and replace the former policy that only favor FDIs, according to the sector actors.
“Since the policy change is in favor of FDIs there is another question, does the country benefit in export revenue, value addition, technology and even employment? But the answer is that the sector does not show any change regarding the stated questions,” Yared told Capital.
Ethiopia’s rank in livestock population is 8th in the world while India is not far from Ethiopia in terms of the population number of livestock but the export of India excluding local business has reached USD 17 billion. “When it comes to the Ethiopian leather sector it did not show any change meanwhile the number of the size of FDIs increased,” experts said when pondering the role of FDI and its contribution.
“When FDIs expanded in the country why did the export revenue become stuck at the level where Ethiopian actors performed about a decade ago,” they asked.
They argued that the current export revenue is not comparable from the performance a decade ago.
“Ten years ago we exported natural leather, but now export items for instance footwear produced by synthetic materials is registered as the export of leather goods.”
“If excluding the non leather goods like the synthetic footwear and then comparing the leather export from exports ten years ago the current hard currency generation is lower than what we achieved years back,” they claimed.
“At the past we have earned the same export revenue by only the export of semi finished and finished leather not by exporting footwear. If they said that export of leather goods expanded why did the sector earn the same amount that we have contributed,” they asked.
In 2008 the government has imposed a high levy on the export of raw hide and skins and wet blue, pickle and crust, which are semi processed products to encourage the local production of finished leather and boost the country’s hard currency revenue.
Against the investment proclamation of 2003 the government has allowed foreign investors to invest in the leather sector from scratch which was claimed as illegal and affects the local investors.
The 2003 investment proclamation stated that FDI shall invest from the semi processed; while the local investor is protected to produce from raw to crust on the concept the country has adequate capacity to process by local investors. “But without a law the government has allowed FDI’s to invest from the raw level that we argued it is a displacement of local investors,” experts claimed, “they even amended the investment proclamation that highly favors the FDI without evaluating the outcome of the allowed foreign investors in the sector.”
They argued that the government policy has affected one of the oldest businesses that Ethiopian developed for close to 70 years.
“We have argued that the foreign investors do not have a long term vision and that they are now engaged on environmental challenges, lack of working safety,” they claimed.
Currently about 16 local tanneries have suspended their production, however the government claimed that there are 8, according to sources. The sector has been one of the major areas to manage a huge amount of employees, but it declined.
Experts also claimed that the other reason the sector did not show improvement in revenue is that the FDI’s export their products for their chained companies or affiliates by offering a lower price or under invoice.
“If the sector was protected on some level for local investors the customs shall cross check the cost of production of the finished and goods products, but when we challenged the idea allowing foreign investors to engage on all sectors the officials ridiculed us and blamed us saying that we are backward,” experts claimed.
According to Berhanu, the limited capacity of Ethiopian leather goods manufacturers regarding the management and weak technological capability also negatively affects the sector. “Technological transfer on the sector is the major issue that the sector needs is tackling the inner challenge, while the external challenge is difficult to be solved,” Berhanu said.
“When the technology advanced at the leather industries the sector shall keep the standard and improve the export value and volume,” he argued.
“The Prime Minister shall interfere and solve the problem by changing the policy,” local actors expressed hopefully.
Experts at the association have also stated that the international trends in the past couple of years have changed in the leather sector.
Currently the synthetic industry is booming and major manufacturers are also engaged in the sector that affects the Ethiopian export.
“The sector is very dynamic which also is a significant factor in the slowdown of the Ethiopian leather sector in the past couple of years,” sources at the association said.
According to Berhanu the country has now a capacity to produce 20 million pairs of footwear per annum for the export market, while the revenue expected from the sector has not grown as per the expectation. “Currently the country has a single factory that shall produce 50,000 pairs of footwear per day,” Berhanu indicated. The country’s revenue from leather and leather goods exports stood at USD 134 million based on the past budget year’s performance.
At the end of the first Growth and Transformation Plan (GTP I) the government has targeted to generate half a billion USD, while the actual performance did not show change for the past decade.
In the past few years the sector investment has grown significantly. For instance the number of tanneries has reached 32 from 20 about a decade ago, but some local tanning facilities became bankrupted, according to the sector actors.
“Previously they have killed the local investors by buying the product with high price and now they are saying they do not want to use the local raw material that is the reason for price reduction and wastage of the national resource,” a tannery owner, who declined to be named, told Capital. “Currently we are very few struggling to service, while most of them are out of the market,” he said. “The companies that currently existing are also in trouble of heavy debt and even consumed significant amount of running cost in the past ten year,” he added, “if the government want the existence for the industry has to right off the debt of the companies what Egypt made in the past.”
However even the number of tanneries increased more, in the past couple of years the raw material price has significantly dropped and that forced to waste the resource. To keep the resource from wastage the government itself is engaged on buying the raw hide and skin from suppliers on major holiday seasons and processed the raw to semi stage via private tanneries.
On the latest holiday, Christmas, the raw hide and skin has been rated a price of up to 25 birr and 35 birr for goat and sheep skin respectively, while the demand of hide is very low that it has been sold by 4 birr per kilogram. The institute official said that lack of industrial salt has been slowed the hide trading on the holiday morning but it has been revived in the afternoon after the collectors encouraged to use edible salt as optional.
There are 24 footwear factories and from those 16 are engaged in the export market. The international trend indicated that the price of footwear is from USD 9 to 23, but the locally produced footwear is not worth more than USD 13.