25 December 2012

Tanzania: Leather Export Potential Goes Unexploited

TANZANIA has huge potential of becoming a giant exporter of leather products and boost the sector's contributions to the economy should conducive business environment be created to attract significant investments.

Low investments in value addition have denied the nation huge revenues as nearly 90 per cent of hides and skins are exported in their raw form.

Official records show that earnings from skin and hide exports in recent years increased at an average of around 22 per cent, an indication that the industry still operates under capacity.

The Leather Association of Tanzania (LAT) statistics show that the country can produce 94 million square feet of hides and skin but is capable of collecting only 62 million square feet.

There are eight leather processing plants with a total capacity of 73.9 million square feet, but they produce only 34.3 million square feet which is equal to 46.4 per cent of the installed capacity. The plants include Moshi Leather Industries, Tanzania Leather Industries, Afro Leather, Kibaha Tannery, Himo Tanners and Salex Tanners - which can process 40 square feet of leather.

Most of these factories operate at below 50 per cent. Stakeholders say improvement in hides and skins handling can enhance the role of the leather industry in creation of employment and poverty reduction.

Speaking in the stakeholders meeting, Permanent Secretary in the Ministry of Industry and Trade Ms Joyce Mapunjo said that the government was losing a lot of revenues through tax evasion as some greedy business persons provide wrong export figures.

"Such businesses quote low export prices and volume of the cargo to evade paying the right tax to the government," she stressed. She said the government has been supporting traders in the local leather products including the decision to hike the export levies to 90 per cent from 40 per cent to discourage trading in raw hides and skins.

However, since when the government decision started to be implemented in July this year, incidences of smuggling seemed to be increasing where premium prices offered in the neighbouring countries are said to fuel the malpractice thus creating acute shortage of raw materials for the local factories.

"Small Scale Entrepreneurs (SMEs) who were vending raw hides and skins to the domestic processors have stopped particularly after the government had increased export levies on the products," said Mr Emmanuel Muyinga from the Ministry of Livestock Development and Fisheries while presenting findings of a survey conducted after the government had hiked export levies on hides and skins in July this year.

He added that, "it is currently unknown to whom they trade with." Some reports indicate that all high quality leather products are being smuggled to neighbouring countries leaving those of inferior value for the domestic factories.

Consequently, the quality of raw leather products and revenues are declining. For example, the findings revealed that most local factories received raw hides and skins of grade 5 & 6 instead of the highest grade of Tannery Run (TR) supplied before July this year when the government introduced the new fees.

Similarly, the committee formed to carry the survey discovered that after export levies were hiked from 40 per cent to 90 per cent, no firms traded on raw hides and skins thus cutting down various levies collected before. Statistics show that a massive smuggling of raw hides and skins to neighbouring countries, cost the government approximately 1bn/- annually.

It was estimated that at least 50,000 hides per month cross the boarder to neighbouring countries thus denying export levy of about 427m/-. He also challenged traders in raw leather commodities to diversify from dealing with wet blues only instead develop other products to ensure that the market becomes sustainable.

Speaking earlier in her opening remarks, the Ministry of Industry and Trade Permanent Secretary Ms Joyce Mapunjo urged stakeholders in hides and skins subsector to enhance investment in the industry as way to increase local production that would result into more income generation.

She said the government introduced the new levies on leather products with the aim to discourage exportation of raw goods and foster domestic industrialisation.

The Director for Industry Development in the Ministry of Industry and Trade Ms Eline Sikazwe said by increasing value addition into the raw leather products, incomes generated and contribution to economic growth will increase also. "The government has been wasting massive revenues from exporting raw hides and skins, but it is now time to transform the subsector to explore its profitability," she said.

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