Out of the total 40 million pieces of hides required by the 27 leather factories in Ethiopia annually, only 23 million pieces is supplied by private skin collectors.
Ali Usman was only 15 years old when he started making money, going door to door slaughtering sheep and goats, flaying the skins and sorting the meat for customers. When he turned 18 years old he expanded into the business of buying skins, a job which he has kept up for the past 14 years.
This Christmas, around Kera, Ali was buying each sheepskin for 70 Br, each goat skin for 30 Br and each cattle skin, which can weigh up to 48Kgs, for 3.50 Br a kilo. Sheepskin, he says, is now cheaper, than the 90 Br it used to be in July, but cattle skin has increased from 2.50 Br. Goat skin, on the other hand, has stayed the same.
Around Kotebe, however, sheepskin was selling at 50 Br, down from 80 Br in July; goat skin was selling at 20 Br, at a 10 Br decrease, and cattle skin at five Birr a kilo, up from four Birr. In Lideta, sheepskin was down to 60 Br from 80 Br, goat skin was being sold for 20 Br down from 30 Br and cattle for four Birr, up from three Birr.
The majority of animal skin is collected during the holidays; particularly New Year, Christmas and Easter.
Ali, and other collectors like him, buy skins from individuals and sell them in bulk to large traders in Merkato, who have trucks and stores, at a profit of two to five Birr for each skin. The traders in turn supply the skins to 27 leather factories throughout the country, charging approximately 10 Br more for each skin.
Those who gather animal skins go door to door, in order to buy skins from people that do not go to the market. There used to a time when Ali could collect up to a total of 3,000 skins during the holiday season, he says, whereas on Wednesday, January 9, 2013, he only managed to buy 1,200 sheep skins, 40 goat skins and six cattle skins.
"The traders unfairly compete to buy the skins and escalate the price, said Ali. The price we spend to buy a sheep skin today used to buy three skins three years ago, this affects our capital," he added.
He also complains of 100,000 Br a trader is yet to pay him for the sale of 9,000 skins.
Most skin collectors buy skins from individuals and sell them in bulk to large traders in Merkato.
"I have a shortage of money and I cannot buy as many as skins as possible," said Ali.
Many of the skin collectors that Fortune talked with claim that traders are yet to pay them anywhere from 10,000 Br to 100,000 Br. The payment system is tied up from the bottom of the chain, where people like Ali buy the skins from consumers, all the way to the traders and the factories that process the skin.
"The traders say that they too have not accepted payment from the factories they supply," said Yirga Shenkute, a father of six, who has been collecting skins for the past 18 years, around Hanna Mariam, Kotebe.
"We cannot pay the collectors on time since the factories do not pay us fully on time," affirms Ader, a skin trader around Kera, who gets the skin from the collectors and sells them to Dire Industries, Gellan Tannery and Awash Tannery.
Factories used to buy skins directly from collectors; however, since 2010 traders came into the market as middlemen and took over supplying the factories. Currently, the factories accept skins from the traders and abattoirs. The traders buy the skins from collectors in the city and regional towns.
Factories do not deny this arrangement.
"We pay up to 35pc in advance for the traders during holidays and the rest within six months," says Idris Ibrahim, manager of Addis Abeba Tannery. "We have to wait until we process the skin, export or sell it for local producers and get paid the money."
Addis Abeba Tannery has the capacity to process 1,000 cattle skins and 3,000 sheep skins daily. It supplies its products to Anbessa Shoe SC, Tikur Abay Shoe SC and Ramsey Shoe Factory. The tannery receives 70pc of the skin it needs from eight different regions and the rest from Addis Abeba, according to Idris.
"Because of demand increment, recently there is unfair competition for skin among factories, which is pushing the skin price high, unlike its price in the international market," added Idris.
"Currently, the quality of the skin from Ethiopia is in sixth place in the international market, just one step above the rejection cut-off," says Tesfaye Legesse, corporate communication director at Ethiopian Leather Industries Development Institution (LIDI).
It used to rank from first to third, in the 1990s, according to Tesfaye.
The price of a square foot of the sixth level leather is 1.50 dollars, whilst leather ranked in the first three positions is four dollars. A single sheepskin can make four to five square feet of leather.
Ethiopian sheepskin, which is known for its strength and fatness, is under threat due to ecto-parasites - like mites, that live on the surface of animal skin, according to Tesfaye.
"Two of our long time buyers in Europe have dropped us. Others refuse to receive our products sometimes, when the quality drops under the standard in our agreement," said Getachew Shiferaw, marketing head at Ethio Leather Industry Plc.
European buyers want top quality leather and prefer those at the top three levels.
"We are planning to import the hides (in order to continue doing business)," said Getachew, but he claims that they are not able to get enough loans to supplement their working capital.
After the government gave permission to import hides duty free a year ago, five companies, which had begun to import, failed due to foreign currency shortages and insufficient working capital, says Tesfaye.
Ethio Leather gets up to 400,000 hides during holidays and 3,000 on normal days, about 40pc is from Addis Abeba, whilst the rest are mostly from Gojjam. It exports 90pc of sheep and goat skins, and 10pc of its final cattle skins, to its customers in European countries, the United States, China, Korea, Indonesia and Japan. The rest is reserved for domestic producers, according to Getachew.
"We pay up to 98 Br for each sheepskin, which kills the capacity of the company to buy more skins, but still we try to pay our suppliers within three months," said Getachew.
All leather factories in the country are operating with one third of their installed capacity. Up to 70pc of their working capital also stays on the floor with the raw material, compared to 50pc for leather producers in developed countries, according to Tesfaye.
With insufficient manpower and chemicals to reduce the production time of the leather, a skin takes 15 days to a month to become a finished product in Ethiopian leather factories.
Out of over 40 million hides in annual demand, the factories are only getting seven million cattle skins and 16 million sheep and goat skins.
Ethiopia planned to earn 230 million dollars from the export of leather in the current fiscal year, of which only 58 million dollars has been fulfilled in the first half of the year.
The Leather Institute, which was established to solve problems in the sector, is taking steps to find a way out, said Tesfaye.
"We are talking with Development and Commercial banks of Ethiopia to arrange a loan process," Tesfaye said.
LIDI is also working with the Ministry of Agriculture to improve the way the animals are traditionally fed and kept, and providing workshops on treatment of skins, according to Tesfaye.
There is a shortage of salt, mixed with antibacterial and antifungal chemicals, to prevent human consumption, he added.
A proclamation is also under preparation between the Institute and Ministry of Trade to regulate the price of the skins and the role of traders in the supply chain, said Tesfaye.
LIDI, Ministry of Finance and Economic Development (MoFED) and the Korean Trade and Investment Promotion Agency (KOTRA) signed an agreement, on January 11, 2013, to share leather processing and footwear product technologies, human power training and knowledge transfer with the Korean Leather Industry. The plan is to improve the quality of Ethiopian leather.
"We will send our experts to receive training in Korea and theirs will come here to share their knowledge, experience and know-how," said Wondu Legesse, director general of LIDI.
Ethiopia will also host the fifth 'All Africa Leather Fair' in March, which is expected to boost leather sales and bring chemical and machinery suppliers from participants, according to Abdissa Adugna, secretary general of ELIA.
Though the leather industry in Ethiopia is dynamic in its own way, Ali hopes the time will come where he can collect more skins from each door, get paid for it on time and stay ready for the next holiday.