14 February 2018

Ethiopia: Addressing Shortcomings to Keep Leather Industry's Momentum

analysis

The leather sector's strategic importance for the economic and industrial development of Ethiopia, and its contribution in the country's export earnings have shown significant progress over the years, Leather Industry Development Institute (LIDI) says.

LIDI Director-General Wondu Legesse tells The Ethiopian Herald that Ethiopia's leather industry has witnessed structural change and the country has managed to transform the low-value and semi-processed leather exports into value-added and high-end outcome.

The Director-General notes that the availability of large livestock resource base along with the unique natural qualities of the raw material illustrates the huge and considerable potential of Ethiopia's leather industry.

According to recent information from Central Statistics Agency, the country has about 57.83 million cattle; 28.04 million sheep and 28.61million heads of goat, thus, possessing about 2.5 percent of the world livestock population.

Wondu says: "The revenue garnered from leather and leather products export increased from 67 million USD to 115.4 million USD between 2004/05 and 2016/17 fiscal years and significant achievement has also gained in increasing the export volume and diversifying commodities."

Furthermore, Ethiopia secured 69.6 million USD from the leather industry in the first half of the 2017/18 fiscal year whilst the amount surpassed that of past year same period by 20 percent. China and Italy and the trade center Hong Kong were the three largest buyers of Ethiopia's finished leather exports in the reported period.

The General Manager indicates that the stated revenue was obtained from 64 leather and leather product factories which include 26 tanneries, 19 medium and large leather footwear manufacturing factories, and 19 leather products manufacturing firms that are operating in the country.

According to him, government's close engagement with stakeholders in the leather value chain has been playing a pivotal role in enabling the country shift from export of semi-processed leather outputs to value-added products like shoes, gloves, garments and leather goods, among others.

Wondu states that Ethiopia's ability in exporting a sizable amount of value-added leather products is the manifestation for strategic transformation that the leather sector has witnessed over the past two decades.

An Economist, Abdissa Adugna shares what the Director-General echoed. He says the amount of revenue obtained from international leather market increased time to time due to quantity and quality improvements.

Abdissa, who is also a Secretary General of Ethiopia's Leather Industries Associations, notes that significant amount of hard currency could have been obtained by exporting end products such as shoes, gloves, leather tools and garments, instead of semi-processed leather products at lower price.

The Economist further notes that Ethiopia has been exporting leather footwear to high-value, high-quality markets such as USA, Italy and Germany as well as regional markets like Kenya, Sudan and Uganda. Likewise, leather gloves are also being produced and exported to very high quality demanding countries such as Germany, US and Thailand.

According to Abdissa, the integrated efforts of government and other pertinent stakeholders has enabled the country to exploit the US and European markets through African Growth and Opportunity Act (AGOA) and other preferential trade agreements.

"Ethiopia obtained over 26.5 million USD during the first six months of the 2017/18 fiscal year in which the amount exceeded the same period of previous fiscal year by 30 percent. The country has also gained a major achievement in shoes export and commendable results has been achieved in the glove sub-sector," he adds.

The government's viable economic policies and strategies have been playing the leading role in enabling Ethiopia to be among the leading African countries in exporting leather and leather products to the global market whilst at the same time the private sector's contribution is expanding.

Affirming the above fact, Ethio-Leather Industry PLC (ELICO) General Manager, Mohammed Seid says that the government has created enabling environment for investors to play active role in the leather industry by offering various incentives, including tax holidays and exemption of customs fee for some strategic imports.

Following series of consultations with government bodies, the 15 percent VAT (Value Added Tax) in leather purchase has been removed and the decision would significantly enhance private investors' capital, Mohammed adds.

The General Manger indicates government's move to privatize leather industries facilitates conditions for ELICO to become the leading privately-owned leather industry with four operating factories and an annual export volume of 10 million USD.

Despite such encouraging trends, there is a huge imbalance between Ethiopia's rich livestock population, and the actual revenue the country obtained from the sector.

Insufficient supply of quality raw materials (raw hides and skins) as well as other production inputs like chemicals, accessories and components, and gaps in product quality and low labor productivity are widely considered to be factors contributing to this.

According to Wondu, low level of technological and managerial capabilities, lack of product and market diversification and development capabilities, including market information and linkages between suppliers and buyers impede the country not to benefit from its huge leather potential.

In this respect, diversifying exportable items and improving quality and quantity are necessary tasks that narrow the gap in the country's potential for leather export and the actual performance.

Abdissa states that due attention needs to be given to provide leather products at the desired quality level and in appealing package to meet countries' quality standards. "The government is expected to play the principal role in introducing modern animal handling techniques among smallholder farmers, and building new abattoirs to ensure leather's quality," he adds.

The Economist also notes that much is also expected from the incumbent to build the capacity of local leather manufactures to enhance their competitiveness in the global market. To this end, due attention should be given to ease conditions for the private sector to access foreign currency.

In this respect, Wondu notes that the Institute has been providing various supports for private investors, who are engaged in the leather industry in the view to boost sector's global competitiveness through production and export of quality products.

Furthermore, the Institute has directly engaged in supporting leather and leather products sub-sectors in three core areas namely: investment, production and marketing services.

All stakeholders in the leather value chain need to further strengthen and establish a well-functioning system of linkage with academia to undertake effective human resource development, applied research and development activities as well as technology transfer activities. It was also indicated that due attention is also needed to enhance and diversify the testing services of leather products.

All agree that establishing an effective and efficient collaborative linkage among governmental ministries and non-governmental agencies who are engaged in the leather value chain is the major factor in enabling Ethiopia to get the proper benefit from the sector.

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