Tanners air frustration over lack of incentives, FDI favoritisms
After years of debatable polices with regard to leather exports and value addition, the local tanneries and leather factories have once again voiced their frustration against the government on lack of support, incentives and its “favoritism” shown to foreign investors.
During a discussion held on the newly drafted national leather road map proposed by the Ministry of Trade and Industry, on Friday, local tanners have expressed their frustrations that the government’s policy that sought to encourage value addition on exported leather products locally through banning the export of unfinished leather had in fact exacerbated the decline of the sector and its export revenue. Furthermore, tanners lamented unfair prioritization of foreign firms in the sector as discriminatory to local companies.
According to industry players, the value addition approach that came to be enforced with the introduction of imposition of export ban on semi-processed hide and skin, is now being partially lifted to allow only local tanneries export a crust leather: a tanned and dried, but not dyed leather. Since 2012, the government has introduced a 150 percent hefty taxation on exports of raw and semi-processed hides and skin in view to only allow the export of finished leather.
Unfortunately, according to the likes of Amde Akale-Work, a veteran player in the leather sector, the short sighted policy (ban) was a predicament to Ethiopia’s long established quality leather market.
Berhanu Abate, president of the Ethiopian Raw Hide and Skin Traders Association, also aired his voice against the ban. He argued that some “70 to 80 percent” of the raw hide and skin production is being dumped since tanneries no longer buy them. He also urged that the move to lift the ban should further include the exports of both pickle and wet-blue (moist chrome tanned leather) and pickled leather (a process of making fibers of hides and skins to be more receptive to tanning). Both wet-blue and pickle leathers are taxed 150 percent when exported. However, Berhanu’s idea was not entirely welcomed by both local and foreign tanneries saying, it is only better for the sector to maintain the export of crust leather to the global market.
According to Yared Alemayehu, general manager of Walia Tannery, the government has policies favoring foreign investors saying at least “The importation of second hand machineries was allowed to foreigners while the locals have no room to do so.” To his frustration, the local tanneries have been technically forced to compete with globally well positioned and well subsidized manufacturers, while they struggle to survive in the business.
Israr Meccha Ahmed, owner and general manager of Farida Tannery Group, argued that the declining performance of the Ethiopian leather sector is not an isolated phenomenon. He mentioned that Ethiopia has seen a 30 percent decline in its finished leather exports, while India’s export has sustained a 43 percent decline. According to Ahmed, Pakistan has experienced 40 percent, Bangladesh 60 percent and Kenya 51 percent decline in their respective exports of leather. However, he agreed with the likes of Yared that local tanneries should be prioritized and incentivized at least as much as companies in Indian. He mentioned that a 30 percent cash subsidy as a form of “modernization fund” is provided for Indian local investors.
Once, the leather sector was one of the biggest performers of export and was generating USD 200 to 300 million before the export ban was introduced. Currently, the export revenue generated from the leather sector remains well below USD 70 million, even less than the USD 98 million generated in 2013.
Teka Gebreyesus, State Minister of Trade and Industry, mentioned that there are ongoing discussions to lift export bans on wet-blue and pickled leather. He also admitted that the government was not on the same page with the local leather factories. He vowed that the government will no longer alienate partakers in its policy formulations and strategies.
Currently, there are 26 local and 10 foreign tanners with production capacities ranging between 120 million and 135 million square feet of finished leather generating less than USD 70 million. In addition to that, 16 local and three foreign owned footwear companies operate in the leather sector with total production capacity of 7.8 million pairs, and half of that is believed to be exported to generate UD 38.6 million (the Chinese Huajian Shoe shares more than 60 percent of the export values and volumes). Moreover, there are 3 foreign glove makers out of which 19 are export oriented and some 1.3 million pairs worth USD five million has been manufactured.
In addition, there are 30 leather goods and leather garments that are being manufactured in Ethiopia adding up to 1.3 million pieces a year.