On Wednesday September 7, the exporters of raw hides and skins in Rwanda woke up with a new situation at hand. Rwanda customs were instructed by the Ministry of Commerce to stop all processing of export documents of raw hides and skins. This means that Rwanda had unofficially banned the export of raw hides and skins.
This stranded some 20 containers of wet-salted hides and dry goat and sheepskins. Most of this material had already been paid for by the overseas buyers.
The Rwandan government has declared in the past that the leather industry is a priority sector, as it recognises that this industry has great potential as an important source of income. Rwanda has one tannery but no shoe industry as its only shoe factory was plundered during the period of genocide in 1994.
Unido supplied its only tannery with four important machines mid 2004 and Unido held workshops on finished leather products, teaching artisans to produce leathergoods.
In order to get things right, the Rwandan government asked a professional survey company to prepare a paper that takes a 360 degree look at the leather industry and to make recommendations on how to improve the sector. Study groups have been formed and the work is proceeding. It takes time, of course, to collect the data, study them and take steps to formulate a plan and implement action. A period of two years was taken into account.
Incredibly the Rwandan government jumped the gun and actually took steps to monopolise the industry in favour of the existing tannery, thus voiding the survey they had commissioned. Meanwhile this tannery has been laying practically idle. Leather International reported last year that a (white) South African (latest news: substituted with a Kenyan technician who worked at Bulleys Tanneries in Thika) had taken charge of the tannery but this has not given any positive results, on the contrary.
In 2002/2003, the tannery exported good quality wet-blue goat and sheepskins to the tune of about a container per month. Last year and this year, whatever minimal quantity was exported was reported to be of bad quality. The tannery is handicapped by bad management with the wrong people in the wrong place.
The excuse for the failure is that the tannery is unable to compete with the raw exporters but that is rubbish because a large part of the Rwandan hides and skins are contract tanned in Kenya for further export elsewhere in wet-blue at normal market prices.
Banning exports of raw hides and skins won’t give the tannery good management and good quality. On the contrary, it will fuel smuggling and hence create less revenue for Rwanda.
On September 10, the hide and skin exporters met with the representative of the Ministry of Commerce in order to discuss the situation and to complain that this export ban is contrary to Art XI of GATT 1994 and that Rwanda is a Contracting Party to GATT since 1966 and a WTO member since May 1996 and should refrain from adopting this kind of illegal and unfair behaviour.
Not surprisingly the representatives of the tannery were sitting at the side of the government at the negotiation table, or probably more correctly the government was sitting on the tannery side. The exporters were told that they had some options.
One was to have their hides and skins contract processed in the tannery at whatever charges the tannery deemed fit. Another to hand over the raw hides and skins to the tannery, have the material processed and exported and get paid for the raw skins after the tannery had been paid for the wet-blue, or sell the raw material to the tannery at whatever the tannery was prepared to pay. The last option was for each to build a tannery for which plans had to be submitted immediately in order to temporarily unblock the export ban.
Of course, none of the exporters is interested in handing over their export operation to the tannery. Having the tannery process their skins is not an option either considering the quality of wet-blue that is turned out even if, according to the latest news, the new Kenyan technician is bringing some order to the operation.
The fact remains that Rwanda is a signatory of an international agreement that sanctions free trade. Cotance and the EU Commission are assisting the Rwanda exporters to defend the principle of free trade and denounce the attempt to grant the tannery a monopoly. It appears though that Rwanda has taken the same controversial decision in the recent past relative to other industries. This certainly does not favour an acceptable climate for foreign investors.
Rwanda can develop its leather industry in a natural way by creating demand for finished leather by sanctioning the development of a shoe industry. International bodies are more than prepared to assist and Leather International has been informed that plans for such development were submitted one year ago to the Ministry of Commerce.
Rwanda imports all its footwear, mainly second-hand shoes from the EU and the USA and a small amount of new footwear from Bata Kenya or dumped Chinese exports. If the country were to rebuild its shoe industry in a serious way, it would create jobs, it would develop the leather industry and it would slow down the imports and remain within its international trade obligations.
On September 30, the Ministry of Commerce in Kigali conditionally and temporarily granted the export of existing stocks to three of the remaining hide and skin exporters. The last word has probably not been said in this matter.
The situation in China
According to Unido figures, the leather sector in Kenya has been on a downward trend. Between 1990-1995, around 95% of hides and skins were processed for export in crust and leather forms. However, the situation has worsened, with semi and finished products reaching only 15% compared with 85% in raw hides and skins exports. Several tanneries have also collapsed.
While Kenya had 16 operational tanneries between 1990 and 1995, the number has dropped to only six. During the same period, 30 leathergoods and footwear companies were operating. Today, there are only eight operating at just 30% of their capacity.
Tanning in Kenya is facing its hardest competition for local raw hides and skins with Asian firms.
On June 27, Peter Munaita, Nairobi, quoted leather processors as alleging that large tanneries from South Asia (India and Pakistan) had established offices in Kenya, Uganda and Tanzania to co-ordinate the collection of hides and skins from the region, operating in a cartel. Players in the industry are now calling on the governments to increase the export levies on raw hides from 20% (in Kenya and Tanzania) to 50% to help the domestic tanning industry start exporting finished leathergoods.
The Economic Survey 2005 shows that exports of hides and skins in undressed form from Kenya nearly doubled, from Ksh494 million ($6.4 million) in 2000 to Ksh956 million ($12.4 million) last year. The prices for undressed skins have also tumbled from Ksh65 per kg to Ksh52 per kg over the same period.
While ruling out a ban on exports, Livestock and Fisheries Permanent Secretary, David Stower, said a range of incentives would be introduced to increase the local absorption of skins and hides following the realisation that South Asian countries were subsidising importers of raw leather from Kenya. Other countries have resorted to bans and punitive taxes to protect their tanning industries. India, a major importer of East African hides, imposes a 60% duty on the export of raw hides and skins.
Eight African countries, including Ethiopia and Zimbabwe, have banned the export of raw hides and skins on their way to becoming success stories whose leather industry, despite economic problems, for example earns the latter $30 million annually in exports’, said Stower.
