Hides, skins and leather in Kenya –2 February 2009
The hides, skins and leather industry is one of the key agricultural sub-sectors in Kenya and has a high potential towards commodity development that addresses pertinent issues of socio economic importance and positively impacts on rural development, creation of wealth and employment. By Dr M Mwinyihija.
The contribution of the sub sector towards achieving economic growth through an expansion of the export market for both semi-processed and finished leathergoods is immense and the only way to such success is through embracing value addition initiatives. This is the direction that the ministry has adopted and strongly pursues to meet the industry's demand.
The industry, therefore, depends largely on the locally available large livestock resource base where the ASALs (Arid and Semi Arid Lands) covering 70% of the country continue to be a major contributor of slaughter stock where hides and skins are the byproducts. The hides, skins and leather industry contribute an estimated 4% to agricultural GDP. In the recent past the country produced an average of 2.4 million hides, 6 million skins and 20,000 camel hides.
In the local market the dealers were estimated to earn about Kshs1.8 billion annually, while in the export scene the country earns approximately Kshs4 billion from the exports of hides, skins, leather, leathergoods and footwear. However the optimal growth of the industry is purely dependent on value addition.
The government is committed to this cause, as value addition will strongly drive the sub-sector towards set goals in the recently launched vision 2030 as a mega initiative to industrialization. The earlier blue prints which include the ERS (Economic Recovery Strategy) and SRA (Strategy for Revitalizing Agriculture) have both identified hides, skins and leather as very important commodities which need to be value added to contribute towards economic growth. These two documents target the economic growth of the country while creating employment and wealth to the people thus alleviating poverty.
Presently the rise of the tanneries from nine to eleven with two more under urgent revamping is a sign that the industry is poised for growth. This has further been demonstrated in the recent economic survey of 2008 that showed a 10.3% growth in the leather sector.
The government policy of local value addition has strongly taken root since the taxation on export of raw hides and skins was raised to 40% during last year's budget. Exports indicate that 100% skins are processed to wet-blue and finished leather prior to export while 96% of the hides are processed to wet-blue leaving only 4% of the total production to find its way out of the country for export in raw form.
Handling of raw hides and skins involves both ante and post slaughter operations which need specialized skills in animal husbandry, slaughtering and curing technologies. The final quality is dependent on the entire production chain.
Ticks due to the weak tick control measures cause 40% of the defects on the hides and skins, 60% of the defects are caused during the slaughtering process while 25% of the raw material does not enter the commercial chain. Structures need to be put in place to salvage the hides and skins that do not enter the marketing chain which can only be done through proper tick control and increases in the linkages with private partners to participate in the recovery of the 25%.
It is, however, important that Vision 2030 has set achievable targets for the leather sub-sector. These are needed urgently in order to cater for the industry's expectations which entail production of high quality material and that value addition becomes viable and sustainable.
An organisation with a vast scope of operationalisation and lesser bureaucratic load is therefore anticipated. Such an organisation to be known as the Leather Development Council is proposed to steer the sub-sector to Vision 2030. This will provide specialised networking linkages with other organisations both locally and internationally to ensure adequate marketing channels, technology transfer and capacity building.
Such organisations have successfully worked in South Africa, China and India to mention a few. The membership composition of the organisation of private/public participation of important stakeholders will help the sub-sector achieve its targets.
It is worth noting that the tanning industry thrived well during early the 1990s when the government encouraged the industry through a 22% export compensation scheme which was later abused and abolished. During the post liberalisation period, the tanneries with fairly new machinery were characterised by low operational capacity (30%) while others closed down, hence opening avenues for the export of raw hides and skins.
The government's initiatives of value addition which led to the imposition of 40% tax has changed the scenario and currently eleven tanneries are operating at 70%-100% capacity utilisation. Indian, Chinese and Italian entrepreneurs have shown an interest in the sub-sector.
There has been a general improved leather sector performance in the year 2007 during which period the operating tanneries increased to eleven with two being revamped. Coincidentally there was an increase of export tax on raw hides and skins which availed more material in the country for processing.
The public service has not adequately addressed and complemented the service to meet the sub-sector's demands. The reasons for this are poor staffing and progression policy, low budgetary levels, poor cross-sectoral linkages and support.
It is proposed that a Leather Development Council be formed and mandated in driving the sector and fast tracking the much needed value addition initiatives and professional market approach aimed at economic growth and alleviation of poverty while creating employment. The identified factors that require to be addressed urgently include:
1. Policy development to enhance value addition on hides and skins to accrue better prices in the international market and create employment
2. Improve quality assurance initiatives within the production chain
3. Strong financial or credit facilities to encourage re-investment in the industry
4. Appropriate regulatory framework to deter entry of low quality footwear and leathergoods into the local market
5. Strengthened export initiatives of the Kenyan leather material
6. Interventional policies to address issues related to high local manufacturing costs, eg cost of power, road transport, cost of fuel, poor infrastructure, high interest rates etc.
This sector has a lot of potential for growth considering the Kenyan population requiring twenty million pairs of shoes annually. Taking the least cost of a pair of shoes at Shs350, the value of this sector is, therefore, worth seven billion if the Kenyans can adopt a ‘buy Kenyan build Kenya' patriotism for their country.
The leather sub-sector in Kenya was established primarily with the aim of being export orientated, since Kenya cannot consume all the leather produced locally. However for the industry to succeed in the export market, it must be competitive.
This has not been the case since local footwear and leathergoods manufacturers have been unable to withstand competition from subsidised imports. The manufacture of leathergoods and footwear is the optimal level in the leather sub-sector and this is where the country can attain a competitive edge in the economy.
Subsequently in an effort to address some of the millennium development goals (MDGs) the cottage industry related to the leather subsector is the most viable focal point. Once established the impact of such a venture is conspicuous on the creation of wealth and rural development especially of the Arid and Semi Arid Lands (ASAL).
To adequately sustain these objectives the permanent secretary, Ministry of Livestock Development, has rebranded the hides, skins and leather development division as the Leather and Leather goods division to focus on accelerated value addition initiatives geared towards implementing and attaining the set objectives of Vision 2030AD.
A specialist on the African leather industry writes: I found the Kenyan report interesting and it tells the truth that after the introduction of the export duty at 40%, the Kenyan leather industry has done well in 2007 and tanners have improved output and profits. They only work to wet-blue, however, so value addition is not just a good idea but is actually a must.
Whether only 5% of the available marketable hides are smuggled I wonder and doubt. It would mean that the government has serious controls in place. That 25% of the raw materials don't enter the market is not correct in my view. Hides and skins are never thrown away. If bad they are sold cheap but nobody discards them, hence these may be recovered and smuggled.
The policy points on page 4 and 5 are correct and valid for all African countries. The point of the cheap imports again is the truth. It hampers Bata Kenya's operations tremendously.