Knee deep

15 September 2003




When did it all start? I think it goes so far back that we can hardly remember. By 'it', I mean The Crisis. If I remember correctly, the financial markets started dropping in March 2000. The whole world economy followed. A couple of times everybody thought that the financial markets would bottom out, that the economy would pick up again, but each time those hopes were obliterated by a number of events. Just when it seemed that the economy would pick up again, after what at that time had been the world's longest economic crisis, the terrorists pulled the rug from under the world order, and the markets went into a free fall. September 11, 2001, brought the world's biggest economy to a virtual standstill, something that had never happened before. Americans cancelled contracts, stopped travelling and surrendered to the terrorist psychosis. The seemingly endless ensuing war against terrorism in Afghanistan hasn't helped to build confidence either, due to the lack of the desired results. The only beneficiaries of that conflict are probably American shoe and glove factories that work for the military. Slowly we became used to the fact that there will be no peace in Afghanistan for some time to come and we became bold enough to think that the general public might consider entering shops again and buy themselves a new pair of shoes, maybe a nice jacket. Any such mental satisfaction was quickly nullified by six months of verbal skirmishes with Saddam Hussein, resulting in another possibly never ending war. To make the situation really 'perfect', the cake was recently topped by the outbreak of Severe Acute Respiratory Syndrome (SARS). The situation, at this moment, looks so miserable that we don't even know which step we are on, but it is definitely way below step one. The Asia Pacific Leather Fair in Hong Kong was cancelled and The Leather Link, programmed for a Moscow edition, was postponed until an undetermined date. Lineapelle opened its gates as advertised, but the number of visitors was visibly down, far down, as was the mood of both visitors and exhibitors. Many explanations will be given, but I believe that the main problem is that, at this particular moment, there is very little demand for consumer goods in general. There are reports that some exhibitors stated that this was their best fair for the last couple of years. This leads me to wonder whether they were doing so badly in the preceding editions or if this is an example of Anglo-Saxon humour. The airline and automobile industries have been hit most heavily but with shoe factories in traditional areas in Germany, Spain and Italy lacking orders, one wonders how many will re-open this month after the European summer holidays. It is not that we skipped a season. We skipped a whole series of seasons and the lack of purchasing is, of course, very much felt by the leather industry. Due to their declining economies, the Europeans have been unable to benefit from the weak euro during the past two years, whereas now, with a strengthening euro, more suffering is added. It is true that most raw hides and skins are traded in US dollars. This makes the supply of raw material to European tanners, who mainly buy outside the euro zone, cheaper. The raw material, however, is just a small slice of the cake that composes the value of leather and leathergoods. European production costs are huge compared with other countries where there are no social shock breakers and where workers and employees can be made redundant at the snap of management's fingers. The answer doesn't lie in the transfer of production to low cost countries such as Albania, Bosnia or Romania. Such a transfer only creates more redundancies, hence more people who won't be able to buy a new pair of shoes. It is true that such a move allows for a cheaper shoe but, at the same time, you erode your buyer's base. The problem is not whether a pair of shoes costs €90-100, but whether people have a job and earn enough money to enable them to buy those shoes. Things are not going much better in other areas. Pakistani and Indian tanners produce far below their capacity, thus increasing their production cost, whereas in China some tanneries have come to a temporary standstill with importers defaulting on their contracts. Raw prices are still falling. Raw material costs are down and the per unit production costs are up. In the past two years, we have asked ourselves many times whether things can get any worse and each time we have tried to convince ourselves that we have reached the lowest possible point, the absolute bottom. But then some new catastrophe happens and we are kicked back a couple of floors. We are in the hands of politicians who play with our lives and economy. We are in the hands of analysts who unjustifiably give themselves the right to predict what a company should earn. One doesn't know on what basis they make their analyses but the result is that if, according to these jokers, a company should have earned 8% and in reality has earned 'only' 6%, the stock markets convulse and drop. At this moment, the world economy is being manipulated more by speculation than as a reaction to the reality of the situation. Without doubt, when lots of people are losing money, others are making a lot of financial gains. Consumer confidence is something that comes in bursts and is influenced by analysts and commentators. Consumers are being frightened by current events and, as a consequence, they lose faith. It does not happen the other way around. In fact several scandals have come to light, particularly in the US where analysts were found to be on the payroll of stockbrokers or, at the very least, had a second agenda with their forecasts. So what can we do about this? If I knew I would tell you but I think that this is a wait and see game imposed on the general public by forces that are not under our control. This is the longest economic crisis in history. We have just had a war imposed upon us and statistics say that after a war, the economy will improve. Let us hope that 2003 will not be an exception to the rule. In spite of all the predictions for Y2K, the world doesn't end here. The economy will improve. Sales will pick up and one day we will all be happy again. The only question is when! Sam Setter [email protected]



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