Missing a great opportunity

It would be a cliché to begin this article talking of political corruption, poverty and war. To most people these are the images that Ethiopia conjures up in their minds. Yet, Ethiopia has some of the most beautiful landscapes in the world and is believed to be the place from which human civilisation began. But when you talk about the country's tanning industry it becomes evident that the clichés play a part in the way the country operates. In part 1 of the survey Leather overviews the tanning industry in Ethiopia and concentrates on the country's current situation and looks at how tanners are failing to make the most from the abundant raw material. Ethiopia has the largest tanning industry in Africa and the high number of native hair sheep and goatskins provide some of the best quality garment and gloving leathers in the world. Ethiopian goatskins also provide top quality suede. At the beginning of 2001 there are 19 tanneries operating of which 18 produce pickled hair sheep and wet-blue goatskins for the export market. From the total, six produce sheep and goat leather beyond pickle and wet-blue, and six also produce bovine leather. One tannery produces only bovine leather. Potentially, Ethiopia could have a strong leather industry. It has the advantage of low labour costs, well-trained technical staff, the latest imported machinery and chemicals as well as the abundant raw material. Much of the country's pickled sheep or tanned goat ends up in Europe or Asia where tanners make high quality garments, gloves, shoes and leathergoods. The problem is that the Ethiopians have been unable to market their own finished leather. The annual slaughter is estimated to be 7.5 million sheep, 4.5 million goat and 1.5 million cattle. However, accurate figures are not easy to obtain because of the way the skins are collected. The country is broken down into 14 separate regions, which are totally land locked since Eritrea broke away from Ethiopia after the recent war, a war which has still not been completely resolved. Eritrea used to be an important coastal part of Ethiopia and now most imports and exports are carried out through the port of Djibouti, 700km east of Addis. Typically, each village has a number of small flocks, which spend the daytime wandering the local surroundings whether it be the city, town, village or open country. They eat whatever they can find. At night the animals are kept inside often with their owners. Larger herds of sheep, goats or cattle are spread throughout the country and are tended to by shepherds. Many animals are slaughtered at home and a local person buys and collects the individual skins fresh or air-dried. Depending on where the skins are collected the local collector may preserve the skins by air drying or salting and then they transport them to the nearest large town or city where they are sold to a larger hide/skin market. The market then sells the skins on to the tanner. Skin availability also fluctuates throughout the year due to religious and cultural reasons. During the Christian and Muslim fasting seasons hide and skin supply decreases. Tannery geography The tanneries are located in two main areas of the country. Eleven are located within a 50-70km radius of the country's capital Addis Ababa (six centrally, five south east of the city) and two more are located to the west of the city. The second tanning region is located in the northern part of the country. The north is a very mountainous area (known locally as the highlands) where there is a high population of sheep and goats. Currently, there are six factories located in central and northern Ethiopia. The largest tanning group is Elico who own three tanneries: Awash, Ethiopian Pickling and Tanning Factory and the Akaki Modern Tannery. The latter is currently under construction. Elico are part of the Midroc empire, which is Ethiopia's largest company. The largest tannery in Ethiopia is the state owned, Ethiopia Tanning, which is located west of Addis Ababa and a giant built during the nationalised communist era. When Leather last visited towards the end of the Mengistu regime, there were two huge tanneries, one for hides and one for skins, and a fully operational effluent treatment plant. Most of the other tanneries are small to medium sized who extensively process hair sheep through to pickle and chrome tan goatskins for the export market. Some produce crust and finished articles. A climate for change The Ethiopian economy has taken time to adapt and change to the free market following the harsh and often bloody left-wing dictatorship of Mengistu. The communist-backed dictatorship lasted from the early 70s into the 80s and much of the industry was re-nationalised and became uncompetitive on international markets. Since Mengistu's fall the country has continued to rebound between famine and war which has left the country in an impoverished state reliant on international handouts and riddled with corruption at every level. Now the call is for change in the leather sector and a greater level of professionalism is required for the whole sector. For many tanners the current system favours the quick-fix, a quick buck and not long-term sustainable growth producing finished leather. A number of local players believe that the country has missed-out on an opportunity to use its own natural resources, which include hides and skins, to develop the economy. The fighting with Eritrea now looks to be more settled and the weather has been kind to Ethiopian agriculture. Life is a little more stable at present. Now is the time for the leather sector to develop and take advantage of the free market. Looking beyond pickle and wet-blue Ten years ago the leather industry accounted for US$67.5 million in money accrued through foreign currency earnings. In 1999 this figure had fallen by more than half to US$31 million, a fall of $35.5 million. 'The leather sector in Ethiopia is sick at the moment and we are still selling semi-processed skins and, therefore, are not taking advantage of value added production. There is something going wrong', says Amde Akalework, managing director, Habtewold International. 'During the days of the nationalised Ethiopian Leather & Shoe Corporation it was forecast that the tanning sector would earn US$400 million in foreign earnings by the year 2000. Clearly, tanners have not taken advantage of the local supply of raw materials and started producing value added leather', he added. Tanning is still the country's third highest earner of foreign currency following coffee and general agricultural products but it is slowly slipping down the order as the industry fails to improve on foreign currency earnings of the past. A number of tanners are producing beyond the tanned state but while prices reached for crust or finished leather are lower on the domestic market than pickled or tanned skins sold on the international market tanners are going to be reluctant to sell locally. Most of the smaller companies are not geared up to market and sell crust leather outside the domestic market. Hussien Bedada, technical manager, Dire Industries, underlines some of the problems they face: 'At the moment we are paying a very high price for our raw material and at the same time we see more and more tanneries opening up. This makes the supply even more scarce and the prices even higher. The raw material price has become so high that it is becoming uneconomical to process anything.' Dire are located approximately 10km from the centre of Addis and process 6,000 sheep and goat, and 500 hides a day. 95% of their production is for the export market. 'It is our aim to increase production of crust and finished leather and sell less pickled and wet-blue skins. We have ordered a GeMaTa rollercoater and we are waiting for it to be installed. But we are in no hurry to switch production under the current market conditions', says Bedada. Over capacity The annual capacity of Ethiopia's tanners is currently 19 million hides and skins. Although, the actual capacity is 19 million pieces the tanneries have a potential capacity to produce 30 million pieces and the spare capacity is growing year on year. Three new tanneries (see Leather January 2001 news) will have opened in the first six months the year in an industry that is already saturated. A further three more are planned to begin construction during 2001. 'Ten years ago there were few tanneries (8) and now there are nearly 20. The number of skins has remained the same while the capacity increased three or four fold. It is a crazy situation', says Legesse Duki, general manager, Dessie Tannery. 'I have heard that six to eight tanneries are not working at the moment due to the present situation', he added. Importing skins from other countries is not a viable option either. The government would restrict imports of raw material with heavy duties that would make it uneconomic for the tanners to process. Raw material quality In world terms Ethiopia is famous for its high quality hair sheep and goatskins. The resulting leather has a lightweight, soft grain with a high physical strength which makes it ideal for being processed into gloving, garment or even footwear leather. Poorer quality skins are destined for lining leathers. Skins from the central and northern western regions are the most sought after as they are generally of better quality than those found in the rest of the country. The northern part of Ethiopia is also well known for very good quality goatskins. There are three main types: Baty Genuine, Baty Type and Ogaden Type. The most common in the highland area is the Baty type that is reputed to provide a high quality suede leather. Industry experts have noticed that the overall raw material quality has deteriorated over the last few years and the number of skins which have been affected by worm damage (mange), smallpox and lightspot caused by ticks is on the increase. Skin quality is also seasonal as during the months of July, August and September it is the rainy season. Humid conditions allow the bugs to proliferate and the wet months of 1999 were particularly bad in terms of skin quality. The north eastern area of Ethiopia has a higher humidity and the presence of mange is reported to be higher. Legesse Duki, Dessie Tannery, has also noticed a general deterioration in the overall skin quality. 'In the past we could expect to see between 50-60% 1st/2nd grade selections but now you are lucky if you can find more than 25%', he told Leather. 'We try and reward our suppliers with higher prices if the quality is good. However, we have seen a deterioration in slaughter techniques leading to an increase in man-made damage.' It has been calculated that poor husbandry and preservation means that only 51% of cattle hides, 83% hair sheepskins and 69% of goat skins ever reach the tannery for slaughter. Using the projected annual slaughter figures this suggests that a total of number of 1.28 million sheepskins, 1.40 million goatskins and 735,000 cattle hides fail to make it from slaughter to the tannery each year. Poor education, remote locations and poor transport links work against the industry where hide and skin collection is haphazard and fragmented. 'The government should help the tanners more to improve leather quality by educating the public about leather. People are only interested in the meat and not the skin. Take India for example, the national government supports the leather industry and provides assistance such as transport to help the sector', says Gaarfar Mustafa Mohammed, general manager, Blue Nile Tannery. Yigzaw Assefa, general manager, Bahirdar Tannery, also expressed willingness for governmental assistance: 'The government and the industry should get together and encourage commercial farming in the meat and skin industries. Farmers can be educated to look after the animals properly. The ministry of agriculture should assist livestock holders to dip and vaccinate their animals.' The targets are achievable if the government would only switch resources away from the military budget and invest in the long term of the leather sector. In reality the government has numerous other worthy causes to allocate money to in one of the world's poorest countries. The leather industry may have more success attracting money from international organisations such as Unido or even fund the change themselves. Positive signals There is light at the end of the tunnel. Leather was invited to the brand new Colba integrated slaughterhouse and tannery complex. Trials began early last December to slaughter 3,000 sheep and goat each day in a purpose-built abattoir. Within 30 minutes of death the carcases are being chilled and the skins are taken to the adjacent tannery. Not only are the animals slaughtered properly and hygienically but also trained workers minimise damage by removing the skin by hand. Secondly, the skins are put into work within hours of stripping which also eliminates the problems associated with preservation and the build-up of bacteria in Ethiopia's warm climate. Ayele Dejne and his family, who saw the potential in processing meat and skins using international standards, have established Colba. Colba is located 50km south east of Addis Ababa and the total investment was around 28 million birr (US$3.4 million). Raw material prices High demand on the international market has led to higher prices for the raw material in Ethiopia and tanners have found astronomical increases in sheep and goat prices since markets in Europe began to pick-up during 1999. 'The price of a typical Ethiopian hair sheep has risen by as much as 225% in the last year', says Girma Belachew, managing director, Debre Berhan Tannery. 'In December 1999 we paid 12 birr (US$1.44) for a skin and twelve months later we find ourselves paying 38 birr (US$4.62) for the same article', he added. However, the tanners can not pass on the same 225% rise in raw materials on their semi-processed stock and prices of pickled and wet-blue skins only increased by 22-25% over the same period. Basically, the cost of the raw material is higher than the cost of the processed leather. Debre Berhan had not produced any finished leather for two months because of the high cost of the raw material. Markets Most bovine tanners sell their hides on the local market where there is a small footwear industry for domestic consumption. Little is exported. The bulk of hair sheep are sold in the pickle and goatskins are sold as wet-blue. Most tanneries have strong markets in Italy, Spain and the UK in Europe and Indonesia, Malaysia and India (often via Europe) in Asia. Generally speaking the higher 1/2 grades go to Europe for quality gloving and garment articles while the lower grades are sent to Asia for lower quality articles and footwear linings. In terms of competition Ethiopia competes with producers in Nigeria, Iran, Northern Africa (Morocco, Tunisia, Libya), South Africa and Brazil. The author was unable to obtain an interview with the president of the Ethiopian Tanners Association. Part 2 will be published in a forthcoming issue of Leather