Leather industry in the doldrums

Hides and skins should also provide considerable export earnings, but the industry has suffered for a long time from fragmentation and lack of efficient central planning. Under the government's Structural Reform Programme the industry was the first to be privatised in 1994-95. The proposal included three large tanneries and two shoemakers. It was expected these reforms would revitalise the industry by introducing additional capital and manufacturing value added products. However, little interest was generated by the private sector and the industry has experienced a further decline. Currently the country is continuing to export raw hides and skins, about 1 million in the 1999-2000 financial year. Exports of wet-blue hides, however, seldom exceed 60,000 annually. Local demand for finished leather has fallen to around 2,000 m2 a month and is supplied by small independent tanners. The major tanneries at Mwanza in the north and Morogoro in central Tanzania remain closed as the owners cannot make their operations viable, while Moshi Leather Industries on the Kenya border usually operates below one third of capacity. The only major shoemaker in Morogoro has closed while the other, Bora Industries, concentrate on the production of plastic sandals. This dismal prospect is not only due to industry problems. The Tanzanian economy has never recovered from the misguided attempts of the late Julius Nyerere, its first president, to introduce a centrally controlled economy based on the Chinese example. Thus unemployment is general, consumer incomes are very low, most live at subsistence level, and only the cheapest goods sell. A recent report on the leather industry commissioned by the government reported that exports of processed hides were negligible and at least 95% of hides and skins are exported raw, mainly to India, Pakistan, Hong Kong and Egypt. As a result the local industry had low capacity utilisation resulting in the closure of local processors with the loss of 600 jobs in tanning and 800 in the footwear sector. All this is despite a decade of assistance from multinational agencies including Unido, while other SADAC countries and South Africa, which have similar economies, are importing raw hides and skins to expand their leather industries. The report also posed the question of why had Asian countries managed to transform their leather industries from a position similar to Tanzania's into profitable local manufacturing, and exporting value added leathergoods and shoes? The report also recommended that the government should assist the industry to make it more profitable for tanners to process and export finished leather rather than remain as mere traders in raw hides. [While officially this is government policy, the current rhetoric is no substitute for action]. It urges the government to encourage local processing by offering an export incentive of 6% on wet-blues for an initial period of three years, as local tanners are geared to produce and export wet-blues but cannot currently operate at a profit. When they become profitable at this level then further incentives can be introduced to upgrade to the next level of processing, crust leather, and finally to the most profitable finished leather. Normal price ratio of raw/wet-blue/crust/finished leather is approximately 25/50/100. To accelerate this upgrading the government should impose an export levy of 12% on export of raw hides and skins and the revenue collected used to encourage local processing industries and improving the quality of hides and skins. The export levy would counter the export incentives offered to the tannery sector by those countries, including India, Pakistan, and Brazil, importing raw hides and skins from Tanzania. Since the incentive for value added exports is to be funded by the export levy, the entire scheme is self sustaining and is revenue neutral to the Government. These policy measures will retain more value addition within the country and the local tanneries would begin to operate at viable capacity levels, thereby protecting the employment of Tanzanians. The report concluded that unless this government support is forthcoming there is no future for the industry. Tanzania continues to export the majority of its hides and skins while its major buyers India and Pakistan, together with Ethiopia and the Sudan, have an historical ban on raw hide exports, and have only permitted the export of value added products from their own countries. Another major problem is the often poor quality of the hides and skins offered to Tanzania's tanneries. Many animals are slaughtered in villages where the meat is consumed, and the hides pinned to the ground, scraped and dried by women, rolled and kept in a hut until a dealer arrives to buy them, which does nothing to improve their quality and many are rejected. The Veterinary Department has conducted workshops to demonstrate the benefits of drying and cleaning hides on wooden frames easily constructed from local trees. This has had limited effect despite the much higher prices received. The Department is also carrying out an extension programme to improve the standard of branding stock, as many traditional methods destroy a large area of hide. However, as a disillusioned local businessman commented on the proposed export levy: 'Once the government gets its hands on the money, as happened with similar schemes for other industries, it is diverted to subsidising its more politically desirable projects or increasing the size of the public service. And overseas aid solicited to support such schemes also has a habit of disappearing without much effect!'.