Rwanda export ban

First of all I'd like to wish all readers of Leather International and the readers of Limeblast a happy, healthy and prosperous 2006. In November last year, Leather International reported extensively about the export ban that was imposed in Rwanda on raw hides and skins. I dug a little bit deeper and found typical Limeblast material. Although the official position of the Rwandan government is that of developing the leather industry, in reality the export ban in Rwanda is not about adding value, or at least not in the sense it is generally perceived. It's all about creating a monopoly for the existing tannery over the heads and bodies of competitors, their 100 something employees and a myriad of small-time up-country hide and skin collectors. This is pure politics, power play at its worst, one hand washing the other. The tannery seems to be incapable of competing with the hide and skin exporters in a natural way for the purchase of raw materials in spite of the immense advantage of being able to transform the raw material locally in their own factory. The reason lies obviously within the tannery, because the two biggest exporters process their Rwandan raw hides and skins partly or totally in Kenya on a contract basis, with the Kenyan tannery making a profit in the process. This would suggest that either the tannery in Rwanda is incapable, technically and/or commercially, and/or that it is too greedy. The tannery believes it can multiply its profits in wet-blue compared with the profit on raw hides and skins, but argues that they can't get the raw material. In my book, the free market theory dictates that if you pay competitive prices for your raw material, you get preference at purchase. Therefore, if the tannery makes a healthy profit on wet-blue, why can't they compete for the raw materials at the market price? One wonders why they need an export ban to eliminate the competition of the hide and skin exporters. So let's look at some facts. On September 6, 2005, the Honourable Minister of Commerce, Industry, Investment Promotion, Tourism and Co-operatives writes to the Commissioner General of Rwanda Revenue Service that 'the government considers the hides and skins industry as a formidable engine for economic growth. In order to develop the hides and skins industry, the government has embarked on a value-added strategy. It is in this regard that the decision has been taken to prohibit the export of un-processed hides and skins to promote value addition to hides and skins exports.' No grace period. Just that! A copy of this letter went to the Ministry of Finance and Economic Planning, the Ministry of Agriculture and the chairman of the private sector who, surprise surprise, is a member of the board of directors of the tannery. The hide and skin exporters protested, of course, because they had large stocks of hides and skins that were not allowed to leave the country. The European Commission and the Kenyan Embassy kicked in. On September 28, the Minister temporarily recalled the export ban 'to allow the individuals involved and their companies to resume exports of raw hides and skins for the next three months. At the end of this period, these companies are expected to have made progress towards setting up tanneries to produce the material locally.' As if one can find the money for a tannery around the corner and launch a tannery project in 90 days ready to produce processed leather. In conclusion, there is no fair timeframe, or any fairness at all for that matter, to allow stakeholders to embark on the government's value-added programme. Some exporters appear to have submitted a business plan and requested to be allowed to continue exporting until their tannery enters into production. Up until now, I have not been informed that the government has granted any stay of execution. The minister wrote that the 'Government has embarked on a value-added strategy'. Regretfully, there is no sector development strategy. Nothing at all. There is only the existing tannery and the ban. Oh, yeah, there is a strategy of course. The strategy is to create a monopoly for the tannery enabling them to pay next to nothing for the raw materials, sell the value-added product at international market prices, and thus make a huge profit. The equation doesn't consider the fact that the tannery doesn't have the technical or the quantitative capacity to process all quantities. The victims are, of course, the hide and skin exporters, but also the small-time up-stream collectors who, until now, had a fair bargaining position due to local free market competition. The small collectors received fair prices for their product. Now (in theory), they would just have to accept what the tannery is prepared to pay. Instead of reducing the poverty, and developing the whole value chain, the ban creates poverty! Congratulations! But will it work out like that? My information says that after the introduction of the export ban in early September, the available quantity of hides and skins in Rwanda has been drastically reduced and, instead of a price reduction, there is an increase in prices in the raw market. The hides and skins are simply leaving the country in other directions to neighbouring countries. As a consequence, the available quantities in surrounding countries have sensibly increased. The exporters will certainly relocate and take their expertise elsewhere. Rwanda was the centre of the hides and skins business in the area. Now the effect of the government's decision has created the opposite effect. Hides and skins are leaving Rwanda to be exported from neighbouring countries. Rwanda will lose important revenue rather than cashing in on value adding. There will be only few hides and skins left to add the value on! The others will have gone. Plugging the border is something close to impossible. The strategy, whatever little there is, boomerangs. The government of Rwanda is acting in good faith but is badly advised. It gets one-sided information (guess what side) because the other side has no access to the government. Although the President of Rwanda has a reputation of being available to everybody, requested audiences are not granted. Exporters, who last year contributed an estimated $3 million plus to the national economy are treated as crooks rather than victims. A consulting company, who wouldn't be able to distinguish the head from the tail of a hide, have stated that Rwanda raw hides ('the best' they claim) fetch US$1.357 (no mention of FOB or C&F) on the international market, when in reality buyers overseas are barely prepared to pay $0.90 FOB Kigali or $1.05 C&F per kilo. Rwanda should be a country that attracts foreign investment. Instead it discourages institutional and private investors by actions such as the export ban on raw hides and skins. This episode is unfortunately not an exception but part of a series. Oh, yes, I almost forgot to tell you that Rwanda holds the vice-presidency of WTO in Geneva, the same institution that blasts the EU and the USA about free trade. This story stinks so badly, you can smell it up to the North Pole. Sam Setter samsetter@limeblast.org