Heading for privatisation

In part 1 of the Ethiopian survey published last month Leather discusses the problems of over capacity and dwindling raw material availability and quality. In part two we look at the tanners facing privatisation and how they can market themselves in international markets. Ethiopia has between 18 - 20 working tanneries of which six are still owned by the government. Since the brutal dictator Mengistu was ousted from power the new government has embarked on privatising the country's leather industry piece by piece. When Leather recently visited the country, two companies Modjo Tannery and Addis Tannery were being prepared for privatisation. In all, the Ethiopian Privatisation Agency has called for tenders for the sale of 15% or more shares in twelve companies. To qualify, any interested company or investor must be able to operate and develop these companies. They include the Addis and Modjo tanneries as mentioned above as well as the Ethiopia Tannery (Ethiopia's largest tannery), Kombolcha Tannery, Anbessa Shoe and Rikur Abay Shoe. This is not the first time that the country's tanneries and shoe enterprises have been tendered for sale. Midroc, Ethiopia's largest company, acquired Ethiopian Pickle and Tanning and the Awash tanneries to form the Elico Group. Under conditions set out by the authorities, any company wishing to buy an Ethiopian tannery must agree to increase the levels of finished leather production over a specified period of time. Elico have been given five years to get as close to 100% of their production up to crust or finished leather- an ambitious target. The Modjo Tannery, located 70km or 45 minutes from the centre of Addis Ababa, is currently being prepared for privatisation. 'We are looking for investors to buy a stake in the company for from abroad or here in Ethiopia. Over the past two years we have been investing in new machinery and staff training in readiness for privatisation', says Emebet Tafesse, general manager, Modjo. The company have been well prepared for the sale and are very well connected to the capital, Addis Ababa, and the port of Djibouti by good quality roads. 'The tender document has been issued and we are now waiting to see what bids come in from potential investors. I believe that investors would get a good return on their money from Modjo', she added. Emebet Tafesse is the highest positioned female in the Ethiopian leather sector. Prior to taking up her post at Modjo she spent 17 years in the leather business at the Awash Tannery. Modjo were established in 1965 as a crocodile tannery. Production shifted away from crocodiles to sheep and goat ten years ago and now they process between 8 - 10,000 skins a day. From the total production 70% is sheep and the remainder goat. 90% of all production is for the export market with major markets in the UK, Italy, Japan, Malaysia and India. During the past three years Modjo have been gearing the tannery towards producing more and more crust and finished leathers. Today, approximately 25% of their production is sold as crust or finished garment or footwear lining leathers. The 80,000m² factory employs a total of 284 full time and casual workers and have invested heavy in new machinery, particularly in the crust and finishing areas. Another tannery preparing for privatisation is Ethiopia's oldest tannery, Addis Ababa Tannery Share Company, which began production 75 years ago after being established by an Armenian businessman. The tannery is located at the bottom of a gorge with a stream running between the various buildings. Although the mainly wooden constructed tannery is only 20km from the centre of Addis, getting to the factory is an experience in itself and holes in the road are a challenge even for a four wheel drive vehicle. Addis are Ethiopia's only tannery which produces 100% bovine leather and has no involvement in sheep or goatskins. 'We have been updating our tannery over the last two years. So far, we have invested 6 million birr (US$800,000) in new plant and machinery', says Mulugeta Atsebeha, general manager. Recently they installed a new generator and boiler which helps the tannery to keep production flowing when the utilities in Ethiopia can be a bit hit or miss. They have also bought an Italian-made spray finishing line which was waiting to be installed during the visit from Leather. Addis process between 900 - 1,000 hides a day, mainly for footwear in the domestic market. They make finished grain leather for shoe and boot uppers as well as split leathers for linings. Being government owned they supply local state owned footwear companies and provides leather for footwear for the Ethiopian military. Unlike the Modjo Tannery, space at Addis is at a premium and by its very location any expansion or development is difficult. The processing facilities are older and, have been constructed in an unorganised manner, like mainly old tanneries throughout the world. For example, finishing is still carried out by hand (until the spray line is fitted) and leathers are left to dry or condition by being hung on wooden beams which support the roof. However, Mulugeta Atsebeha has ambitious plans for the factory and plans to build an extension on the factory in the future. Anyone interested in investing in the tanneries mentioned in this article or any Ethiopian government owned tanning or footwear enterprise should contact the Ethiopian Privatisation Agency in Addis Ababa.