Taking advantage of a free ride

4 October 2010

A couple of months ago Leather International published (April edition page 4) a very significant and welcome observation from Farrukh Hussein Sheikh, one of the directors of the prestigious Mima Leather Group in Pakistan. Farrukh observed in his comments that it was incredible that (Pakistani) tanners were still waiting for freebies from governments and international organisations to buy equipment. He wondered how an industrialist could actually act as and call themselves industrialists when they feel they should depend on handouts from others. That is very interesting and I share Farrukh’s view completely.

In the Indian subcontinent, like in many other developing countries, there is a large number of big industrial leather production units, tanneries that are fully equipped and which produce generally very good leather. These tanneries, like other industries, have developed and expanded during the last 30 years or so. During this period they have always enjoyed, in one form or another, technical assistance. Trade benefits came their way from developed countries through the general system of preference that waived import duties on processed materials (wet-blue, crust, finished leathers and finished leather products) with or without a connected quota system. Their own countries provided sector protection by penalising or prohibiting export of raw materials, and providing incentives for export orientated businesses through tax rebates, low interest rates and similar strategies.
At the same time strict pollution laws that were steadily enforced and more and more restrictive in the western world, were not or hardly implemented in the developing countries. The environmental conditions in certain places are absolutely appalling, but work in favour of the tanneries by not adding to their costs.
More recently, there has been adjustment among tanners in the developing world and those that were not competitive have closed, whereas those that have proven to be capable are now important industrialists, running big plants and employing a large number of workers. Several also own shoe, garment and leathergoods factories and/or have diversified by investing in other businesses or industries. They drive expensive cars, live in beautiful villas and fly business class. In short they are firmly settled in the national and international industrial scene and have become major and important players.
These are facts and nobody can deny these entrepreneurs the right to their business as they do. They deserve admiration for what they have done and for what they are doing. BUT, I ask myself, why should the international community, and for that matter their own countries still continue to inject money and provide for benefits that should be reserved for developing industries and not for developed industries whether or not they just happened to be located in developing countries? A multimillion dollar operation that generates tens of millions of dollars of turnover per year and exists for the last 10, 20 or 30 years is a well established entity and not a child that needs to be taken by its hand to venture itself in the outside world! These industries can no doubt stand on their own legs. They can afford their cars, villas and diversifying investments, so why cannot they buy their production machines themselves? Why are they knocking on doors for financing when the financing is actually available in their own pockets? Of course, it seems a clever move to get money free of charge but taking that money is denying others to make use of the same benefits that the established tanner himself enjoyed some 30 years ago. If at that time the developed world had been as selfish, the tanner would not have accumulated his present fortune.
But would it not be appropriate and would it not make sense for governments, NGOs, the UN, to make an assessment when they provide for development aid as to who is eligible for aid and who is not? Unfortunately, money is attracted by money. If you have a lot of money then banks will make you a loan more easily than when you are a poor so-and-so even if you have good ideas. The big industrialists in a country are well-known entities, who have important friends, who speak to important people who know those that can make things happen. Money talks and people listen! So if you are an important tanner producing a million square feet of leather per month, driving in your chauffeured Toyota SUV (on which your government has slapped 100 to 150% import duty doubling its price) in the Indian subcontinent you can ask for financing or even a grant for a tanning machine and you are likely to get it. When instead you are a poor West African tanner/lady, who walks 10 kilometers to work and runs a local ‘tannery’ that consists of a couple of tanning pits dug into the ground doing 500 skins per week, employing your family members who de-hair and flesh by hand, working from morning till evening, you will NEVER get a penny or if you do they are just that, pennies, peanuts. This lady can have the capabilities and the drive to make a difference, but she will not get there, apart from some rare exceptions. The poor remain poor and the rich become richer with other people’s or cheap money!
It must also be said that some recipients of development aid are much more industrious and virtuous than others. Some perform miracles with a thousand dollars and others cannot get anything off the ground with $10,000. Therefore, aid must be selective and awarded for merit not for power, to those who really need it and not those that have the right connections.
The micro loans that won the Nobel Peace Prize for Muhammad Younus are great (even though they do not entirely smell of roses) and in a number of cases they really make a difference to the livelihood of people. The availability of micro loans should be wide spread. However, they must be paid back (sometimes with a huge interest rates) and are definitely not gifts, so they invest in the people who are obtaining the micro-loan with a responsibility. Gifts or grants do not create any sense of responsibility. On the contrary! Whole economic or social sectors should benefit from micro, standard or macro loans, not just selected individuals, and certainly not established industry captains who have proven that they can fend for themselves. Selectiveness must be there. You do not want to throw away money, you want to loan it and get it back within a contracted period with the accrued interest.
Thanks Farrukh. Unwittingly you triggered a Limeblast that was quite due.
I had actually encountered a situation of a rich industrialist accepting freebies a couple of months ago in one of the subcontinent’s countries. Subconsciously I had the idea to write about it. Your guest column in April sparked the plug. 
Sam Setter - [email protected]
[email protected]

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