Told you so!

The first of such operations has now kicked off in Jinja, Uganda as Leather International reported. The tannery is said to operate some 34  drums measuring 3.5x3.5m and could process 40 tons of hides per day at full capacity, or an equivalent of some 2,000 hides. That's huge for the area considering that the reported yearly hide output in Uganda is about 600,000 hides or approximately 10,300 metric tonnes (source: FAO). That's 1,600 hides per day, 20% short of the tannery's requirement. There are, of course, goat and sheepskins to be processed too but availability and demand are too close for comfort in my view. The first pinch is being felt in the region of the Great Lakes. Hides from western Kenya are finding their way to Jinja as do hides from Rwanda, Burundi and eastern Congo. Not too long ago Ugandan hides went to Kenya for processing. At the moment I can imagine that the Jinja tannery is just running in and still has to achieve its basic standard capacity. It is, therefore, easy to imagine that when the tannery reaches full production it will be a major buyer of raw hides and a dominant factor in the region, attracting large quantities of hides. Right now, I am told that the tannery competes successfully with traditional hides and skin exporters in Uganda as well as with the partly operating Uganda Leather Industries tannery in a natural way for the purchase of its raw materials. No favouritism, no monopoly, just healthy free trade, although the tannery does have the benefits of any new industry setting up and investing in a developing country in the form of no-tax and no-duty. The tannery appears to buy hides in the free market at market prices and has immediately become the most important player in the region. Of course prices in the area have increased and probably will continue to increase for the time being. Small time exporters in the area have already thrown in the towel. In short the Chinese have, in a short period of time, done what the Western world has not been able to do over decades. Whether we like it or not, this is a positive development for the local industry, even if I think that the tannery is over-sized and thus risks not finding sufficient raw materials. Or it could bleed the market of supply to the detriment of other tanneries in the region. Despite the high requirement, important players in the region do not appear overly concerned. They told me that they were not worried because they believe there are sufficient raw materials available. Personally I doubt this very much. In neighbouring Rwanda the situation is totally different. The tannery exercises a monopoly even if some raw materials leave the country officially through a trader who has started to build his own tannery. The tannery determines the prices of the raw materials, pays its suppliers if and when it wants, creating great misery amongst the small time collectors. Since those prices are below market value, a large proportion of the Rwanda produced raw materials leave the country illegally, in spite of the fact that the government, urged by the tannery, tries to stop the illegal exports. After a year of the export ban the balance sheet for Rwanda is deeply in the red. Before the export ban was imposed, Rwanda exported according to official figures available at the BNR (Banque National du Rwanda) some US$5 million worth of raw hides and skins. In 2006 Rwanda exported US$717,831 worth of raw skins and the tannery exported a value of US$1,248,526 (again BNR figures) of which only part was actually paid for by overseas buyers due to quality claims in Europe and the Far East. Hence 'the people' of Rwanda drew the short straw both in terms of revenue (only a third compared to the preceding year), incoming foreign exchange and most of all in labour. Some 2,000 jobs are estimated as having been lost in the process of which the tannery absorbed only some 100 workers. Almost 1,900 families who made their living in the hides and skins pipeline have been reduced to poverty. In short the bottom line is disastrous. Under the excuse of adding value (which on $1.2 million wet-blue accounts for about $100-150,000), the country took disastrous losses. The errors made are now probably being compounded. A market survey agency operating in the country that listens carefully to the tannery as their only source of information, appears to be advising the government that, as of this year, Rwanda should also export a percentage of crust leathers and fully finished leathers by 2010. This would make life difficult for any new tannery wishing to compete in the market. One wonders how a tannery can produce crust when it's still totally incapable of producing a fair export quality of wet-blue? Instead of adding value to their raw materials the country has shot itself in the foot and loses money every day. The tannery boasts of producing 3,000 wet-blue skins per day (out of a capacity of 4,000 skins) plus 150 wet-blue hides (source: African Platform of ITC) which would represent a total of $3.5 million at market value, three times the real export figures! The investment climate in Rwanda is extremely difficult and totally lacks objectivity or the slightest basis for confidence. Very worrying! Just ask British American Tobacco and the local brewery which is foreign owned about what happened to them.  Also in Burundi, the government is evaluating the value adding option and one can only hope that it is aware of the serious and self-damaging mistakes made in Rwanda. One raw hide and skin exporter observed that before it rains, you should first see the accumulation of clouds. He also observed that these were probably the first clouds. The local tannery is badly equipped and its management doesn't seem inclined, contrarily to Rwanda, to invest the large amount of money needed to upgrade the machines. Time will tell, but don't hold your breath. Everybody knows that the Kenyan tanning industry is in a very difficult position with only a few of its many tanneries capable of keeping their heads above water. One of the means to earn some money has always been contract tanning of hides and skins from surrounding countries. The Kenya Revenue Authority has normally facilitated or at least not opposed the temporary import of hides and skins for processing, thus earning foreign exchange by value adding. For totally unexplainable reasons, at the beginning of this year KRA suddenly refused to allow temporary entry into the country of raw hides and skins from surrounding areas for contract tanning. One wonders who and what is behind this decision, which makes no sense. It seems that governments in this part of the world are going out of their way and bending over backwards to destroy the hide and skin trade as well as the leather industry in their countries, rather than help it gain strength. They listen to bad advice and ignore professionally sustainable suggestions. Sam Setter samsetter@limeblast.org