Adding polish to Kenya’s leather industry

Kenya’s once-thriving leather industry has fallen on hard times, largely as a result of poor government regulation. But a change of mindset and a new strategy could see Kenya becoming a regional hub in the near future to take its fair share of the global trade, which is worth $78bn. Aamera Jiwaji reports.

Kenya has a plan to pull the country’s leather industry up by its bootstraps. The latest plank in the on-going strategy came in June when the Industrialisation Cabinet Secretary, Adan Mohamed, announced that the Kenyan army would henceforth buy boots from local manufacturers and not European suppliers.

A week later, he appointed a nine­ member task force of industry insiders – including representatives from Bata Shoe Company, Leather Technologies and Fashions, Alpharama and the Kenya Leather Development Council – to spearhead the recovery of the leather industry.

Mohamed’s actions are one of the first tangible steps towards the Buy Kenyan – Build Kenya initiative introduced by national branding movement Brand Kenya, designed to promote locally manufactured goods and services within Kenya and in international markets. Mohamed, the former Barclays Bank Managing Director for East and West Africa, has a five-year plan to make Kenya the leather hub for East and Central Africa using the export duty model.

Mohamed’s directive to local agencies matches steps being taken by the national government. During the reading of the 2014/15 budget in June, Treasury Cabinet Secretary Henry Rotich said Sh3bn ($34m) would be dedicated to developing the textile and leather sectors, adding that these sectors had the potential to create nearly 800,000 jobs over the next three years.

This is good news for Kenya’s leather industry which is yet to recover from a 1990s downturn. Before then, Kenya’s leather industry – made up of raw material (hides and skins), tanneries, footwear, and leather goods manufacturing – thrived.

But this changed after the government abolished a 22% export compensation scheme in an attempt to liberalise the market and cut tariffs on imported leather and footwear. The move provoked a surge in cheap imports and second-hand items, and half of Kenya’s 19 tanneries went out of business.

Contrary to the intention to provide expanded markets for Kenya’s leather goods, by 2004/05 80% of Kenya’s hides and skin were being exported in their raw form. Tens of thousands of jobs were lost in the tanneries and the government lost revenues of $12m) according to a 2010 report by Traidcraft and EcoNews Africa.

Today, Kenya’s leather industry is a shadow of what it once was. Estimates indicate demand for shoes is at 38m pairs a year but local producers manufacture less than 4m units per year. With demand outstripping supply, Kenya imports 85% of the units and is the second-largest importer of footwear and leather products in Africa after Egypt.

Tightly laced

In 2006, the government raised the export tax payable on the export of raw hides and skins to 20% and the following June doubled it to 40%.

The decision, which defied the EU’s commitment to free trade, worked in Kenya’s favour and a 2010 report by Traidcraft Exchange and Oxfam shows that it increased the number of tanneries in the country, created 7,000 new jobs, improved incomes for 40,000 people, increased leather exports by 54% and boosted sector earnings by almost €8m.

More recently, the government has announced plans to establish abattoirs and tanneries in various counties to boost production of hides and skins. There are currently 14 tanneries in the country, but government reports say they will increase to 21 after the completion of eight mini leather processing units located in various regions.

Six mini leather tanning factories were scheduled to open in Wajir, Garissa, Makueni, Isinya, Mogotio and Kanduyi last July, hiking the number of tanneries in the country to 19 – the largest in Africa, according to Kenya’s Leather Development Council.

Kenya has also embarked on a campaign to woo investors, and Italy is one of the markets it is pursuing with the offer of a 10-year corporation and withholding tax holiday and a 100% investment deduction on investments over 20 years.

In July, the government further stimulated the sector by mandating public sector institutions such as the Armed Forces and National Police Service to source footwear locally. Orders from the military alone are estimated at 30,000 pairs a year, and it is good news for market leader Bata, which makes military boots at its Limuru plant.