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Leather
–boom to bust?
Wondirad
Seifu, May 17, 2008, The Reporter
The Ethiopian leather sector
has exhibited recession and boom with a high degree of predictability. But
it offers a few bucks’ question. The trend, therefore, warrants close
investigation.
Globally the value of trade
in leather and leather products is mounting to 70 million dollars, although
it has suffered from synthetic leather competition. In Ethiopia, leather
and leather products have fetched about 90 million dollars. However, its
share in the world trade is below 0.1 percent. Its payment in the last
twenty years has averaged out close to zero real growth. It has also shown
extraordinary stride at a rate that extends from +57 percent to -58 percent
(Figure 1).
Figure 1 GROWTH % OF LEATHER
EXPORT
One may probably associated such a trend with problem
ranging from price fluctuation to quality deterioration and supply chain
complication. However, the magnitude of the growth seems reluctant to
tender itself to such explanations. Rather, that the leather sector is
hijacked on covertly manipulated to the tune of such a twist and turn.
In spite of such abnormalities, the leather sector,
particularly, the shoe sub-sector has recently displayed unprecedented
development in the export trade. That is good news. The government has also
taken some policy measures with a view to stimulate the sprouting
development. That, too, is not bad.
But it smacks of conflicts of interest because the
government is poised to join WTO- a trade regime in which trade barriers
such as banning is staunchly condemned. Irrespective of such a passport to
join the regime, the government has recently imposed a “regressing tax
system” on the leather trade: 150% on raw hides and skins, 5-15% on
finished leather.
It is to be recalled that hides and skins were banned
from export since 1987 until they were replaced by the tax barrier in 2008.
However, both measures have no difference from the point of view of WTO. So
does it from the efficiency stand point. Hence, smuggling is inevitable,
wastage is rampant and quality deterioration reaches its highest level with
regard to hides and skins. By the way, recently the price of hides and
skins has declined despite sky-rocketing price of live animals in the local
market. Does this come as a result of transferring the tax burden onto the
producers?
So far, the leather sector is said to enjoy a net supply
of 18 million raw hide and skins every year. At the international price
(about 10 times that of the local), the raw is estimated to generate 4-5
times the export earnings from leather and leather products. A tidy sum.
This doesn’t to prompt raw hide and skins export, but to
emphasise that free trade encourages optimum use of resources. In fact, the
sum is supposed to be derived by producing finished leather and leather
products as envisaged in the governments plan: 200 million dollars by 2010,
perhaps with a magic wand.
Incidentally, I have heard that a new venture is calming
an establishment of a tannery with an unprecedented mode of operation in
such a way that it will use semi-processed hides and skins as an input from
the local tanneries. Its benefit is clear as crystal, though the monetary
unit of the transaction is unclear.
In fact, the clamed mode of operation is not new. It is
a well- established state-of-the-art installation in some of the local
tanneries which has forged forward integration from raw to finished leather
operations. The paradox, however is that they are unable to maintain it.
Needless to say, the advantages they may derive from
their economics of scale. But who dare to shy away from free lunch (0%
tax)? So what would be then the fate of the intended establishment with the
so-called new mode of operation?
Notwithstanding such progression and regression, the
leather curve is to predict: would it be boom or bust?
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