Sub-contracting policy gap hit leather sector as Cabinet steps in with Sh5.8b support plan

A Sh5.8 billion leather value chain revamp deal has received the Cabinet's nod as the government moves to revitalise the sector currently riddled with gaps in sub-contracting.

The Cabinet as well, during its June 30, 2026 sitting, announced the establishment of the Kenya Leather Development Authority (KLDA).

The authority is tasked with strengthening regulation and coordination in the sector, which is dominated by micro, small and medium enterprises.

These developments come amid detailed revelations how lack of a policy to guide in sub-contracting may be affecting the performance of MSMEs in the sector.

A paper by the Kenya Institute for Public Policy Research and Analysis (Kippra) published May 2026 notes that the lack of a sub-contracting policy has led to broken linkages between micro, small, medium and large enterprises.

If the policy was in existence, it says, it would have ensured these businesses feed on each other, hence growing the sector.

The paper titled Integrating Kenya’s MSEs into the leather industry value chains, notes that above skills and technology transfer, the policy would also ensure the playing field is leveled so that small businesses are not manipulated by larger enterprises.

“A sub-contracting policy would define a framework for skills and technology transfer and clarify mechanisms for linkages between MSEs and medium and large enterprises,” the paper reads.

It explains further that the policy would also be important in promoting a fair playing field for MSEs, medium and large enterprises, by providing a framework for governing contractual arrangements between these businesses.

The paper says that sub-contracting is particularly key in sourcing for raw materials and product sophistication.

The Cabinet dispatch, while revealing the establishment of KLDA, also notes the adoption of a revised MSME policy to help small businesses grow and expand access to markets and finance, and create more jobs. It estimates that the leather sector has the potential to create 120,000 jobs.

“On industrialisation and manufacturing, Cabinet endorsed the Sh5.8 billion Leather Value Chain Development Support to revive leather manufacturing, expand value addition, create up to 120,000 jobs and unlock the sector’s estimated Sh120 billion potential,” reads the dispatch in part.

Kippra says that firm size value chain integration is further hampered not only by gaps in a sub-contracting policy but also lack of incentives to promote linkages of MSEs with medium and large enterprises.

“Opportunities for product sophistication are eroded by technology and skills deficits, while market access value chain integration faces constraints related to product quality and cost, upgrading product standards, and limited access to information on market opportunities,” the Kippra paper reads.

The paper also notes there are other business-related causes. “The main issues are fear of being tied to one buyer or supplier, and lack of knowledge about sub-contracting opportunities,” the paper says. “Thus, creating opportunities for sub-contracting and awareness of the associated benefits are important directions.”

A sub-contracting policy, says the report, is vital in providing a framework for fair relations between MSEs and medium and large enterprises.

“As earlier illustrated, MSEs report avoiding being tied up to one supplier or buyer as the key reason for not engaging in sub-contracting arrangements, which could be due to terms of engagement and gaps in supportive framework,” it says.

Other reasons listed in the paper are unfair contract terms for MSEs, ‘sub-contracting is cumbersome and costly’, not being aware of opportunities on sub-contracting, and preference not to engage in sub-contracting practices.

The paper states that while linkages are majorly viewed upstream –a small business with medium or larger enterprise – peer to peer sub-contracting is also low. However, businesses at this level still collaborate.

This is through storage of raw materials, storage of products for sale, value addition of products, marketing, and acquisition of new technology.

Kippra warns that low horizontal linkages could erode the associated opportunities, such as social networking and policy lobbying, bulk purchase of input and economies of scale.

“Horizontal (peer-to-peer) linkages among the leather products manufacturing MSEs are also low,” it says. “Though low, some of the channels for horizontal linkages include value addition of products, common user facilities, and joint production in meeting large purchase orders by clients.”

Leather is one of the primary sectors the government is banking on to not only improve job opportunities among the youth, but also grow manufacturing from seven to 20 per cent contribution to the country’s gross domestic product (GDP).

The 2026 Economic Survey Report by the Kenya National Bureau of Statistics (KNBS) report shows employment in the Leather Value Chain declined from 1,290 persons in 2024 to 1,286 persons in 2025.

“Average income from Leather Value Chain Development also fell, from Sh 161,054.9 in 2024 to Sh 160,473.9 in 2025. Consequently, total earnings from the leather value chain declined from Sh207.7 million to Sh206.3 million over the same period,” says KNBS.