Ambitious Sh17b leather city could be a game-changer

Kenya: Last week, Industrialisation Cabinet Secretary Adan Mohammed announced that the government will establish a Sh17 billion leather city on a 500-acre piece of land in Kinanie, Athi River in Machakos County. This could, and should, be a game-changer not just for the leather sub-sector but in the way the country does business.

The initiative gives credence to the view that the government is listening to the voices of industry and level-headed economists because it has chosen to limit its role to creating an enabling environment while leaving the private sector to do what they do best—running business successfully.

It is comforting to know the government will limit itself to developing the necessary infrastructure such as roads network, water, electricity, sewerage systems including an effluent treatment plant to control and mitigate pollution.

The planned city targets the establishment of 15 tanneries each with a production capacity of 10 tonnes of raw hides and skins per day and at least 10,000 pairs per day of shoes, hand bags, leather garments and industrial gloves.

When the cost to the exchequer of Sh7 billion is measured against the huge amounts of money the country is expected to earn from this single venture, the only question is why it has taken so long for the government to come round to putting its money where its mouth is. After all, it always says it is pursuing policies that are friendly to business. Be that as it may. The important thing for the government is to ensure that it moves with speed to ensure its well-thought-out plans are not sabotaged by importers of second-rate items that are already subsidized by the home countries for just such a purpose.

While the importation of such products should attract the appropriate taxes, the government should pass the necessary legislation to ban bringing into the country of second-hand leather products. This will give the new industries a chance to sell enough of their products locally to meet some of their fixed costs while pursuing regional and overseas markets where they will be expected to make their profits. The government would also do well to play a coordinating role between investors in the leather city and county governments especially those reportedly planning to set up abattoirs. If this means the passing of legislation banning the export of raw and semi-processed leather, so be it.

The expectation is that the government is also working on an apparels master-plan similar to the leather one. This could be established around Naivasha where an American investor is reportedly expected to set up a huge garments factory employing over 30,000 workers. As welcome as the expected American investor is, the government should take steps to ensure the country gets the best value for money. For starters, the investor should not be given any incentives that are not available to local and regional investors. After all, the investor is not doing the country a favour by coming here. He/she is doing so because expenses in China, particularly the labour costs are rising exponentially even as the entire economy is slowing down.

 

Industrial hubs

The government should also play a leadership role in resurrecting the growing of cotton and rearing of sheep for wool. The current practice of foreign and local investors setting up factories that use imported cloth should neither be encouraged nor allowed to continue indefinitely.

This is because as the recent labour unrest in three Export Processing Zone (EPZ) factories in Mombasa has shown, the country’s gains from such investors are next to zero. It does not take rocket science to realize that the country cannot be developed on the back of labour so cheap that employees are unable to meet their daily basic needs as appears to be the case in EPZ factories—and not just in Mombasa.

On the contrary, the country will only be developed on the back of a work-force that is well-paid. This would have the added benefit of reducing the income inequality which is becoming an ever present danger to the country’s socio-economic stability.

Yet another misconception that needs to be de-bunked as the country moves forward is that it requires foreign investors so badly that they dictate the terms of engagement including the level of incentives and the percentage of taxes they will pay after their investments become profitable.

Evidence from around the world shows this, often, leads to the drawing up of investment codes that allow the abuse of the taxation system. When this is added to the all too often, appallingly low salaries that these companies are allowed to pay their, usually, non-unionized workers, the investments become a net loss not the expected gain on the economy.

This is why the government would do well to ensure the majority of investors in the leather city are drawn locally and regionally. And this should be the usual practice in all major government-backed investments. The bias towards supporting local companies to take up the commanding heights in the planned industrial hubs should be driven by the realization that foreign companies’ interests are dictated back home.

This is demonstrated every time a multi-national company decides to close a local factory in favour of sourcing its products from a subsidiary based in yet another country. Such subsidiaries of multinational companies are also been quick to lay-off staff every time their profits are under pressure back home.

A case in point is Coca-Cola which is set to lay off scores of Kenyan workers as part of the Atlanta, US-based company’s plans to eliminate between 1,600 and 1,800 jobs globally in the short term. The tragedy is that some of the workers to be retrenched represent part of the country’s best trained and experienced individuals who are in the middle of what they considered a fulfilling career. Let it be hoped the country will decide this tragic turn of events has ran its course and do something about it. Would that be too much to ask? —[email protected]