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Proposed leather park limps even as investment options beckon

By Lee Mwiti | August 16th 2016

Kenya produces only one in eight leather products consumed domestically, illustrating the market potential the local leather sector has.

The majority of leather products Kenyans buy, including shoes, wallets and sofa sets, are imported either new — largely from China — or second-hand shipped in from across the world.

Yet, the potential of a local leather industry remains untapped, with the proposed idea of a leather industrial park yet to take root as a host of problems plague it. As a result, the Government is finding it difficult to sell the idea, which was set in motion last year, to investors.

“To start with, the Kenya Leather Development Council [KLDC] was established by an executive order from the President and not by an act of Parliament,” said Titus Ibui, the chairman of the council that was created in 2015 to oversee the development of the leather industry.

“We, therefore, find it difficult to get funding since we depend on our parent ministry for money. If we were established by an act of Parliament, we would be getting funds straight from the Exchequer.”

This grey area that KLDC finds itself means that the 500 hectares — which is about the size of 600 football fields — set aside for the leather development park in Kinanie, Machakos County, lies largely undeveloped.

From the beginning, the Government had made it clear that its role in developing the industrial park would go only as far as providing land and the necessary infrastructure.

But Industrialisation and Enterprise Development Principal Secretary Julius Korir admitted at an investor forum recently that the State has only put up 15 per cent of the required infrastructure, which means most of the park lies bare.

Ibui added that in the last financial year, KLDC was allocated just Sh500 million for the park. This financial year, which ends in June 2017, the council got Sh1 billion.

These sums are a drop in the ocean for the project, considering that the cost of infrastructure alone is estimated to be Sh7 billion.

And then there is the issue of the prohibitive costs involved in setting up treatment facilities for tannery waste. Investors need a lot more assurance from the Government on the viability of the sector before they commit the billions of shillings required to set up waste management facilities.

But for Ibui, this is an easily surmountable problem — if investors come in.

“We did bench-marking trips to India, Italy and Turkey where we saw how tanneries use a common effluent treatment plant to benefit from economies of scale.”

Value addition

The industrial park was expected to attract an initial 20 tanneries, each with a daily production capacity of 10 tonnes of raw hides and skins. The tanneries were to benefit from economies of scale by being located in one area, and produce leather garments, gloves shoes and handbags.

These businesses were expected to complement the country’s 14 tanneries and 85 leather goods units that help the sector generate about Sh10 billion a year.

The increased value addition was envisioned to boost the country’s earnings from the sector to upwards of Sh100 billion a year.

It would also help farmers earn better prices for their raw hides and skins, as opposed to the current situation where these products are exported, mostly to Asia.

But despite much wooing from the ministry, Industrialisation Cabinet secretary Adan Mohamed, last week said only 10 investors had so far sent applications showing interest in setting up in the park.

At full capacity, the park is expected to host 36 tanneries and eight leather value-addition parks.

But Leather Articles Entrepreneurs Association Executive Secretary Beatrice Mwasi said for investors under her organisation to take the park seriously, the Government needs to do more to address the competition from imported leather products.

“A number of bottlenecks that stifle the sector’s ability to compete must be addressed with equal effort and passion if we are to compete and carve for ourselves a share of the $100 billion [Sh10 trillion] global market for leather,” Ms Mwasi said.

“These challenges include rudimentary technology, an inability to adapt to rapidly to changing market demands, and limited capability to produce sufficient volumes and meet quality expectations from the export market for finished leather goods.”

She added that a successful industrial park would only be realised through a solid private-public partnership that includes development partners. The State alone cannot deliver and sustain the vibrancy required of such an operation, she continued.

Another investor disillusioned by the Government’s move to set up the park without first tackling the underlying problems stifling the leather sector is Mumtaz Mughal, the managing director of Leatherlife EPZ Ltd.

“The cost of doing business in the leather industry is too high,” she said.

“Purchasing raw materials is incredibly expensive. For example, I have to import logs from Tanzania even when we have trees here. It doesn’t make sense to have such a park when we are importing raw materials.”

Ms Mughal added that industry players are bogged down by too many bureaucratic bottlenecks, with the documentation needed to register simple aspects of a business being excessive.

Neighbouring Ethiopia, which is home to the largest population of cattle in Africa and the 10th largest in the world, is currently miles ahead of Kenya in terms of the leather industry.

Ethiopia has an estimated 49 million cattle, 25 million sheep and 21 million goats, giving it a huge supply of hides and skins. Kenya, on the other hand, has 17.5 million cattle, 27.7 million goats and 17.1 million sheep, according to KLDC.

Numerous incentives

Like Kenya, the Ethiopian government has recognised the leather sector as crucial to economic growth and offered numerous incentives to local leather entrepreneurs, which has seen the industry expand.

According to the Ethiopian Leather Industry Development Institute (ELIDI), the country plans to get $800 million (Sh80 billion) from exports of value-added leather items over the next five years.

This year, the country plans to generate $186 million (Sh18.6 billion) by exporting processed hides and skins. Kenya earns about Sh4 billion from this.

However, Ibui said when the leather industrial park at Kinanie, dubbed Ngozi, gets off the ground, Ethiopia will be nowhere near Kenya in terms of production.

“Ethiopia doesn’t have a leather park like the one we are planning. Its tanneries are sprawled all over its vast territory. [Our] leather park will see tanneries benefit from economies of scale,” he said.

The park is among the projects expected to help Kenya’s manufacturing sector contribute 15 per cent to gross domestic product over the next 10 years, up from the current 10 per cent.

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