Capital Ethiopia Newspaper

Leather producers link to belt out overpricing

Members of the Ethiopian Leather Industries Association (ELIA) signed a memorandum of Understanding (MoU) to improve collaboration and foster healthy competition.

The 39 ELIA members who gathered at Sheraton Addis on Tuesday June 5, 2012 agreed to address five key issues they say have been crunching growth.

In the past ten years the government worked hard to increase leather revenue but it has not grown as much as expected. 

There has been growth in recent years but it has fallen short of the USD 200 million they hoped to earn from leather exports this year. In the last ten months they have earned USD 94 million.

Investors gathered to try and figure out why exports earned less than expected. In late April members of ELIA gathered for a special meeting.

Market distortion of raw hides and skins subsequently resulted in price hikes which in turn lead to unhealthy competition among members. They ended up exporting raw leather below the purchase price which meant a loss of money as well as lack of a value added product. Members decided if they collaborated more, spread more information about the leather industry and made more efficient use of their labour it would alleviate some of their problems. Several more meetings have been held between industry and government officials to form a legal framework for industries, which likely will help leather flourish.

After the talks, the Association developed the MoU, which has five major points. According Abdissa Adugna, secretary general of ELIA, the signing ceremony between members which was attended by high government officials should do a lot to help leather.

“It is a historic move in the history of the association and the MoU will make the relationship and collaboration stronger,” Abdissa told Capital.

He said that the MoU is a positive move for the sector growth and partnership between members of the association.

In this regard, members agreed to adopt genuine and honest trade practices and abide by the law that shifted exporting of low value semi processed to exporting of leather with significant value added leather products with higher export prices.

Based on the MoU members agreed to take all possible measures to combat and manage price hikes and to reduce the existing price of hides and skins and leathers. This price escalation and unhealthy market competition in collecting raw hides and skins among members has been happening regardless of export prices.

According to sector experts, the raw hide and skin market has been rising quickly since new tanneries joined the sector.

“Due to unhealthy competition tanneries have to pay a high price for suppliers to collect the  hides and skins, but the MoU will help industries to calm the sector,” a private tannery owner said. A year ago the price of a piece of sheep skin was about 45 birr but it has gone up to 98 birr this year.

“It shows that how the market is contributing to unhealthy competition,” the owner complained. “Surprisingly the international market is below the local price,” he added.

Members agreed to stop exporting leather below the purchase price of hides and skins. The MoU stressed that under invoicing will affect not only members of the industry but also the country. Another threat they recognized was exporting without adding significant value. They agreed to supply quality finished leather for shoe and garment enterprises. There were previous complaints that quality materials for production were scarce.

They also plan to cooperate when borrowing materials they need and when exchanging semi and finished leather or recycling materials that previously were wasted.

At the signing ceremony Tadesse Haile, state minister of Industry, Yacob Yala, State minister of Trade and Wondu Legesse, director general of Leather Industry Development Institute, attended.

At the event, Tadesse stressed that the sector investors have to work together for their development. He cautioned the exporters who export under invoice.

“The government is investigating the exporters that export below the production price. “The situation is not harming the industry participants but it will affect the country’s economy,” he said.