Country losing billions as value addition eludes leather sector

Losing revenue. Uganda exports about 75 per cent of its leather, which makes the country lose billions of shillings in taxable revenue. This also limits the growth of local manufacturers due to the fact that they mostly rely on imports to feed their industries.

Uganda’s efforts to grow its leather industry continue to suffer setbacks as the government delays to work on legislation that could guide the sector’s growth and activities.
The policy that was supposed to be ready by 2011, remains a draft without much indication that it will soon be passed.

“We started drafting the policy in 2008 and we expected that it would by 2011 be functional, however, nothing has come of it up to now,” Dr Imelda Kagoro, the Agriculture Ministry, senior veterinary officer in charge of marketing told Prosper last week.

The policy still in draft form seeks to improve the standards and quantity of Uganda’s leather.
It also seeks to strengthen the industry’s capacity through value addition, awareness and improving market strategy both at the local and international market.

Industry status
Livestock remains one of Uganda’s biggest resource contributing about 5.2 per cent to GDP and 12 per cent to the agricultural envelope.
Smallholder farmers own about 98 per cent of Uganda’s cattle herd and about 100 per cent of the country’s ruminant and non-ruminant stock.

However, even with such resources, Uganda continues to face challenges related to sustainable management of tanneries and its lether industry.

Data indicates that Uganda has enormous potential to generate sizeable export earnings from the leather industry owing to its annual meat production that feeds the sector with hides and skins.
Hides and skins are by-products of the meat industry and are derived from either urban or rural slaughters of cattle, sheep and goats.
According to Ubos, Uganda had 12.1 million heads of cattle as of 2011, 3.6 million sheep and 13.2 million goats, providing a healthy feed for the leather sub sector.

However, even with such potential, value addition continues to elude the sub sector thus stalling its growth and productivity.
Many players are only able to add value up to the stage of Wet-Blue, a lowly rated step for the export market.

This means the country continues to lose millions of dollars in revenue, according to a recent study conducted by Comesa.
The study found that for every $1 of raw hides, there is an equivalent of $3 for finished leather and $12 for the finished product.
Data shows that in 2008/9, Uganda lost revenue equivalent to $249.7 million (Shs660 billion) through the export of raw hides.

“Some of the products imported into the country are made out of the semi processed leather that we export. This is money lost due to the fact that our value addition is still low,” says Mr Oscar Olala, a desk officer in charge of leather at the Ministry Trade.
Data indicates that hides have grown to an estimated 1.2 million, while skins have grown to two million in the last five years.
Thus the growth puts Uganda in close range with some of the world’s leading leather producers.

Uganda produces one of the most sought after hides – bovine, which gives the country distinctive advantage.
Bovine hides have high texture and heavy substance, which makes it a production choice for heavy upper leather and vegetable tanned soles.

However, it remains a puzzle to see that even with such potential, most of Uganda’s finished leather products are imported from countries including China, Italy, UK, France and US.
A survey conducted by Comesa - International Trade Centre found out that Uganda has a demand of about 25 million pairs of shoes, but only one million are produced locally and over 24 million imported from US, Europe, and China.

Tax levy
In a bid to mitigate and curb the exportation of raw hides and skins, the government introduced an 80 cents levy for every dollar for a kilogramme of exported raw skin and hides.
Mr Emmanuel Mwebe, the chairman of Uganda Leather and Allied Industries Association last week told Prosper that the levy had helped to improve investments in value addition with a number of tanneries being established countrywide.

The tanneries have increased from the original five to the current eight including SWT in Jinja, which was established last year, Jambo in Busia, Sky Fat in Jinja and Novelty in Masaka.
Others include Elgon Leather currently under construction in Masaka, Royal Small Scale Footwear in Jinja, MSA Investments in Jinja and Hoopoe (Lugazi).

The growth in tanneries has helped to enhance value addition, with improved revenue figures being recorded.
Data from the Uganda Export Promotion Board indicates that in 2011, Uganda exported 22,635 tonnes of leather worth $33 million up from 8,255 tonnes worth $17 million exported in 2010.
The country posted some good growth considering that only 333 tonnes worth $780,000 had been exported in 2009 and 239 tonnes worth $649,000 in 2008.

Challenges
Local leather manufacturers continue to face supply constraints, which forces many to resort to imports from Kenya and India.
This, according to Mr Olala results from the fact that Uganda exports most of its leather in semi processed conditions which forces local manufacturers to import refined leather.
The other challenge is the entry of cheap and second hand imports onto the Ugandan market.