The Ethiopian leather industry was successful in beating back competition from China by adopting some unique and innovative methods
Some time around the year 2000, the Ethiopian shoe industry faced an unprecedented period. The market began opening its doors to cheaper, shiny and attractive plastic shoes from China that left local dealers anxious about the possibility of being pushed out of business. Many factory owners were torn between trying to beat the Chinese at their game and shifting to other businesses.
“It was a very difficult time. The majority of local customers fell in love with Chinese shoes largely because of their superior finishing and unique designs,” said Mulugeta Megenas, the owner and manager of Duka Leather Products factory.
“While many shoe makers shifted to doing other businesses, a number of us with designing skills decided to learn from the Chinese. With time, customers began to appreciate durable, well-designed local shoes, which helped us stay afloat.”
It also helped that the country had huge livestock resources meaning that raw material was not difficult to come by. The government too revised its leather policy, labour was cheap and readily available and the demand for local shoes had started to grow.
The Ethiopian shoe industry survived and today, the sector is attracting investors from across the world including bigwigs such as Huajian of China and George Shoes of Taiwan.
“Today it is difficult for people to differentiate between genuine local leather shoes and those imported from China or elsewhere. In fact, some of us are now bold enough to label our products ‘Made in Ethiopia’ under our trademark,” said Megenas, who had worked in various factories as a shoe designer before he opened his own, seven years ago.
Today, the industry is big. Ethiopia has more than 30 tanneries and hundreds of factories that make shoes and leather garments.
The local industry has created jobs for millions of Ethiopians, while earnings from exports of leather products including gloves and garments was estimated has been growing. Last year for example, earnings stood at $132 million from $76 million five years ago. Out of this figure, around $30 million came from shoe exports. The figures are higher when you factor in foreign brands with factories in Ethiopia.
Duka Leather Products, a newcomer to the export market is currently selling its shoes in East Africa, but has plans to expand across the globe. “For the first time this year, we exported 50,000 pairs of shoes to East African countries, and we plan to introduce our brand to the world soon,” said Megenas.
An export report shows that by last year, key destinations of Ethiopian leather products included the US, England, China, Italy, Germany, Kenya, Uganda and Tanzania.
But while exports have been growing, they remain below government’s targets, and many locally-made products or those made using raw material sourced from the country are selling under foreign brands. This means that Ethiopia’s share in world trade of leather and leather products is small compared with foreign brands. “Ethiopian shoes are exported to different countries including China,” said Sileshi Zegeye, the deputy communication director at the Ministry of Industry, citing the opening of an office by a US company, Brown, which is exporting the shoes to the Chinese market under its trademark.
But given that the country has the highest number of livestock in Africa — approximately 35 million cattle, 39 million sheep and goats, 8.6 million equine and one million camels — and is ranked ninth in the world, the leather industry has a huge potential.
Every year, the country produces 2.7 million tonnes of hides, 8.1 million tonnes of sheepskins and 7.5 million tonnes of goat skins. The government plans to fully utilise these resources through value addition and thereby create more jobs and boost exports.
The government sees the leather industry sub-sector as one of its strategic investment areas, requiring little initial capital as it uses the rich agricultural products (livestock) as its input.
“The government supports investments by foreign, local or joint ventures mainly because they are in line with the country’s plan of adding value to its agricultural products, creating more jobs, substituting imports and generating hard currency for the country,” said Sileshi.
Currently, the manufacturing industry contributes about 19 per cent of Ethiopia’s GDP. In its vision of transforming the country to a middle income nation by 2025, the government of Ethiopia plans to increase the share of its manufacturing sector to 27 per cent.
Providing incentives for investors in the agro-processing sector and other labour-intensive industries is among the strategies the government is pursuing in order to reduce the current share of agriculture, which stands at about 37 per cent, through value addition such as shifting from live animal exports to processed meat, shoes, bags and gloves.
The incentives include giving 70 per cent loan as initial investment capital to duty-free imports of machineries and exemptions from export tax. In addition, the government has been establishing sector-focused institutes to support the development of the manufacturing sector.
For example, the Leather Industry Development Institute (LIDI) has been aiding technology and knowledge transfer with the aim of upgrading production, quality leather products and marketing required for international exposure. The institute has also been offering Bachelor of Science degree courses aimed at ensuring that those who work in and manage the industry are qualified professionals.
The fact that some export quality producers are focusing on the local market is also a major challenge for the government’s vision of generating $500 million from the export of leather products by the end of 2015. Out of this target, the shoes sector is expected to generate around $360 million from exports. But over the past four years, Ethiopia has made less than $70 million from shoe exports.
This does not come as a big surprise given that the average export price of good quality Ethiopian leather shoes for men is between $12 and $20 while locally, the products are being sold for an avergae price that ranges between $22 and $32.
Big brands dominate the market and survive by outsourcing some of their services including manufacturing plants. They then operate say designing, marketing and logistics departments.
“We have no alternative but take the prices they give us if our objective is to generate hard currency from our products. Our company used to produce some of these major shoe brands and it was not a good experience for us,” said Zelalem Habte, the general manager of Ramsay Shoe Factory, whose company is trying to brand itself in the country and neighbouring African countries.
“I think one of the key reasons Ethiopian shoe brands are not known globally or even in Africa is due to the lack of finances. But we are now increasing our outlets across the country and in Africa. Recently, we opened outlets in Khartoum, Sudan and Djibouti. We also plan to do the same in Kenya and Uganda soon,” said Habte.
“The major problem we identified in Ethiopia’s shoe industry is the lack of raw materials in terms of finished leather,” said Birhanu Serjebo, the corporate communication director at LIDI. “While the total demand of leather in the country is 40 million pieces per annum, we are only producing 21 million pieces. So, our factories are operating under half their production capacity. We are also trying to solve this problem through production of synthetic sport shoes which dominate the global shoe market,” he said.
Ethiopia’s export earnings are dominated by primary agricultural commodities such as coffee and oil seeds, that bring in around $3 billion annually while imports are valued at over $11 billion.
Official statistics from the Ethiopian Revenue and Customs Authority show that of the total leather products export, still about 73 per cent is earned from finished leather, which has the potential to be converted into other value added products such as shoes, bags, gloves or garment.
On the contrary, Ethiopia is still importing large numbers of shoes, leather and plastic products from across the world, spending millions of hard currency annually. In addition as most shoe making and leather products’ accessories such as synthetic sewing thread, plastic linen, shoelaces, zippers, buckles and the like are being imported, the country is a long way from fully substituting imported shoes with other leather products.
“These are also the investment areas we are inviting private investors to,” said Sileshi. “Local institutions have been providing all rounded support to dozens of shoe factories in Ethiopia ranging from product development, consultancy, technology transfer, technical assistance and market support to linking them with potential buyers abroad, even though the manufacturers do not seem to be fully committed to exporting their products.”
Chinese shoe manufacturing company Huajian, which has its own shoe city in China, is currently producing 2,000 pairs of shoes every day in Ethiopia. At about $40 per month, the cost of labour in Ethiopia is 10 times less than that in China, which stands at about $400.
Huajian recently secured 138 hectares of land in Ethiopia where it plans to establish its own industrial zone at a cost of about $2.2 billion.
Foreign shoe factories like Huajian with an international marketing network are expected to boost Ethiopia’s foreign currency from the sector but the question begs: For how long will foreign brands dominate the industry?