Leather Industry

Question: ARA, a well known German shoe-company, has decided to invest in Ethiopia. Why is this so important to the country?

Mr. Haimanot Asmerew: ARA’s project in Ethiopia is a very important signal. It shows that it is attractive and profitable to invest in Ethiopia and that our country is open to new investors. At the same time, it will create new jobs for Ethiopians. But ARA is not only going to build a factory in Ethiopia – the company is also beginning to cooperate with and order products from Ethiopian leather companies. Thus far, ARA is working with two tanneries and two shoe-manufacturers.

Q: ARA’s investment is the first of its kind in the Ethiopian leather sector. Why haven’t other companies started to invest in Ethiopia before, or cooperate with Ethiopian companies?

H.A.: Ethiopian leather companies do not have a great deal of experience with international markets. Until recently they produced for the local market only. International clients have different requirements than local ones – they have bigger orders, higher demands on quality, and they have a very tight time schedule. Ethiopian companies have to learn to deal with these requirements, and this takes some time. But it is also true that international companies simply do not know about the huge potentials of the Ethiopian leather sector. ecbp is working hard to change this image and show potential investors how attractive Ethiopia is, for example by bringing Ethiopian companies to international fairs. The deal with ARA is one of the big success stories for Ethiopian leather companies and ecbp so far.

Q: What is it that attracted ARA to come to Ethiopia?

H.A.: Ethiopia has two big advantages in the leather sector: abundant raw materials and cheap labor. Ethiopia has about 30 million cattle and 45 million sheep and goats – this is the largest amount of livestock in Africa. And we have plenty of manpower that can easily be trained and work at comparably low wages. Since many steps in the leather production can’t be done by machines, producing leather shoes or jackets is very work intensive and labor becomes a crucial factor. Big companies are always looking for new locations where they can produce under better conditions. And they are becoming aware of the fact that Ethiopia is the best country for leather production on the whole continent.

Q: It sounds like international companies are only looking for their own profit.

H.A.: They wouldn’t invest in Ethiopia if they were to lose money in the long run. But the important thing is that this is a real win-win situation: The international companies can make profits, but Ethiopia also benefits immensely. New jobs are created, higher income is generated, and economic development is boosted. In addition, Ethiopian companies will benefit from a transfer of technology and knowledge from their partner companies and from companies settling here from abroad: What new machines are useful? How can the production process be improved? What designs are up to date?

Q: But isn’t there a danger that Ethiopian companies are not ready for real competition yet and have no chance in the international markets?

H.A.: You can only improve if you are exposed to competition. And competition nowadays is global. Ethiopia has a huge potential in the leather sector, and many talented people are willing to bring their companies forward. But it is true that much has to be achieved. ecbp is doing a lot to prepare companies for this competition. One thing is called business re-engineering: we go to the companies, evaluate the problems they have and bring experts that find solutions to those problems.

A worker assembling a shoe in an Ethiopian factory.

 

Q: The weaknesses of the Ethiopian leather sector are not only found in the last step of production, but also in other fields?

H.A.: This is correct. To find out about those problems, ecbp is taking a value chain approach. This means we analyze every step in the leather production, from raising cattle to producing shoes and jackets. Production in every segment has to be efficient to guarantee overall success. If the animal is raised in a bad environment, it is almost impossible to produce a nice leather bag. And this is one of our biggest challenges: In Ethiopia, raising animals traditionally is done by small producers. And to them, leather is still a by-product. This means that the animals are raised for their meat, or their potential to work on the fields – but not for their skin. Obviously, the quality of the skin is affected negatively when oxen have to carry heavy loads, sheep are marked, or the animals are attacked by parasites.

Q: Still, ecbp decided to concentrate on the last part of the value chain, namely tanneries and manufacturers. Why?

H.A.: Our strategy is to downstream the value chain, which means: we start at the final step and try to influence earlier steps in the production. If tanneries are working more successfully, they can pay better for raw materials and expect better quality. This is an incentive for the providers of skin to care more for the animals and make sure the quality is satisfactory. It is our partners, like the Ministry of Agriculture, that are trying to help the skin providers to upgrade their work, and we are supporting them with our expertise.

Mr. Haimanot Asmerew, ecbp's Leather Key Issue Expert, thinks that Ethiopia is a great place for investment in leather production.

 

Q: You mentioned you sent Ethiopian producers to leather fairs in Europe. But you also tried to create such a fair for Africa?

H.A.: There are important leather fairs in all continents, but not in Africa. We supported the first All-African Leather Fair here in Addis Ababa in January 2008 because we believe it is a good tool to attract buyers and investors. Prime Minister Meles Zenawi came to the fair, and also to the ecbp stand, to express his support for the idea of a regular leather fair in Africa. The government knows how important the leather sector is, and supports ecbp in all its efforts

Q: The government created the ecbp to boost industrial development in Ethiopia and has chosen the leather sector as one key sector. How much can the leather sector really contribute to the country’s development?

H.A.: Already now, leather products account for about 10 percent of Ethiopia’s export earnings, the leather industry is third after coffee and oil seeds. But in terms of manufactured products, the leather sector ranks first. This is very important, because manufacturing products means adding value to them, and this generates more income to the country and the people. In the last months, four foreign companies have made orders to Ethiopian leather companies worth 3.5 million Euro and we expect the export of leather products to grow considerably in the near future. This will create more jobs in Ethiopia. And more jobs are the best way to fight poverty.