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The leather industry began to mushroom in Eritrea in the 1940’s. In the 50’s and 60’s the sector grew significantly and was producing high quality finished leather and civilian shoes for Eritrean and Ethiopian market. Pickled and wet blue skins and wet blue hides were produced for export. Since 1975 however, leather manufacturing activities became almost impossible. Some producers were forced to close down others were nationalized and lost their export businesses. In 1991 the nationalized enterprises became the property of the Eritrean government. In congruence with the Macro Policy’s principal tenet stimulation of the private sector all public leather and leather products establishments were privatized in late 1990’s.

The Leather Value Chain in Eritrea has operating enterprises at the various stages of the chain. This is a good demonstration that the sector has the potential to expand and create growth opportunities that would contribute significantly to the economy and livelihoods of the populace.

According to the Ministry of Agriculture   Eritrea has 1.6 million cattle, 5 million goats and 1 million sheep. Due to the comparatively large population of goat and sheep and their high off take rates there is large quantity of raw material available. With off take rates set at 7% bovine and 30% skins, the country can collect 95,000 cattle hides, 1,375,000 goat skins and 300,000 sheep skins. The sheep and goat skins are well known for their quality. Both goat and sheep skins are preferred for leather garments and gloves manufacturing in addition to being used for shoe uppers. This indicates Eritrea has considerable potential in the leather industry.

According to the Food and Agricultural Organization of the United Nations (FAO, 2012 estimate), the national population of bovine animals, sheep and goats is estimated at about 2 million, 2.3 million and over 1.7 million respectively.

The hides and skins recovery from the above population is also estimated at 20,000 pieces of hide 600,000 pieces of ship skins and about 700,000 pieces of goat skins annually.

The Potential for the Eritrean Leather Value Chain

The export of raw hides/skins, wet blue and crust entails forgone opportunities with regard to value addition, which could have been attained in Eritrea. Put simply, the export of wet blue means the exportation of jobs, foreign currency earning opportunities and other indirect benefits, which could have been generated in Eritrea had the large proportion hides and skins been transformed into finished leather. In addition, more losses are incurred due to the resultant production of low quality hides and skins, which fetches lower prices in the international markets. As it was reported, the prevalence of pre-, peri- and post- slaughter defects was very high in Eritrea this renders more than 60% of hides and skins produced to be categorized to grade three or worse.

A partial equilibrium model was employed to compute the potential losses that Eritrea was incurring per annum due to pre- peri- and post- slaughter defects and the export of 95% plus of total hides and skins in the country in wet blue state. Based on the hides and skins production of 2012, the Eritrea leather value chain has the potential of reaching a minimum direct value of USD 270 million per annum.

The Tanning Sub-sector

At present there are 5 tannery industries in operation (table ) the tanneries have 2.6 million  sheep and goat skin soaking capacity and 224,000 cow hides soaking capacity per year. Together they also employ 620 persons. Keih Bahri tannery with 500,000 goat and sheep skin and 144,000 cow hides soaking Asmara Pickling with 1 million goat and sheep skin and 20,000 cow hides are the most largest tanneries. These two tanneries were state owned enterprises that were auctioned to the present owners. Most tanneries work below their capacity.

The Tanneries in Eritrea produce and export semi processed products. The type of products produced and sold are wetblue goats, wet blue sheep and pickled sheep. These products are further processed into finished products by the importer and they don’t reflect any social and cultural implications on their packages and colors as they are sold as finished products. Although the price of finished products are more than threefold of the semi - finished products there is almost no export of finished leather because the companies don’t have sophisticated technology, well skilled manpower, capable management, accurate information, adequate financing, etc. to enable them to compete with the foreign market climate.

Location, Site and Environment

The tanneries are distributed throughout the residential areas of the municipality of Asmara. The municipality of Asmara is considering relocating the tanneries to locations outside city the limits. This is for two reasons; a) the release of the land for residential development and b) the environmental, particularly effluent, management.  It is important to note that the relocation of tanneries to centralized locations outside the main urban settlements is in line with international trends. The merits of such relocations is that it reduces the cost of effluent treatment  per enterprises, as they would all use a common facility, additionally it eliminates the environmental hazards associated with tanneries being located within residential areas. See the Table below on the number and capacities of tanneries currently operating in Eritrea.

Table 1: List of Operating Tanneries and their Capacity

No

Name of establishment

Location

Soaking capacity
per   year

Number of Employees

Sheep  and Goat Skin

Bovine hides

1

Red Sea (Keih Bahri)   Tannery  plc

Asmara

  500,000

144,000

335

2

Asmara Pickling plc

Asmara

1,000,000

   20,000

125

3

Semhar Tannery

Ghindae

   400,000

-

60

4

T. Baatai and Sons plc

Asmara

    650,000

   60,000

75

5

Petros and Family plc

Asmara

      50,000

  

25

 

 

 

 

 

 

 

Total

 

2,600,000

224,000

620

Source: Ministry of Trade and Industry

2.4 Footwear Subsector

2.4.1 Overview of the Footwear Supply Chain in Eritrea

Enterprises involved in footwear and leather goods manufacturing in Eritrea are constrained because of limited supplies of quality and variety of finished leather. In addition to this most of the suitable accessories are not manufactured in Eritrea and thus have to be imported.  Footwear supply chain presented in the Table below, shows inputs that are required in the manufacturing of footwear.

Table 2: Summary of Eritrea Footwear Supply Chain

INPUTS

IMPORTANCE

SITUATION Eritrea

Finished leather

It contributes 50% in terms of value to footwear with leather uppers, thus this is the main input.

Most of the tanneries in Asmara export a large proportion of their output as wet blue, consequently impacting negatively on the upstream footwear leather subsector.

Cutting dies

It’s a tool, which is used for cutting; it is very important in ensuring speed in cutting and also ensures consistency.

 

Lasts

A last is a mechanical form/mould that has a shape similar to that of a human foot. Without a last footwear manufacturing is next to impossible.

 

Heels/soles

Second important component of a shoe after leather.

There is limited local production in terms of volume and variety in Eritrea.

Accessories

Important especially for finishing sandals and other types of footwear. (rivets and buckles)

 

The limited supply of the materials listed in the Table above is the main weakness in the footwear manufacturing business in Eritrea. It is imperative to note that leather is the main input in footwear or leather goods manufacturing business, contributing 40-50% to total cost. Eritrea has the potential to produce quality finished leather to support this subsector, which has the potential of creating employment, reduce poverty and also save foreign currency.

Current Operations in the Footwear Subsector

There are 13 large and medium shoe companies in operation currently. All of the shoe factories are located in Asmara and its environs. Together they can produce about 775,216 pairs of shoe per year.

The production of leather shoes has a long tradition in Eritrea, and hence relatively, many modern factories have been established. In the mid 1990s, the footwear industry suffered a serious crisis when Chinese imports of cheap synthetic shoes flooded the domestic market, driving many producers out of business. Further the crisis of the subsector was compounded by the border conflict with Ethiopia. About 80% of leather shoes produced used to be exported to Ethiopia; the eruption of the conflict however, removed this market.  An alternative regional and international market has to be developed to ensure a growing market for Eritrean produces. Though through time consumer awareness about the durability, hygiene and comfort ability of genuine leather produced locally is increasing, leather shoes producers are still struggling to compete with Chinese imports.    

Leather goods producers are numerous, most working on a small scale and an artisanal level. They produce a big variety of leather goods. The quality of the leather goods is quite good, even if not yet suitable to be launched on the international market due to the relatively low quality of the leather.  See the Table below of the list of footwear companies and their production capacities.

Table 3: Footwear Industries Company Profiles

No

Name of Factory

Capacity pairs of shoes   per year

Number of employees

Year of Establishment

1

Asmara Footwear Factory

29,458

25

1998

2

Bini Shoe Factory

112,500

75

  /2001

3

Dahlak Shoe Factory

120,800

240

1950/97

4

Estifanos Ogbazgi Shoe Factory

86,112

25

1994

5

Gazelle Shoe Factory

40,249

35

1980

6

Hadera and Sons Shoe Factory

13,470

30

1993

7

Neguse and Family Shoe Factory

13,470

34

1950

8

Saba Shoe Factory

45,000

35

2003

9

Selam Footwear Factory

148,897

45

1995

10

Selamawit Shoe Factory

29,960

25

1983

11

Wegahta Berhan Shoe Factory

  9,000

50

1988

12

Wina Shoe Factory

112,500

75

2005

13

Luwam Shoes Factory

  12,000

15

1992

 

Total

773,416

709

 

Source: Ministry of Trade and Industry

The footwear subsector is generally considered as the highest consumer of leather material and a prospective generator of job opportunities. Gents, ladies and children’s shoes which are produced are mainly oriented (90%) to supply the domestic market. Finished leather is produced locally but all essential accessories are imported. The tanneries are in general unable to supply quality finished upper and lining leathers to the footwear sub sector.

In the footwear production, there is large wastage because of defects in the finished leather. This is because the bulk of the leather is exported in its semi-processed form, and the low quality or the rejects from the semi-processed hides and skins are converted to finished leather for the local market. It is therefore imperative that a mechanism should be put in place to encourage the production of quality finished leather in Eritrea.

The footwear sub-sector lacks modern technology, there is no knowledge or application of computer CAD and CAM system in designing, pattern making/ grading throughout the sub sector. Eritrean shoe manufacturers used to produce good standards men’s shoes as compared with immediate neighboring countries.

The main advantage of the footwear sector are primarily, the raw material base, labor is cheap and easily trainable, the proximity to the market Eritrea’s location is ideal for the leather footwear market of the Middle East,  Europe and the rest of the World.

The leather producers (as well as shoe producers) lack the required fashionable and well finished leather both in quantity and quality at present. They also lack in design capability and experienced work force in the production and marketing of the products to foreign markets.

In the industry sector, the lack of initiative to go on to higher stages of processing systematically and gradually has restrained the development of the sector. Therefore, there is a need to move towards higher stages of processing particularly finished leather and an introduction to contemporary technology and training.  

It is not easy to estimate capacity utilization, but many companies seem to operate below their capacity. For instance, in 1999/2001, the sector average was 53 percent (Rped, 2002). Later studies showed that the sector average capacity utilization was as low as 39% in 2007 and 30% in 2010. Such low utilization of capacity could arise from a number of factors such as lack of raw material, lack of demand etc. On the other hand, the existence of idle capacities indicates that the sector has a potential to perform better provided that constraints are overcome.

Employment in the Leather and Leather Products Sector

Statistical figures from the Ministry of Trade and Industry show that the number of Large and medium scale manufacturers in the leather and leather products industry (LLPI) has not showed any change in the years 2005 - 2012. Similarly, employment figures in the sector also did not show a significant change.

In 2008, the 26 LLPI establishments formed 10% of the total large and medium industries in the country. With a total of 1,459 employees, the sector contributed about 12% of the total employment in the manufacturing sector of the country. Compared to other sectors such as textile, which absorbs nearly 21% of the total manufacturing labor force, the leather sector has a lower labor absorption capacity. Tanning industries are capital intensive and employ less labor. The footwear industries are more labor intensive but are not many and cannot absorb huge labor.

Table 4: Employment and Efficiency of Leather Industry

Sub sector

Basic wages and salaries in ‘000 Nakfa

GVP  ‘000 Nakfa

Value added (000 Nakfa)

Number of employees

Value added per GVP (%)

Value added per labor
(000 Nakfa)

Value added per wage bill

Annual wage per labor

Tanning, dressing, luggage only

11,306

130,800

26,600

620

20

42.9

2.35

18,235

Footwear only

10,432

90,200

34,100

839

38

40.64

3.27

12,434

Aggregate figures for LLPI

21,748

221,000

60,700

1,459

27

41.6

2.79

14,906

Total Manufacture

197,165

1,773,500

452,500

12,466

26

36.3

2.3

15,816

Source: UNIDO INDUSTRIAL STATISTICS 2011, own calculation

Comparative Position and Performance of the Leather Sector

The efficiency of the leather and leather sector  industry measured in terms of the ratio of value added to the gross value of product is higher (27%) than the national average of 26% (Table:3 above). Within the sub-sector, the footwear industry has higher levels of efficiency than the tanning, dressing, and luggage industry. Value added per labor or per wage bill as measures of productivity is also greater than the total manufacturing sector in the country. The average wage per labor in the footwear industry (1,036 Nakfa per month) is below other industries. The tanning industry (1,519 Nakfa per month) however performs better. On average, the leather sector seems to be relatively competitive in its levels of efficiency and productivity but pays less than the national average.

Production and Trade of Leather Shoes

Leather processing and production of leather shoes has a long history in Eritrea, as a result of this pedigree, despite the competition from cheap imported foot wears, substandard supply of finished leather, shortage of other accessories and financial constraints, production of leather shoes in the country is still significant. The following Tables are production and import of leather shoes in the years 2001 – 2009 by COMESA countries.   See details in Table 10. 

Table 5: Production and Import of Leather Footwear

Production of Leather Shoes (million pairs)

 

Burundi

Comoros

DRC

Djibouti

Egypt

Eritrea

Ethiopia

Kenya

Libya

Madagascar

Malawi

Mauritius

Rwanda

Seychelles

Sudan

Swaziland

Uganda

Zambia

Zimbabwe

2001

-

-

1.0

-

49.5

2.2

4.4

1.5

2.5

0.3

0.3

-

0.1

-

3.8

-

-

2.0

4.2

2002

-

-

1.0

-

50.5

2.3

4.5

1.5

2.5

0.3

0.3

-

0.1

-

4.2

-

-

2.2

4.2

2003

-

-

1.1

-

51.5

2.4

4.6

1.6

2.5

0.3

0.3

-

0.1

-

4.8

-

-

2.2

4.2

2004

-

-

1.1

-

52.5

2.4

4.7

1.6

2.5

0.3

0.3

-

0.1

-

5.0

-

-

2.2

4.2

2005

-

-

1.1

-

53.6

2.5

4.8

1.6

2.6

0.3

0.3

-

0.1

-

5.2

-

-

2.2

4.2

2006

-

-

1.2

-

54.7

2.6

5.0

1.6

2.6

0.3

0.3

-

0.1

-

5.4

-

-

2.2

4.2

2007

-

-

1.2

-

55.7

2.7

5.1

1.7

2.7

0.3

0.3

-

0.1

-

5.5

-

-

2.3

4.2

2008

-

-

1.2

-

56.8

2.8

5.2

1.7

2.8

0.3

0.3

-

0.1

-

5.6

-

-

2.3

4.2

Imports of Leather Shoes (million pairs)

 

Burundi

Comoros

DRC

Djibouti

Egypt

Eritrea

Ethiopia

Kenya

Libya

Madagascar

Malawi

Mauritius

Rwanda

Seychelles

Sudan

Swaziland

Uganda

Zambia

Zimbabwe

2001

-

-

0.3

-

0.3

0.2

-

0.1

4.6

0.2

0.7

0.7

0.2

-

-

-

0.2

0.3

0.1

2002

-

-

0.3

-

0.5

0.2

-

0.2

4.2

0.2

0.7

0.7

0.1

-

-

-

0.5

0.1

0.1

2003

-

-

0.2

-

0.4

0.2

-

0.2

3.8

0.2

0.5

0.5

0.1

-

-

-

0.6

0.1

0.2

2004

-

-

0.2

-

0.7

0.2

-

0.2

3.4

0.3

0.5

0.5

0.1

-

-

-

0.5

0.2

0.4

2005

-

-

0.1

-

0.6

0.2

-

0.2

3.0

0.1

0.6

0.6

0.1

-

-

-

0.6

0.3

0.2

2006

-

-

0.1

-

0.8

0.2

-

0.2

2.5

0.3

0.6

0.6

0.1

-

-

-

0.5

0.2

0.4

2007

-

-

0.0

-

0.6

0.1

-

0.2

2.0

0.4

0.7

0.7

0.0

-

-

-

0.8

0.1

0.1

2008

-

-

0.0

-

0.3

0.1

-

0.4

1.5

0.1

0.8

0.8

0.0

-

-

-

0.5

0.1

0.2

Source: COMESA Regional Leather Value Chain Strategy, 2011

Trade Dynamics of the Importance of the Leather Value Chain

The potential of the Eritrean leather value chain is estimated at US$ 131 million, as illustrated in Table 4 that is if all the leather produced is converted into finished products. It is also estimated that wet blue exports could earn the country approximately US$ 7.3 million dollars that is all hides and skins produced in Eritrean and collected and processed.

However this is in sharp contrast to the recorded export figures, which stood at US$ 2.4 million and US$ 2.1 million in 2002 and 2011 respectively. The gap could be explained by either the fact that a sizeable number of hides and skins in the country are not being collected because they are of poor quality or that the collection system may not be efficient. It is therefore important that an inquiry be undertaken to ascertain the cause of this gap, which is seeing the country losing approximately US$ 4 million per annum.

The export pattern of wet blue was very unstable in the period 2002 to 2011, starting at US$ 2.4 million, sliding down to slightly above US$1 million in 2003, before reaching a peak of  US$ 2.8 million in 2008.

The post 2008 also displays the same pattern of oscillation. This could be explained by production challenges, such as limited access to finance, low productivity and production of poor quality. It is however fundamental to not that other countries in the region, such as Kenya and Eritrea have recorded a rapid rise in their earnings of wet blue exports in the same period after instituting an export tax on raw hides and skins.

Factory visits to Eritrean tanneries, which were conducted by COMESA and COMESA/LLPI in 2012 and 2013 respectively, showed that the Eritrean tanning industry needs to work on reorganizing their production processes, as the factory layouts in most of tanneries, needs to be altered to improve flow of material. Improvement in production flow and total quality management may improve the productivity and quality of wet blue and consequently improve the earnings to the country.

On the other hand export of footwear has remained under US$0.5 million, which is a reflection that the industry is either producing not enough volumes to enter the export market or the quality is poor for the export market.

During a mission by COMESA/LLPI in 2013, footwear manufacturers asserted that their business was constrained because of foreign currency shortage, which was impacting negatively on the importation of accessories such as soles, sharks, glues and other materials, which are not produced in Eritrea. In addition it was also reported that the quality of finished leather, was below the global quality standards, to allow for the production of footwear that may compete in the regional and global market.

The export dynamics of wet blue (chapter 41) and footwear (chapter 64) are illustrated in Figure 4.


Figure 5: Wet Blue and Footwear Exports Trends

The relative importance of the wet blue and footwear exports as measured with their ratio to the total export bill of Eritrea has been on a down ward trend from 2002 to  2011. The two chapters contributed 34% and 1% in 2002 and 2011 respectively to the total export busket. Thus the importance of the leather sector as a foreign currency earner has slumped significantly over the the period under review.

The decline in importance in the leather value chain has been associated with a rise in the total exports of Eritrea from 2006 to 2009, and it regained in 2010, when total exports collapsed. However the year 2011, has witnessed an astronomic increase in Eritrea total exports from as low as US$13 million in 2010 to US$309 million in 2011. This jump could be explained by the entry of gold exports in the export busket of Eritrea. Despite this the Leather Value Chain still has the potential of regaining its importance if the value addition agenda is persued to its fullest. See the trends in the importance of the leather sector to the total export bill of Eritrea in Figure 5.

Figure 6: Relative Importance of the Leather Sector to Total Exports

Source: COMESA/LLPI based on COMSTATS

Regional Position

 In the COMESA strategy 2011, Table 10 that classified COMESA member States by the level of development of their leather sector, Eritrea has been categorized with member States that are at low level of development or with countries that only produce and export raw hides and skins because tanneries were either closed down or don’t exist at all. As described above however, Eritrea has more than 5 actively operational tanneries which process and export semi- processed skins and produce finished leather for the local manufacturing industry. 

According to the same COMESA compendium statistics table of production of footwear,   Eritrea’s yearly average of footwear production is calculated as 2.48 million pairs. Considering the size of the country and size of population is relatively immense. The same COMESA Compendium also show that the region’s production of footwear increased by 16% across nine member countries. The growth rate includes Eritrea. Similarly the Table showed that there was a major change in the importation of leather footwear by the region, on average importation of leather shoes contracted by 3,178%, Eritrea’s import of leather shoes however did not change (contract) significantly. These imply the possibility of trading between Eritrea’s leather industry and similar industries in the region.