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Better local price challenges Ethiopia抯 shoes export

Monday, September 22, 2014 > 09:33:18

(New Business Ethiopia)

Around the year 2000 were critical times for Ethiopian shoemakers as the market was flooded with cheaper, shiny, attractive semi and fully plastic shoes imported from China. Most of the local genuine leather shoe makers were at a crossroad either to learn from the Chinese and stay in the market or shift to other businesses.

Thanks to its huge livestock resources, today Ethiopia’s shoes industry is attracting investors from across the world including big names in the sector such as Huajian of China and George shoes of Taiwan. 

“That time was very difficult. Most of local customers including owners of shoes factories have fallen in love with the Chinese shoes because of the products’ finishing quality and design,” says Mulugeta Megenas, Owner and Manager Duka, Leather Products Factory.

“While many shoes makers have shifted to other businesses, some of us mainly with designing skills have decided to learn from the Chinese and stay in the market. Today it is hard for people to differentiate local genuine leather-made shoes from those imported from China or elsewhere. In fact some of us are now bold enough to label our products with’ made in Ethiopia’ under our trade mark,” he says. 

“And it didn’t take long for our customers to realize the advantage of using durability and well-designed local shoes because we produce shoes from genuine leather, the products do not produce bad smell, especially during sunny seasons like the plastic or semi-leather shoes cheaply imported,” says Mr. Mulugeta who has served as shoes designer for various factories before he opens his own – Duka, seven years ago. 

Benefits of the industry 

Some say the art of shoemaking is introduced to Ethiopians by the Italians in the mid-1920s. While others argue that it was the Armenians who introduced leather industry in response to the growing local market demand for leather shoe.

Various estimates show that the livestock sub-sector contributes 12–16% of the total and 30–35% of agriculture GDP, respectively. With a total of 32 tanneries and hundreds of shoes and leather garment producing firms, the industry created jobs some 15,000 Ethiopians. 

The country’s hard currency earnings from export of all types of leather products including gloves and other garments has also reached $132 million last year from $76 million five years ago. Out of this around $30 million was generated from shoes export. 

“Today Ethiopia’s shoes products are exported to different countries including China,” says Mr. Sileshi Zegeye, deputy communication director at the Ministry of Industry of Ethiopia, citing the opening of an office by a U.S. Company, Brown, which is exporting Ethiopian shoes to Chinese market at the moment with its own trade mark.

Last year export report shows that destinations of Ethiopia’s leather products include United States, England, China Italia, Germany, Kenya, Uganda and Tanzania. 

“As we are new comers to the export aspiring to introduce our own brand [Duka] to the world, we have exported 50,000 pairs of shoes to the East African countries for the first time this year,” says Mr. Mulugeta.  

Strategic sector 

With approximately 35 million cattle, 39 million sheep and goats, 8.6 million equine and one million camels, Ethiopia is first in Africa and ninth in the world for its livestock population. The country annually produces 2.7 million hides, 8.1 million sheepskins and 7.5 million goat skins.

The government plans to fully utilize these resources through value addition to, create more jobs, and boost export. 

As part of the plan, the leather industry sub sector is identified as one of the strategic investment areas, which can be done with relatively less amount  of initial capital using agricultural product (livestock) as its input.

“Such investments by foreign or local or joint venture are well supported by the government mainly because they are in line with the country’s plan of adding value to its agricultural products, create more jobs, substitute import  and generate hard currency for the country,” Mr. Sileshi says.

Currently manufacturing industry’s share in Ethiopia’s Gross Domestic Products (GDP) is close to 19% and the economy is dominated by the service sector, which contributes slightly over 43% to GDP. 

In its vision of transforming the country to a middle income nation by 2025, the government of Ethiopia envisages to increase the share of manufacturing sector to 27%. 

Providing incentives for investors in agro-processing sector and other labor-intensive industries is among the strategies pursued by the government in order to reduce the current share of agriculture, which stands at about 37% through value addition such as shifting from live animals export to processed meat, shoes, bags and gloves. 

The incentives range from providing 70% loan the initial investment capital to duty free import of machineries and exempt from export tax. In addition, the government has been establishing sector-focused institutes to support the development of its priority manufacturing sectors.

Leather Industry Development Institute (LIDI) is one of them that have been helping the technology and knowledge transfer to upgrade production, quality leather products and marketing required for international exposure. The institute has also been giving trainings up to BSc. level to help the industry managed and operated by qualified professionals.

Big brands ‘take it or leave it’ approach 

Though the leather industry of Ethiopia has been growing over the past decade, still the market share of Ethiopian leather shoes globally is insignificant in the over $50 million leather shoes industry. 

The sector has been facing with challenges such as power shortage, logistics and contraband. The fact that some of the export quality product producers are focusing on local market is also one of the major challenge for the government’s vision of generating half a million from export of leather products at the end of 2015. Out of this target the shoes sector is expected to generate around $360 million is expected from shoes export. Meanwhile from this target over the past four years, Ethiopia has only earned less than $70 million from shoes export. 

The average export price of Ethiopian leather-made shoes for men is currently around $12 and $20 while locally the products are being sold between $22 and $32. 

The reason many Ethiopian local shoe manufacturers choose the local market is because the products prices is dominated by big brands, which do the business through outsourcing. In most cases some of these big brands do not even have manufacturing plant. All they have is designing, marketing and logistics departments. 

They just provide those designs to factories of resource-rich leather products factories across the world.    

“We have no alternative other than taking the prices they give us if our objective is to generate hard currency from our products. Our company used to produce to some of these major shoe brands and it was not a good experience for us,” says Mr. Zelalem Habte, General Manager of Ramsay Shoe Factory, whose company is trying to brand itself in the country and neighboring African countries.

“I think one of the main reasons for Ethiopian shoes brands not known globally or even Africa level is because of lack of finance.  We are doing branding through increasing our outlets (shops across the country and in Africa. Recently we have opened such outlets in Khartoum, Sudan and Djibouti.  We also plan to do the same in Kenya and Uganda soon,” he says. 

Confirming the negative impact in export revenue decline as a result of no control over the products prices, Birhanu Serjebo, corporate communication director of LIDI says: we as institute are working to help local brand development.”

“The major problem we identified in the shoes industry of Ethiopia is lack of raw materials (finished leather). While the total demand of the factories in the country per annum is 40 million pieces of leather, we are only producing 21 million pieces at the moment. So, our factories are operating with half of their production capacity. We are also trying to solve this problem through production of synthetic sport shoes which dominates global shoes market,” he says. 

The big picture

Ethiopia whose export earning is dominated by primary agricultural commodities such as coffee and oil seeds, earn a total of around $3 billion annually while importing over $11 billion. 

The official statistics from Ethiopian Revenue and Customs Authority shows that of the total leather product export still about 73% is earned from finished leather, which had the potential to be converted to other value added products such as shoes, bags, gloves or garment.

On the contrary Ethiopia is still importing a huge amount of shoes and leather plastic products from across the world spending millions of hard currency annually. 

In addition as almost most of 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 substituting imported shoes and other leather products fully.

“These are also the investment areas, we are inviting the private investors providing good incentives,” says Mr. Sileshi. 

“The average price for Ethiopia’s shoes in the global market at the moment is less than $14, up to $30 price these factories are selling to the locals is unfair. These factories are exploiting us. The government has to intervene and regulate local market prices of these export products,” says, a regular consumer of local leather shoes. 

“Our institute has been providing all rounded support to dozens of shoes 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 export and consistent, rather inclined to local market.

“These Factories don’t have a vision to establish big brands globally and they are choosing making easy money in local market,”

The Chinese shoes manufacturing, which has its own shoe city in China, Huajian is currently producing 2,000 pairs of shoes every day in Ethiopia. As a result of cheap labor in Ethiopia, which is ten times less than China ($40 VS $400/month), Huajian recently secured 138 hectares of land to invest $2.2 billion to establish its own industrial zone in Ethiopia.  

The foreign shoe factories like Huajian and the like with international marketing network are expected to boost Ethiopia’s foreign currency from the sector. 

Now the question is, ‘how long will the government let the local manufacturers to overcharge domestic consumers and will allow Ethiopia’s labor market to remain around $40 per month?'

EDITOR'S NOTE: This article was first published on Nation Media Group publications: The East African and Africa Review 

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