Leather Value Chain: Investment Opportunity for COMESA Countries

Published on 10th May 2016

In an effort to preview the agenda driving and promoting development through industrialization, trade and investment though well documented, still requires a broad consensus among policy makers, development practitioners and stakeholders. I have no doubt that such a consensus would conceptualize industrialization, trade, development, investment and poverty reduction as closely linked facets of sustainable development. These essentially are the ingredients that influence the establishment of design studios which are relevant and opportune in Africa today.

I am excited with the initiative by the Commonwealth Secretariat, in partnership with the COMESA/LLPI, which has come at an opportune time, when the COMESA Secretariat is supporting the development of SMEs Clusters across many value chains. Most SMEs in the Region lack basic design skills and as such, have no software and hardware infrastructure to support product development through designing. The result of all this is that the associated production process is based on rudimentary copying of other brands, that impact on them producing substandard products. It is my view that setting up of a Design Studio would close this gap, and empower the SMEs to manufacture leather footwear and goods of the highest quality, which would be able to penetrate regional and international premium markets.

The COMESA Secretariat congratulates the Commonwealth Secretariat and COMESA/LLPI for taking up this challenge, which has the potential of transforming the Leather Value Chain in the COMESA Region and bring it at par with global leaders whilst, for the first time, exposing our top notch designers and producers in Africa to the elite in the leather sector. Let me urge stakeholders at International, Continental and Regional levels to fully support this Project, which has a potential of contributing not only to COMESA countries, but to the COMESA-EAC- SADC Tripartite and Continental FTA Agenda.

Africa at the moment is a net importer and exporter of manufactured and raw materials respectively. This scenario is not sustainable, as Africa continues to suffer chronic trade deficits with the rest of the World. This is not sustainable and Africa needs to change its game plan.

Allow me to take this opportunity to share with you the Vision of Africa as envisaged in the Abuja Treaty (1991). This Treaty proposes to create a single market in Africa through 6 progressive and incremental stages over a period of 34 years. COMESA, EAC and SADC have seized this opportunity to spearhead the formation of a Tripartite FTA, which runs from Cape to Cairo. It is, therefore, my conviction that the Studio has the potential of becoming a continental beacon.

The COMESA-EAC-SADC Tripartite FTA is composed of 26 countries or 48% of the membership of the African Union (AU), 51% of its Gross Domestic Product (US$1.3 Trillion) and 56% of its population (572 million people); it is, thus, an important economic powerhouse of the African Continent.

Intra trade at individual REC level has grown in the period 2009 to 2013; this reflects more than double in SADC, followed by COMESA that registered a growth of around 78%. In the intra trade equation, exports are greater than imports in COMESA and SADC; however the reverse is true for EAC. The combined intra trade of the three RECs shot up from US$ 56 billion in 2009 to US$ 111 billion, which translates to a growth of 98.5% in four years, which is quite impressive.

It is, however, important to note that in all the three RECs, their trade with the Rest of the World is far greater than their intra trade, for instance in 2009, intra trade as a ratio of trade with the Rest of the World stood at 6%, 2% and 21% for COMESA, EAC and SADC respectively. This ratio improved by one and five percentage points for COMESA and SADC in the period 2009 and 2013, respectively. The improvement maybe attributed to improved trade facilitation and elimination of duties for originating products.

The trade amongst the three RECs has grown significantly in the period under review by 80% globally, with the import and exports sides growing by 94 and 84%, respectively. SADC trade with COMESA and EAC has grown by 98%, followed by COMESA at 90%, and EAC registered the lowest at 51%, which is a reflection of its small membership.

Allow me to turn to the leather sector: I am of the view that the selection of the leather sector was not by accident, but was because of the potential the sector holds in the transformation of the development landscape in selected countries, region and Africa. I am also persuaded to agree that the lessons learnt in the implementation of this Project would feed into the Industrial Pillar of the Tripartite and Agenda 2063 of the African Union.

The global market for leather and leather products is huge. The leather value chain globally is estimated at more than US$ 100 billion. It is, however, important to note that this may be an understatement, as the finished leather which is used in upholstery for automobiles and household furniture cannot be easily ascertained in trade figures and the value it adds to the prices of vehicles and furniture. In addition to this, footwear, which is made of a combination of leather and canvas, may not be currently included in the US$ 100 billion worth of the sector.

Africa holds great potential in developing the sector, on both the supply and demand side of the leather value chain, as follows:

•On the supply side Africa holds approximately 26% of the global livestock population and

•The demand side, Africa’s Footwear consumption is estimated in the range of 878 million to 1.1 billion pairs per annum based on a footwear per capita of (0.85 to 1.1) pairs.

Allow me to get closer home: The COMESA Region is made up of 19 African countries, holds approximately 11% and 51% of livestock globally and in Africa, respectively; however, its contribution to the global leather value chain is very weak, standing at approximately 2%. This is attributed mainly to a number of factors ranging from pre, peri and post slaughter aspects and limited or at worst with no value addition to hides and skins produced in the Region. Unfortunately, this is also characterized by very high losses of usable raw material in
Africa’s supply chain estimated at 30% experienced between primary and terminal markets.

The limited importance of COMESA in producing value added products has cost the Region immensely, as the exported raw hides and skins have assisted in generating outside Africa, income and jobs that would have provided important socio-economic solace to our member States. Thus, it is imperative that drastic measures should be taken to transform this industry in COMESA Region and learnt experiences shared to the rest of Africa.

The US$100 billion excludes leather blended products, e.g. sports shoes and fashionable bags.

In providing an insight towards the potential of the leather sector, in comparison of COMESA viz a viz the global arena, I seek to cite a few examples. For instance, In 2014, US$ 1 billion worth of shoes were imported into the COMESA Region from the Rest of the World and this translates to approximately 100 million pairs of shoes. The total market demand is 450 million pairs against a supply of 156 million pairs (imports plus regional production). With an estimated shortfall of 300 million pairs, which is not satisfied per annum. This is a clear indicator that SMEs have a major potential to enter the market, with minimal competition from locally established firms and also from imports.

Given the supply side potential, the leather value chain in the COMESA Region has a very high annual footwear demand, which is approximately half a billion pairs. No doubt that it is imperative that measures be put in place to promote value addition to bridge this wide gap. Thus, the establishment of a Design Studio, as indicated earlier, is opportune and will contribute to the development of leather footwear and goods designs. Indeed, it is envisaged that this would stimulate the production of quality and trendy products. I wish, therefore, to congratulate the Commonwealth Secretariat and COMESA/LLPI for their commitment to support the development of the leather sector and compliment the Cluster initiative.

Our future is in our own hands; thus, let’s focus on imperatives that would grow the industry and trade in a sustainable way. The Tripartite Agreement and the Continental FTA would assist to reinforce the trade, industrialization and infrastructure development agenda as we fathom to attain Agenda 2063 under the auspicious of the AUC sustainable developmental framework for Africa.

By Sindiso Ngwenya
Secretary General, COMESA.

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