The Government has prioritised the leather goods and footwear sector under the Kenya Industrial Transformation Programme (KITP), Kenya Vision 2030 and the Big 4 Agenda. The sector is regarded as a prime driver for the country’s industrialization with focus on achieving the following by 2022:
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- Increase exports from $140 million (2017) to $500 million
- Create an additional 50,000 jobs through value addition
- Manufacture 20 million new leather footwear
At national level, including: 25 formal footwear manufacturing units; 11 registered leather products micro, small and medium-sized enterprises (MSMEs); 15 registered tanneries; 4 packaging and logistics companies; a small and medium-sized enterprise (SME) park; a training centre for increased value addition; subsidised housing for workers and more.
A report prepared for the Ministry of Industrialization Trade and Enterprise Development by the World Bank indicates that world trade in leather is massive at over US$100 billion a year. The report – Kenya Leather Industry: Diagnosis, Strategy and Action Plan – states that demand for leather and leather products is outstripping supply.
The leather sector in Kenya is estimated to be worth over Sh50 billion annually. Unfortunately, over 90 per cent of Kenya’s $94 million -Sh9.4 billion-leather exports are unfinished wet blue leather, whereas, further processing to finished leather and manufacture of leather products could create at least 50,000 more jobs and an additional $150-250 million – KSh15-25 billion – to the Gross Domestic Product (GDP)
For Kenya to get out of the margins of the trade in leather and its products, it must increase its competitiveness in leather and leather products, grow exports and jobs, and create a viable and sustainable industry.
This means moving from being a primary exporter of raw hides and skins and wet blue leather to boosting production capacity for finished leather. Kenya’s competitive position was eroded by global imports of new low-cost footwear into the Kenyan and East African markets and second-hand imported footwear. The focus is to move the sector from low-cost production of undifferentiated, low-end shoes and boots, estimated at 3.3 million pairs per year, mostly for the domestic market.
Before an 80 percent export tariff was imposed on raw hides and skins in 2009, they accounted for more than 25 per cent of Kenya’s total leather ex-ports. For a long time, trade in raw and semi-processed leather has only generated a marginal trickle-down effect on the rest of the Kenyan population.
Leather products mix and opportunities
Footwear is the biggest leather goods subsector in Kenya, while the handbag subsector is the most competitive vis-à-vis global markets.
In the case of leather handbags, Kenya can build on its reputation for quality hand bags, travel ware, and cases by improving the quality of its products, building the “made in Kenya” brand distinction, and creating a mass customisation delivery capacity.
Industry Competitiveness
Kenya’s leather sector competitiveness is based on the nation’s comparative cost advantages, derived from:
- Abundant natural resources of cattle, goats, and sheep (Kenya is the third largest livestock holder in Africa). Kenya’s livestock mix is projected to reach 27 million cattle, 50 million goats and 29 million sheep by the end of 2022.
- Relatively low labour costs, and its comparative disregard for environ-mental and related social costs.
- Rapid economic growth has in-creased the aggregate demand for consumer goods, including footwear and leather goods, with a sizeable domestic market for leather products in the country.
Kenya’s lack of cost competitiveness results from:
- The high cost of domestically sold leather and leather inputs including duty on imported inputs.
- The high cost of labour.
- The high cost of electricity.
- In flow of cheap and new leather and non-leather footwear imports (mainly from China and
India) - Growth of the second-hand Mitumba market, which offers an enormous range of high and low
quality leather and non-leather footwear at bargain prices.
In Kenya, the cost of producing a pair of low-cost men’s shoes is approximately US$9.44, compared to Ethiopia’s US$7.28 for a pair of men’s loafers.
Structure
There is a vibrant and competitive informal sector, concentrated in the Kariorkor Market cluster in Nairobi, that produces low cost leather foot-wear and goods for Kenya and the region.
Most of the leather goods producers are micro and small enterprises who remain in the informal sector in order to remain competitive. There is an intricate link between the formal and informal sector, but it is weak and unbalanced.
The finished leather market is tightly controlled and often resembles a seller’s market. Kenya’s largest and most modern tannery, Alpharama has for long dominated the production and commands a great influence.
The Leather Value Chain
The Kenyan leather value chain includes livestock farmers, livestock traders, butcheries, slaughter facilities owners, hides and skins traders and exporters, tanners, artisanal footwear and leather footwear manufacturers, and goods manufacturers.
An abundant and diversified re-source base includes cattle, goats, sheep, pigs, camels, rabbits, crocodiles, ostrich and fish. According to the Leather Value Chain Investment Profile published by the Kenya Investment Authority (KENINVEST), Kenya con-tributes to only 3.5 per cent of leather production on the African continent, despite having the third-biggest live-stock resource in Africa. The profile states that the leather industry value chain comprises four broad stages. During the first stage, raw hides and skins (H&S) are obtained. In the second stage, raw H&S are converted to semi-processed (pickled and tanned) and the third stage produces fully processed (finished) leather. In the fourth stage, leather products are manufactured, e.g. footwear, garments, accessories such as watch straps, hand-bags,tabletops and notepad covers, and automotive or furniture upholstery.
- The production of hides and skins can be considered mainly a by-product of the meat industry. The second and third stages are the most capital intensive, while the fourth stage can be viewed as the most labour intensive. Says the report, developing countries like Kenya benefit from cheap access to raw materials and lower labour costs and are thus able to produce leather at lower cost than developed countries.
Key Government Interventions
Kenya Leather Development Council: This is the sector’s main support agency in the Government for public and private with the goal of transforming the leather value chain into a vibrant value-adding and export-oriented one.
Draft Kenya Leather Development Policy: The Ministry of Agriculture, Livestock, Fisheries and Cooperatives, Kenya Leather Development Council (KLDC) and Kenya Institute for Public Policy Research and Analysis (KIPPRA) developed a draft Kenya Leather Development Policy. Its main objective is to guide and drive the growth and development of the leather sector in order to realise its full potential and contribute significantly to the economic growth. Once adopted, the Policy will provide a structured framework for the coordinated execution of the roles and responsibilities of all the actors across the value-chain and through-out Kenya. To finalise the process, the Government organised a Stakeholders Validation Convention to be held at the Kenya Institute for Curriculum Development (KICD) on 2nd December, 2021.
Construction of KSh17 billion Leather City (Industrial Park): Work resumed on construction of the park in April 2021. It is projected to create 50,000 direct jobs for Kenyans. Once in operation, the total value of finished leather products for export are also expected to increase 12 times. The park will improve the country’s global competitive-ness in leather production and drive the economy in line with the 5-10-year industrial plan for the country’s manufacturing sector to accelerate critical industries that support the country’s development. Located in Kenanie, Athi River in Machakos County, the park will have 15 tanneries initially, a training centre, common manufacturing facilities and a common Effluent Treatment Plant (ETP). These will translate to a production capacity of about 10 tonnes of hides and skins, with an output of 10,000 pairs of shoes, handbags, leather garments and industrial gloves per day.
Partnership between Kenya Leather Development Council (KLDC), Ewaso Ngiro South Development Authority (ENSDA), Kenya Investment Authority and the Export Processing Zones Authority: The focus of the partnership is on capacity building framework for quality hides & skins that will encompass arid &semi-arid (Asal) areas. This follows the construction of a KSh1.4 billion Mega Tannery and Leather Factory at Ewaso Ngiro area in Narok South. The tannery will create 300 jobs directly and 10,000 indirectly and help create wealth for the local communities after the completion of the Tannery processing plant in Narok becomes fully operational. It will be able to process over two million tons of hides and skins yearly when fully operational. The factory is now training hides and skin producers at various abattoirs in the region on best practices on how to handle this raw material in order to produce the best quality.
Investment Opportunities
- Modernised Slaughterhouses
- Production of finished leather
- Production of footwear
- Kariokor Market in Nairobi
Ngozi Kenya Leather Park in Kenanie, Athi River.
Ngozi Kenya Leather Park
Project Overview:
The establishment of a 500-acre leather cluster with a host of services to pro-mote the sector, including:
- Five to six leather footwear manufacturers
- Eight to ten leather tanneries
- Three to four packaging and logistic companies
- A small and medium-sized enterprise park
- Training centre to enhance value addition
- Reduced labour and electricity cost
- Export processing zone (EPZ) benefits on taxation and trade
- Integrated facilities such as residential complex, schools, health and recreational centres
Convenience
- Located next to Nairobi, with access to key labour markets and local partnerships
- Ease and cost of transportation (air and road) critical for re-exporting
- The existing 339-hectare site hosts more than 40 industries
- Standard of living high given proximity to Nairobi
- Close to existing leather industries, e.g. tanneries and slaughterhouses
- Distance from Port of Mombasa is 450 km
- Connected to Mombasa by a major highway and new standard gauge railway
- Convenient infrastructure
- On-site training
World Class Infrastructure
Plug and play location
High environmental standards in line with EU regulations
Shared production facilities – laser cutting ma-chines and computer-aided design machines
Investment Incentives
- Taxation, with regard to export-oriented investors:
- Corporate tax holiday of 10 years
- Withholding tax holiday of 10 years
- Exempted from stamp duty
- Inputs exempted from import and export duties
- Exempted from VAT
Business Services
- Full operation under one single license
- Project approval and licensing within 30 days
- Foreign currency accounts and offshore borrowing allowed – no exchange controls
- Unrestricted investment by foreigners
- One-stop shop service for facilitation and after care
- On-site customs documentation
References/Acknowledgements
Kenya Vision 2030
President’s Delivery Unit
Ministry of Industrialization, Trade and Enterprise Development
Ministry of Energy (https://ict.go.ke/)
Ministry of ICT, Innovation and Youth Affairs (https://ict.go.ke/)
The National Treasury (https://www.treasury.go.ke)
Kenya Leather Development Council – Ngozi ni Mali (https://leathercouncil. go.ke/)
Special Economic Zones Authority (https://www.sezauthority.go.ke)
Export Processing Zones Authority (https://epzakenya.com)
Micro and Small Enterprises Authority (https://msea.go.ke/)
Kenya News Agency (KNA) – https://www.kenyanews.go.ke/
International Bank for Reconstruction and Development (World Bank) – https://www.worldbank.org/
Kenya Association of Manufacturers (https://kam.co.ke)