As part of reform measures, the Ethiopian government has recently announced that it has decided to lift the tax on semi-processed leather export products. The primary objective of the decision is to boosting production and export earnings in the leather sector.
The very reason that forced the incumbent to reach this decision is the tax; imposed earlier on the export of semi-finished leather goods seriously affected the tanneries and exporters, according to Trade and Industry State Minister, Teka Gebreyesus.
Before the new directive no.61/2012 was issued, concerned bodies are drawn from the industry ministry, and leather institutions and associations conducted a wide-ranging study to identify bottlenecks observed in the export products.
Accordingly, the study identified that the tax imposed on leather products discouraged exporters to increase investment in the sector. Apart from this, the high competition among leather producers worldwide resulted in a poor leather export performance.
One of the recommendations reflected in the study is that as the tax imposed on the sector was huge and identified as the main factor for the failure to increase the foreign currency earnings from the leather industry, the government has decided to lift the tax on export of pickles, white-blue and crest leather products.
This may be considered as a temporary solution for leather product exports. If the country is able to produce quality leather products and break international competition, it could boost its return on investment out of the semi-finished leather products. The directive was enforced as of January 10/2020.
Citing the study, Teka said during a news briefing in relation to the lifting of the tax, the leather industry was in crises and this was an “awful” or “earth-shocking” news for the country which gained a huge amount of foreign currency from its leather and leather products. As things going worst, animal skins were damped on garbage.
As the tax system was discouraging, about 80 percent of skins and hides traders in Ethiopia abandoned the industry. Tanneries were shut down and fired thousands of their workers. The study indicates, of the total 17 tanneries, ten of them have been producing under capacity and five of them are already shut down their businesses. The remaining two were on the verge of shutting down.
As investors, including foreign ones, were discouraged and were reluctant to invest in Ethiopia’s untapped leather processing and export sector. By and large, the leather export performance has been in decline for the past 10 years and fell into the negative in 2019/20.Though Ethiopia has huge leather and leather products potential being among the leading countries in the number of cattle population, no foreign direct investment was registered over the last seven years.
The new directive and tax lift come into being in a way that does not affect international and local companies producing finished leather products for export and local consumption.
“Following the enforcement of the new directive, we assumed that the shut-downed tanneries would start production with full capacity hiring additional staff,” he said. “We are working with various stakeholders so as to upgrade the quality of leather inputs starting from animal husbandry.”
“The finance provided by the government doesn’t show the real commitment of the government as the industry needs attention with regards to improving access to finance in order to encourage the industry,” said Yared Alemayehu, Manager of Waliya Tannery.
The recent move of the Ministry of Finance is to lift the 150 percent tax on semi-finished leather, which seriously damaged the industry, is taken as a major step forward. The new directive is a lifesaver of the leather sector. Had it not been put into effect, the situation would have been deteriorated further.
“Since the onset of the reform, the measures that have been taken to up the industry sector are very promising. This shows how the partnership between the government and private organizations is bearing fruits and it helps us to increase the quality and quantity of export products.”
Birhanu Abate, President of Ethiopia Raw Leather Supplying Association said that there is no policy problem in this regard. In order to up the economy, exporting value-added products is a must. Ethiopia’s leather and leather products enjoy huge demand in the international market and in the past, the skin and hide sector was one of the top foreign currency earners for the country next to coffee.
Bat genuine or goal leather, bale sheepskin or bale highland skins are well known Ethiopian skins worldwide. When the government prepares this directive, countries that are importing pickled and white blue will turn their faces to Ethiopian semi-finished leather products.
So far, these factories have been working by utilizing Ethiopian leather products. While they come in, the tanneries are getting weakened due to tax and other factors. What is more, the world leather market has been in decline. Because of the lack of suitable conditions, the government and the association have troubles.
“We believe that if the companies can sell weight blue and pickled, their performance will increase and survive. In the past, many leather firms lost what they have and left the business. And we assumed that these firms will return to their former business,” Birhanu said.
The directive has been amended for the second times within a year. With the aim of utilizing the potential of the sector, the government is now working to establish Leather City Park in Modjo town in Oromia region of Ethiopia.
The Ethiopian Herald January 30/2020
BY GIRMACHEW GASHAW
