Ethiopia: Tanneries Shut Down Due to Foreign Currency Shortage

Leather industries and Tanneries are shutting down their processing facilities due to foreign currency shortages, The Reporter learnt from the sector’s association which represents dozens of manufacturers.

According to the Ethiopian Leather Industries Association (ELIA), the sector has been facing complex challenges as most factories have been unable to get major inputs including salt, chemicals as well as spare parts and accessories.

Even though this sector has been designated by the government as a priority sector, ELIA noted, Commercial Bank of Ethiopia’s (CBE) failure to avail foreign currency has affected the supply of most of these products.

ELIA President Tattek Yirga – who is also the owner of Kangaroo Shoe and its sister company Batu Tanneries – told The Reporter that at least four to six factories were already forced to shut down their factories while others are already running on less than 10 percent of their capacity due to input shortages.

He said while more than 90 percent of the product is destined to foreign markets bringing a considerable amount of foreign currency to the country, the CBE had repeatedly failed to deliver the required foreign currency to manufacturers.

He pointed out that manufacturers who apply for foreign currency are forced to wait from seven months to a year, while it takes more than four months to open a Letter of Credit.

He added, for example, tanneries have abandoned hides and skins procurement due to salt and chemical shortage as they are not able to preserve the raw hides and skins for long periods without these inputs.

Gizawe Assefa, the General Manager of Bahir Dar Tanneries and Glove Factory, said the government’s recent decision to lift duty free imports of accessories for tanneries and leather factories has worsened the prevailing challenges coupled with forex shortages. He underlined that the government’s narrative of offering incentives and priority to this sector are empty promises which are rarely practiced.

“This sector brings foreign currency to the country. However, the sector has not been receiving the proper attention from the government in terms of accessing foreign exchange. We obviously see that the bank [CBE] serves most of the service and construction sectors, while the sector is one of the sources of foreign currency. We deserve a fair share,” Gizaw told The Reporter.

It can be recalled that in April this year, the Ministry of Trade and Industry, in an effort to rescue the sector, lifted the tax imposed on the export of pickled and wet-blue leather products.

But, the manufacturers are wondering what made the Ministry come up with new decision to scrap the duty-free importation of accessories which served as a great incentive for local manufactures in their pursuit of value added products aimed at the foreign market.

Tatek, explaining the current status of his own factory, said that the 60 years old factory is faced with the worst hardship in its history.

“Our factory is one of the pioneer private factories processing leather, stitching shoes, sewing cloths and bags, over the past 60 years. I came from abroad and took over the family business. However, with the current shortage and complex process of foreign currency, which has already affected our factory, we are unable to feed it with the required inputs and spare parts. I am now frustrated with the difficulties of running this factory any longer in such conditions,” Tatek told The Reporter, adding, “Unless the government supports us, we will be contemplating to shift to other alternative businesses like ordinary trading or imports.”

Mesfin Lemma, who is the head of Ethiopian Leather Development S.C., told The Reporter that currently, local tanneries and leather factories face critical input shortages.

According to him, shortage of salt is one of the critical challenges they currently face. Among others, the shortage of chemicals, sourced from Derba cement factory, is also low in supply due to electric power shortages to that factory.