Planned leather park promising for SMEs

Kenya Leather Development Council marketing and mobilisation officer Eve Maina arranges the leather products at Nairobi innovation week at University of Nairobi on March 10 2017. PHOTO | ANTHONY OMUYA | NATION MEDIA GROUP

What you need to know:

  • The park will host up to 40 large-scale industries ranging from footwear producers, tanneries, and packaging to logistics firms.
  • Growth in the $1 billion leather industry has barely kept up with demand due to a host of issues.
  • The total domestic demand for footwear is 42 million pairs a year, of which leather accounts for 15 million pairs.

The government plans to put up a 500-acre leather park in Machakos County.

This is a central location that will see benefits extended to businesses to promote growth in the industry.

The park will host up to 40 large-scale industries ranging from footwear producers, tanneries, and packaging to logistics firms.

It will also have an SME park with export processing zone benefits of trade and taxation, low-cost electricity, integrated amenities and cheap land.

The Ngozi Kenya Leather Park is a dream come true for players in the industry, who have had to deal with shortages of raw materials, high taxes, distant support industries, and lack of labour.

LIMITED POTENTIAL

Growth in the $1 billion leather industry has barely kept up with demand due to a host of issues.

Evident in various studies conducted is the limited potential of the finished products industry.

The total domestic demand for footwear is 42 million pairs a year, of which leather accounts for 15 million pairs.

Only 3.3 million pairs are being made locally, while 11.7 million are imported, mostly from China and Ethiopia.

Kenya can barely meet 20 per cent of its demand. According to the leather industry diagnosis, strategy and action plan (World Bank, 2014), the major constraints to production of finished leather goods include high cost of leather and inputs, labour and electricity.

PRODUCE GOODS

Compared to Ethiopia, it is about 20 per cent more expensive to produce goods in Kenya, largely due to the cost of electricity and labour.

While it costs $7.28 to make a pair of loafers in Ethiopia, in Kenya it is $9.44.

Imported second hand leather products and non-leather footwear are the biggest challenge.

If these obstacles can be removed, the footwear industry can employ 35,000 workers and generate Sh50 billion from exports.

Planners of Ngozi Leather Park have set aside land for an SME park. While the park will allow local enterprises to enjoy EPZ benefits, access requirements are beyond many SMEs.

INVESTMENT PROJECTIONS

An applicant is required to submit market and investment projections and pay a Sh1 million commitment fee.

Although the government said SMEs are exempted from paying commitment fee during a recent meeting hosted by the Leather Articles Entrepreneurs Association (LAEA), this was not firmed up.

Some SMEs are unwilling to tie up such money for the duration similar projects take to start.

Transnational firms could take up the space due to their financial muscle.

Recommendations:
•The concerned agencies should set aside space in the SME park for existing players. They should register them or liaise with their associations such as LAEA. This will provide statistics on the players likely to be affected by policy decisions.

•Departments catering for youth, women and special groups should empower them to meet the requirements.

•Set up a fund for SMEs to acquire equipment. Kenya Leather Development Council should ensure the leather park is implemented without delay to attract willing SMEs.

QUALITY GOODS

•Build capacity to enable SMEs and the labour force to get the skills to produce quality goods.

This will generate revenue to enable them to grow into medium enterprises.

Capacity building should involve equipping educational and training institutions like the Training and Production Centre for the shoe industry, Animal Health and Training Institute, Kenya Industrial Training Institute .

•Formulate a policy to ensure that thousands of artisans outside the leather park have access to raw materials.

The 14 tanneries could easily be overwhelmed with the resurgence of large-scale leather goods manufacturers.

Quotas should be set aside for businesses outside the park and subsidies to ensure they remain competitive, considering the incentives their counterparts will receive.

Ms Mwasi is the secretary-general, Leather Articles Entrepreneurs Association (LAEA). [email protected]