The Sunday News
WHEN one read the past week that Zesa intended to demolish the iconic furnaces in Bulawayo which gained prominence in landing the industrial giant city’s name of “Kontuthu Ziyathunqa” then one realises that Bulawayo industry needs to be salvaged but again one asks themselves the question, can Bulawayo ever regain its industrial hub status and if so what industries can still be run in the city?
In this article one looks at the leather industry and its strategic advantage in the rebuilding of Bulawayo industry.
Leather industry history in Zimbabwe
Mass footwear production started in Southern Rhodesia in 1939 with exports to Bechuanaland (later Botswana), Kenya, Northern Rhodesia (later Zambia) Nyasaland (later Malawi) and South Africa. With the independence from Great Britain in 1965, the United Nations imposed international sanctions that forced the country to speed up import substitution. This resulted in total hides being supplied by local farmers with almost the entire domestic requirement for footwear satisfied by local production.
In the 1970s, there were about 10 million cattle in Zimbabwe including 1 million high grade breeding stock in the commercial farms. Commercial farms were the main source of cattle hides due to 20-30 percent off-take compared to two-five percent off-take rate in the communal and smallholder sector with a larger population.
Today it is rather difficult to get accurate statistics on livestock population and production as estimates vary between sources.
Of the 5-6 million cattle, about 100 000 are breeding stock in the commercial sector and about 4,3 million are in the communal and smallholder sector. Goats and sheep are traditionally raised by smallholders. Smallholder farmers own 90 percent of the cattle, 98 percent of goats and 80 percent of pigs (Medium Term Plan, 2009).
Exports of leather, footwear and other leather goods expanded in both the regional and overseas markets and Zimbabwe was the first country in Africa to be awarded the franchise to manufacture Nike products and other international brands. A record 17 million pairs of shoes were produced in 1999 and tanneries soaked up to 691 000 hides in 2002 during the destocking of commercial herd. However, price controls imposed in 2007 on the back of hyperinflation, among other factors, hindered the viability of business. Reduced stock in the commercial sector has led to reduced supply of hides from this sector even though off-take rates remain high, about 25 percent. On the other hand, larger share of stock in the communal and smallholder sector did not lead to an increase in the supply of hides and skins as off-take rate remained very low. Like elsewhere in Africa and other subsistence oriented economies, farmers in the communal and smallholder sector keep livestock as a form of wealth and saving, for draught power, manure and milk and for other social functions, and they sell animals only in times of need for cash rather than at optimum age to make efficient use of feed resources. Consequently, the supply of hides and skins has been shrinking to some extent.
Leather and Manufacturing Industry
In the decade 2000-2010, Zimbabwe experienced a general economic downfall which also affected the leather industry and the livestock sector. Gross Domestic Product contracted by more than 40 percent between 2000 and 2008, and the manufacturing sector lost almost 50 percent of its output over the 10year period. Until 2000, Zimbabwe produced 17 million pair of shoes. In 2001, Zimbabwe exported nearly US$30 million worth of meat, whereas in 2010 over US$30 million was imported.
In 2011, the cattle population stood at 5.1 million, with smallholder farmers owning about 90 percent. Off take rate was at five percent, which corresponded to about 270 000 animals killed and 388 000 hides being availed in the market (including hides from imported cattle and the informal sector). These hides represent a potential business of at least US$7 million in their raw form, which could be tripled if they were all value added to finished goods within Zimbabwe.
The failure to absorb hides and skins produced locally by the country’s ailing leather industry remains a major stumbling block to value addition initiatives in the sector. Most of the hides and skins ended up being exported in their raw form, resulting in the loss of jobs. The troubled leather industry is operating at around 30 percent capacity, with availability and cost of electricity being one of the impediments to increased capacity utilisation.
In 2011, Zimbabwe produced about 1 012 207 pairs of leather shoes with local finished leather. Of these, 875 000 pairs were produced in Gweru and Bulawayo and
111 207 pairs in the Harare area. About 16 percent of Zimbabwe’s leather shoes were exported (162 000 pairs). The remaining 84 percent (850 207 pairs) were sold in the local market. Retailers imported about 250 000 pairs of leather shoes, which added to those consumed in the local market, bringing the total amount of leather shoes available in Zimbabwe to 1 262 207 pairs. Total shoe consumption was 6 million pairs in 2011, of which 79 percent was accounted by non-leather shoes (synthetic, plastic, rubber, etc.). In 2011, total revenue generated by the leather industry was estimated at approximately US$82,2 million and industry’s contribution or value addition at US$31,7 million. The largest contributions to total sales and margin came from shoe retailing and shoe manufacturing, the two levels of the value chain where there is more value addition. About 1 168 companies were as of 2012 estimated to actively work in the leather value chain, providing employment to approximately 5 610 people.
Exports versus imports of leather products
The main markets for Zimbabwe’s leather shoes are found in the region, with Zambia importing 75,9 percent, followed by South Africa (16,3 percent) and Malawi (6,7 percent). Within the segment of leather shoes, exports of sport footwear, which peaked US$2,3 million in 2004, have come to a complete standstill mainly due to weakened competitiveness of Zimbabwe’s manufacturing as a result of low quality leather and higher cost of imported parts. The value of imported leather shoes averaged US$7,7 million in 2006-2010. According to industry members, leather shoes imported in 2011 amounted to 250 000 pairs, of which 240 000 were sold through retailers and 10 000 in the flea markets. Leather shoes were mainly sourced from South Africa (66,4 percent), Zambia (22,5 percent) and China (eight percent). The footwear sector requires investment in order for Zimbabwe to regain its old position, especially in the regional market which represents a strategic market for local manufacturers.
Zimbabwe has experimented with various policies and strategies from market based policies to controls, but neither approach has proved to be sufficient to add value to raw materials and enhance international competitiveness as part of an industrial strategy. Given the pervasiveness of distortions in Zimbabwe, especially since 1997, the adoption of market-based policies alone may not produce the desired effects. In a series of ad hoc monetary policy responses to the crisis, the Government engaged in a vicious cycle of policy reversal. In particular, a sharp increase in interest rates was meant to stabilise the currency after the crash of 1997. However, very high interest rates in an import dependent economy with acute foreign exchange shortages did not stimulate investor confidence, but led to widespread financial market speculation and crowding out of productive investment and the collapse of the manufacturing sector with the leather and allied industries taking a heavy toll from cheap imports from Asia and other regional countries like South Africa. The introduction of a multi-currency regime in 2009 stabilised the economy but from 2013 onwards the Zimbabwean economy has been on a free fall again and deflation has turned to inflation again within the same decade.
In light of these new challenges one will now in the next article look at how the leather industry can be revived to reflect the true industrial hub that Bulawayo can be.