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:
- Increase exports from $140 million (2017) to $500 million
- Create an additional 50,000 jobs through value addition
- Manufacture 20 million new leather footwear
There are several leather facilities 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 Industrialisation 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 exports. 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 handbags, 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.
- 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 environmental and related social costs.
- Rapid economic growth has increased 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.
There is a vibrant and competitive informal sector, concentrated in the Kariokor Market cluster in Nairobi that produces low cost leather footwear 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.