Page 1 of 28

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 03

April 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 494

Impact of Liberalization on Ethiopian Leather

Industry: A Comparative Analysis

Dr. Brehanu Borji, Phd,

Associate Professor In Marketing Management School Of Management And Accounting College

Of Business And Economics Hawassa University, Ethiopia

ABSTRACT

The Government of Ethiopia had undergone a

command or a planned economy up to 1992. The

New Government of the country, however, realizing

the inefficiency of the command economy for the

rapid and sustainable development of the economy, it

embarked upon the most comprehensive economic

reform commonly known as liberalization since 1992

to bring about a growth and development thereby

radically solving long persisting problems in the

industry. Liberalization is an economic reform that

takes place via reduction of tariffs, quotas, exchange

controls and any other impediments to the free flow

of trade, investment and factors of production across

the national and political borderlines. Liberalizing

the economy leads to globalizing the markets by

removing tariff and non-tariff barriers from the

national and political border lines in order to

integrate economy all over the world for the purpose

of business so that goods and services move freely

among the countries without any barriers. As there is

very much relationship between the term

liberalization, globalization, privatization and

deregulation, the study attempted to briefly discuss

these terms so that the readers can simply understand

the subject matter contained in the paper. The

purpose of the study is to verify whether the reform of

liberalization has brought about any significant

change on Ethiopian Leather Industry and helped it

to achieve its objectives enabling to radically solve

its long-persisting problems. To this end, the study

employed secondary data of 24 years and subdivided

it into two matched samples and used various

statistical tools to test the set hypothesis to see the

impact of the reform of liberalization on Ethiopian

Leather Industry. The primary data also used to

substantiate the information collected from the

secondary sources. The findings of the study

suggested the importance of liberalization in

enhancing the economic growth and development of

the industry if it is employed in appropriate doses

commensurate with malady as an overdose of

liberalization could inflict severe misery on economic

activities of the industry. As this study may not be

generalized to all industries, Such impact analysis

studies should be conducted in all industries of the

country to see the impact of liberalization on their

operation.

Keywords: Liberalization, globalization,

privatization, deregulation and leather industry.

INTRODUCTION:

There is no written evidence for how and when

leather products were in use by ancient people.

However, in Holy Bible, Genesis 3:21, it reads “For

Adam and his wife the LORD God made tunics of

skin and clothed them.” Archaeological studies have

shown that hides and skins have been used since

antiquity as clothes, vessels, and bedding in ancient

dwelling places until the emergence of the modern

tanning technology. The emergence of modern

tanning in Ethiopia dates back to the 1918 and 1927

Tanneries, respectively. Between 1954 and 1976,

Dire, Mojo and Combolicha tanneries were

in the country at present has reached 22, out of which

18 are private and 4 are government owned.

However, improvements in hides and skins did not

keep pace with the beginning of modern tanning in

the country and no recommendations were in place

until the establishment of the Livestock and Meat

The Livestock and Meat Board laid down a

foundation for moving the traditional method of

preservation of hides and skins to modern

preservation techniques.

Ethiopia is a developing country with the largest

livestock population in Africa. It has a major

comparative advantage in the raw material needed for

Page 2 of 28

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 03

April 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 495

the leather sector which makes it in principle very

appropriate for leather product exporting. This is

because Ethiopia has the largest livestock population

in Africa being the 10th largest in the world.

Currently, in Ethiopia there are 22 Tanning factories

and only six of them have the capacity to process

finished hides and skins. Therefore, the high value

added finished hides and skins account for only 10%

of the total export value. According to Ministry of

Trade and Industry, the reason why the semi-finished

hides and skins account for the major part of the

export is that the price of semi-finished hides and

skins is higher than that of finished ones because the

factories in Europe prefer to import semi-finished

hides and skins (MoTI, 2005). In addition to the

twenty two formal tanners in Ethiopia, there are also

local tanners that process the raw hide and skin

manually to produce cultural leather products such as

Ma’esi (mat), Mets’an (skin rope), Aybet (storage of

grains), Miran (assemble ploughing tools), Mahzel,

Lokota (skin bages), Chiguraph (swip for driving

animals), agoza etc. For instance, in Tigray Region

only there are about 685 local tanners distributed in

all zones. According to Adugna (1999), on average,

one local tanner consumes 8 hide and 8-10 goat skin

per month. He also added that despite the large

potential of hide and skin resources, considerable

amount of the raw hide and skins are remained

uncollected due to several reasons, one among these

being unattractive market price for raw hide and

skins suppliers. This low price discourages the

licensed hide and skins traders, who collect and

supply to the tanning factories, to penetrate the rural

areas and collect raw hide and skins. Consequently,

most of the raw materials (hide and skins), go to local

tanners and used for domestic consumption which is

not generating foreign currency for the country.

In order to successfully operate the ventures and

efficiently utilize these economically important

resources and exploit their economic advantages,

there must be a suitable business structure and hides

and skins should be treated as commercial assets.

Moreover, if these domestic tanning companies are to

operate to their full capacity, all these raw hides and

skins produced must be supplied to them. Price is the

central mechanism by which markets function. Along

an efficient and well working supply chain from the

primary producer to the final consumer, price

conveys information on the market on the basis of

which economic agents decide to alter their behavior

and maximize their profits. During the last few years,

raw hides and skins material prices decreased

enormously. This dramatic change in price was first

observed in February 2009. Deepest fall was seen

with prices of these raw materials declining from Birr

45 per sheep hide in February 2009 to Birr 15 per

sheep hide in September 2009, which represents a

drop of 66.7 percent. Similarly, the price of a unit of

raw goat skin was decreased from Birr 19.27 in

February 2009 to Birr 10 in October 2009 (Sheba

Tannery, 2009, cited in Haftu H., 2010). The leather

industry in Ethiopia produces hides, pickled sheep

skin, wet blue goat skins, crust and finished leather,

and leather products (footwear, garments, gloves,

bags, wallets, travel goods, etc). The total annual

production in the sector has averaged at just below

$100 million from 1996 through 1998. According to

the Ethiopian Investment Authority, 170 projects

valued at approximately $80 million were approved

from 1992 to 2000.

STATEMENT OF THE PROBLEM:

Ethiopia occupies the first and tenth position in its

livestock population in Africa and the World,

respectively. The key inputs in the leather industry

are hides and skins, which are byproducts of animal

production. This provides an opportunity for the

growth of leather industry in Ethiopia as it has large

livestock population. The reliable supply of raw

materials is one among the critical success factors for

every manufacturing firm. The reliability in the

supply of these materials is a function of different

factors such as price, its quality, availability,

alternative uses, communication network, health

status of animals etc.

Raw hides and skins resource base is one of the

factors that determine the expansion and growth of

the leather industry in any country. The extent to

which the available resource is exploited depends on

the off-take rate in the leather sector. The fact that the

production of hides and skins in Ethiopia heavily

relies on the demand for meat, makes the rate of

expansion of the leather industry dependent on the

rate of demand for meat in the country. The problem

is that meat is not used on Fridays and Wednesdays

by the most Christians. Meat is also not used for two

consecutive months during feasting time. These have

their own impact on availability of hides and skins.

Demand for meat is dependent on the number of

holydays and holydays come only occasionally.

Moreover, the supply of these raw hides and skins to

the tanning companies is also dependent on the level

of price, performance of hide and skin collectors, and

quality of these materials. According to Birhanu and

Kibre (2001), the tanning industry in Ethiopia

operates, on average, at two-thirds of its full

Page 3 of 28

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 03

April 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 496

potential. Though various reasons are provided for

this under capacity utilization, the major ones include

shortage of hides and skins due to high demand for

consumption of hides and skins for traditional

clothing, furnishing and handcrafts, low off-take rate

and low recovery (damage) of hides and skins arising

from the process of flaying and preservation.

The export of processed and semi-processed skins

constitutes Ethiopia’s second largest export

commodity. However, over the last 10 years there are

indications that the quality of raw materials has

deteriorated with an increasing number of reject

grades and the appearance of a skin due to a skin

disease called ekek that is mainly due to lice, keds,

and mange infestations. Hides and skins are

downgraded as a result of various anti-mortem and

post-mortem factors, including poor animal

husbandry, disease and parasites, bad slaughtering

and flaying techniques, and bad practices in curing,

collection, transportation, storage and general

handling. Estimates from tanneries have put the

percentage of reject skins at certain times of the year

as high as 50 to 60 percent. According to Yibralem

Abadi, the following are identified as problems and

constraints for development of the leather industry in

Ethiopia:

 Poor livestock management,

 Poor quality raw material supply as a result of

ante-mortem and post-mortem handling of hides

and skins,

 Higher cost of production because of poor

production management,

 High rejection rates of unsellable products

 No economic growth,

 Low off-take and recovery rates,

 Lack of skills, technology, intermediate inputs and

processing equipment,

 Stiff competition among the existing tanners and

low selling price,

 Low utilization of industry capacity,

 Poor linkages among different organizations

involved with hides and skins.

 The relative lack of export support and/or

promotion services,

 Lack of hard currency to purchase spare parts and

inputs,

 Poor technology,

 Outdated machineries,

 Poor infrastructure and bureaucratic red-tape.

Due to these and other related problems, the leather industry

is unable to produce high quality hides and skins which the

export market demands.

SIGNIFICANCE OF THE STUDY:

a) Even though there are many long-persisting

problems in the sector of leather industry, no

comprehensive study was conducted to bring about

possible solutions to the problems in the sector.

The purpose of this study is, therefore, to bridge

the gap and bring about possible solutions to the

problems.

b) Before liberalization, the growth of leather

industry was hampered because of problems in the

industry. To bring about a rapid growth, the

government of Ethiopia introduced the reform of

economic liberalization in the sector. The major

purpose of this study is to find out whether the

reform of economic liberalization has brought

about any significant change in the leather

industry, enabling it to solve its problems.

c) The study is mainly made to critically investigate

the impact of liberalization on Ethiopian leather

industry and to give suggestions and comments to

aid policy-makers in their decisions.

d) There is currently no comprehensive and

authoritative literature conducted on Ethiopian

leather industry. This study is, therefore,

undertaken to fill the gap of literature review and

reference materials for students and all those who

would like to pursue their post-graduate studies. It

can also serve the industry, government and the

publics as a document.

e) It can also serve as a source document for those

who would like to pursue further investigation on

leather industry in the future.

f) The price of hides and skins is currently falling in

the country. This study attempts to find out

possible causes for decreasing of prices in the

market and suggests possible solutions.

g) Currently, the sector is not utilizing its full

capacity to manufacture the required products for

leather market whether locally or internationally.

This study attempts to find out the reasons for

capacity underutilization and forwards possible

suggestions and comments to the industry and

pertinent bodies.

h) To find out whether the country is benefiting from

the export of leather and to give possible

suggestions and comments on how to improve it in

the future.

OBJECTIVES OF THE STUDY:

The objective of the study emerges from the problems

identified and policy options preferred to promote the