Declining Productivity and Competitiveness in the Ethiopian Leather Sector

 

 

 

 

Berhanu Nega (Ph.D.)
Director, EEPRI

and

Kibre Moges

Senior Researcher, Trade & Industry Section

Email: eea@telecom.net.et

 

 

 

March 2002

 

EEA/Ethiopian Economic Policy Research Institute

 

 

Working Paper No. 1/2002

 

 

 

Contents

 

1.         Introduction

 

2.         Analytical framework

            2.1       Determinants of competitiveness

            2.2       The measurement of total factor productivity

            2.3       Factors affecting total factor productivity change

            2.4       Factors influencing competitiveness in the leather sector

 

3.         Profile of the Ethiopian leather industry

            3.1       The tanning sub-sector

            3.2       Leather products: the footwear sub-sector

  

4.         Ethiopian leather in international trade

            4.1       Export performance in the tanning sub-sector

            4.2       Trade in leather products

            4.3       Trade balance in the leather industry

                                   

5.         Why the leather sector is not competitive

 

6.         Factor productivities and growth

            6.1       Productivity in the tanning sub-sector

            6.2       Sources of productivity change

            6.3       Productivities in the footwear sub-sector

 

7.         Conclusion and recommendations.

 

Annex

 

Bibliography

 

 

 

List of Tables

 

Table 1.            Livestock population distribution 1999 (million heads)

Table 2.            Capacity utilization

Table 3.            Input source, specialization and processing

Table 4.            Production and export of the tanning sub-sector

Table 5.            External trade in leather products (Mill. USD)

Table 6.            External balance of the leather sector (Million USD)

Table 7.            Ethiopian tanning: factor productivity of all sample firms 1995-1999

Table 8.            Characteristics of sample tanning firms 1995-1999

Table 9.            Sources of labor productivity change 1995-1999 (%)

Table 10.          Labor productivity in the tanning sub-sector of selected countries (VA/L in ‘000 USD)

Table 11.          Productivity in the footwear sub-sector 1995-1999

Table 12.          Productivity in the footwear establishments-average for 1995-1999

Table 13.          Labor productivity in the footwear sub-sector of selected countries (VA/L in ‘000 USD)

Table A.           Regression results for sample tanning firms

Table B.           Regression results for sample footwear firms     

 

 

 

 

1. Introduction

 

Theoretically, the case for trade liberalization is well known. It is long argued that lower protection and neutrality of incentives between import-substituting and export-promoting activities will produce both static and dynamic benefits.

 

The static benefits arise from increased actual or potential competition from imports, which confronts domestic producers as a result of lowering of protection levels. This has the effect of stimulating domestic manufacturers to lower their costs and/or improve quality. Such improvement in technical efficiency does not require new investment or significant resource reallocation. Additional static benefits can also occur through allocative efficiency gains. The removal of protective barriers introduces a set of relative prices for traded goods that correspond to international opportunity costs. This allows for the allocation of resources between and within sectors in accordance with comparative advantage.

 

A more open trade regime is expected to result in a higher rate of growth from outward looking policies. This is the dynamic efficiency gain from a liberal trade regime. Exports are viewed as the key stimulus to greater capacity utilization, greater horizontal specialization, increased familiarity with and absorption of new technologies, greater learning by doing as a result of expanded output levels, and the stimulation effect of having to achieve international price and quality levels.

 

Beyond the theoretical assertion, however, the evidence from countries’ experience is mixed. Many observers agree that though developing countries are more open and their trade regimes are more efficient today than decades before, the gains from trade liberalization are less than satisfactory. For instance, a study on trade policy reform and performance in Sub-Saharan Africa showed that “The majority, with low values of the liberalization index[1] show a very weak performance during the 1980s, whilst a smaller number, in the above average liberalizer groups, have a stronger, but none the less far from satisfactory performance”. [Kirckpatrick & Weiss, 1994, p7] A similar study on the impact of trade liberalization on industrial development concluded that “… empirical results, therefore, failed to offer convincing evidence of trade liberalization having a significant impact on manufacturing performance in developing countries during the 1980s”. [Kirckpatrick, 1994, p10]

 

Theoretically, trade liberalization (openness) in general, understood to mean a movement in relative domestic prices of traded goods towards international price levels, should contribute to improved trade performance by altering the product composition of existing production and at the same time promoting the growth of exports. A fundamental question in this connection is that in today’s globalization, could openness for a developing country bring about higher competitiveness and promote export? There is little evidence that it could.

 

Many agree that developing countries are increasingly liberalizing their economy. Clearly, today the trade regime of developing countries is relatively more open than a decade ago. However, their share in world export has either declined or at best remained the same. Between 1990 and 1999 the share of low income countries remained the same at 3.1 percent, while that of Sub-Saharan Africa declined from 1.9 to 1.4 percent. On the other hand the share of middle-income countries increased form 16.5 to 20 percent during the same period. [World Bank, 2001] High-income countries, though their share declined marginally, still maintain a massive 76 percent of world export. The underlying difference between these groups of countries is their level of industrialization. Today, the share of agriculture value added in GDP for high, middle and low-income countries is respectively 2, 10 and 26 percent. For least developed countries the share could go as high as 50%. Therefore, underlying the degree of competitiveness, and hence export performance, is the level of industrialization; the higher the level of industrialization, the greater the degree of competitiveness in international trade.

 

Therefore, before some degree of industrialization is achieved, openness could not necessarily lead to better competitiveness and diversification, and hence improved export performance. This is so because high level and sustained growth of productivity, the prime factor which determines competitiveness, can only be achieved with industrialization.

 

One of the sectors that Ethiopia (and most African countries too) seems to have a clear comparative advantage in manufacturing is the leather sector. The highly labor intensive nature of the industry, its not too sophisticated technological requirements, combined with Ethiopia’s large resource base for the raw material needs of the industry makes the leather sector a good candidate for a concerted effort to expand production and achieve competitiveness at the international level. If Ethiopia has to fully exploit its vast livestock resource, therefore, the leather sector need to be transformed to a full fledged manufacturing stage, with integrated leather and leather product industries. As noted above, this is so because increased productivity or value added, and hence competitiveness, is achieved with higher stage of processing/manufacturing in the sector. It is only then that the leather sector could live up to the challenge of international competition. Having these attributes, however, does not guarantee success in achieving competitiveness, as the region’s current level of production and export attests. It is necessary to identify all the constraints that inhibit the expansion of the sector and develop a comprehensive solution to make the industry competitive.

 

This study hopes to address the problems involved in the lack of competitiveness in the Ethiopian leather sector with particular focus on the level of factor productivity based on experiences of sample firms. For this purpose, a survey of the leather and footwear manufacturing firms was conducted. However, only a limited number of firms provided satisfactory information. These include Dessie Tannery, Bahar Dar Tannery, Modjo Tannery, Bale Tannery and Anbassa Shoe Factory. To fill the gap, time series data for 7 tanning and 19 footwear firms has been obtained from the Central Statistical Authority (CSA).

 

The paper proceeds as follows. Section two outlines the general framework for analyzing overall competitiveness and total productivity levels, followed by the characteristics of the Ethiopian leather industry. Section four explains the external trade performance, which reflects their competitiveness status. Section five investigates why Ethiopian leather is not competitive, based on a small survey conducted for this purpose in selected firms, particularly based on interviews conducted with firm managers. Section six analyzes one of the key determinants of competitiveness, total factor productivities, based on data from sample firms. The final section provides some recommendations on improving the performance of the leather and leather goods sector in Ethiopia.

 

2. Analytical Framework

 

2.1 Determinants of competitiveness

 

Domestic and international competitiveness[2] for a firm/industry is influenced by factors internal as well as external to the firm/industry. External factors include government policies and incentives in which firms in the industry operate including macroeconomic and sectoral policies, legal and regulatory measures, trade and investment specific incentives, etc. The level of industrialization or stage of development of a country, supply of export support services, and the nature of the international trading regime (i.e., international trade laws and regulations) are also external factors that affect competitiveness. [Berhanu & Kibre, 2002] These factors significantly affect the competitive status of industries, particularly in the international arena. On the other hand, factors internal to the firm basically determine the physical productivity level, and hence the unit cost of production of a given quality product.

 

While external factors can seriously affect or even determine the international competitiveness of an otherwise efficient firm, inefficient firms can hardly compete in international markets even if they have conducive external environment. That is partly why it is generally said that the fundamental determinant of competitiveness is the level and rate of growth of productivity of factors, which is largely influenced by aspects internal to the firm. Factor productivity is an important component of industrial growth and development. On the supply side, the growth of an economy, an industry, or a firm is determined by the rate of expansion of its productive resources and by improvement in their efficiency – that is, the rate of growth of total factor productivity (TFP). Perhaps, one of the most significant stylized facts that have emerged from the empirical literature is the importance of TFP’s contribution to output growth. As much as one-third to one-half of output growth can be contributed by growth in TFP. [Dollar, et al, 1990] Where the growth of employable resources is constrained, high rates of TFP growth are critical to the growth of production.

 

Productivity growth can be used for policy impact analysis including foreign exchange payments and exchange rates, trade policy, investment licensing and pricing policy. It can be used for comparative purposes between different economies (developed and developing, liberalized and less liberalized, etc). Productivity differences between technologically similar plants in different countries are of interest in themselves for the insight they provide into the industrialization process. Productivity levels in developed economies also serve as the productivity frontier for the developing ones. They also suggest that there may be high social rates of return from industrial projects that improve performance.

 

Moreover, for any economy, sustained international competitiveness requires a productivity level and rates of change equal to or exceeding those of competing countries. Therefore, investigating the levels and rates of growth of productivities of the leather industry in Ethiopia is of paramount importance for an assessment of the sector’s current or potential competitiveness. This is the central focus of the study. This is not, however, to deny the fact that factors external to the firm are important. In fact, recent studies about the process of industrialization based on experiences in South East Asian countries or the lack of competitiveness of the African manufacturing sector emphasize the role of deliberate strategic interventions by the state through subsidies and the like, (Rodrik, 1999) or other policy variables such as real exchange rate misalignment (Elbadawi, 1999) or factors affecting transaction costs (Collier, 1997) as the most crucial determinants of industrialization and international competitiveness. We will look at the impact that some of this factors have in reducing competitiveness in the leather sector. As suggested earlier, the emphasis on looking at factor productivities more closely emanates from the belief that without high levels of productivity growth industrial expansion in general and competitiveness in international markets in particular will not be possible or at least sustainable.

 

Accordingly, in addition to looking at policy issues and factors affecting transaction costs, the study attempts to calculate total factor productivities in the leather and leather goods sector and draw some comparative assessments and implications for future competitiveness.

 

2.2 The measurement of total factor productivity

 

In manufacturing, both quantity and quality of labor and capital constitute the major factors for enhancing productivity. With respect to labor there is a close relationship between worker productivity and human capital acquired through training or schooling. Technological capability, i.e., the ability of workers (and firms) to use, adapt and develop the technology, significantly influences productivity level. Similarly, the size of the capital stock, the quality or technology embodied, and social overhead capital (availability and reliability of infrastructure) all affect productivity. Accordingly, using TFP analysis also captures some of the indirect effects on costs of factors seemingly external to the firm.

 

These have implications for calculating productivities. The size of physical labor by itself (as man-years) can’t explain the quality of human capital. Quality of labor may differ from one firm to the other and also within a firm. So to account for labor heterogeneity the measurement is taken in value terms, assuming that differences in skills will be captured by wage differentials.

Similarly, measuring output in quantity may not be quite appropriate. Leather and leather products are produced in different qualities making quantitative aggregation and comparison difficult. Measuring output in value terms is essential to address such shortfalls.

 

The choice between partial and total productivity is also an issue to consider. A partial (single factor) measure of productivity may show the development of productivity overtime as a result of changes in the given factor within a firm, keeping the other factor(s) constant. It is able to capture the relative/comparative productivity level of a given factor between firms having identical production function. In practice, however, it is not normally possible to find firms having identical production function. One firm may adopt a labor and intermediate inputs-intensive production technique, while the other prefers a capital-intensive production technology. Moreover, a change in one factor inevitably affects the productivity level of the other. For example, a change in the technological level of physical capital not only affects the productivity level of capital itself but that of labor too. Furthermore, productivities of labor and capital may change with a change in the quality of intermediate inputs. The productivity of equipment may increase because of better maintenance or because workers become more skilled in its usage; the productivity of material inputs may increase because of better quality, or improved inventory management. Labor productivity growth may be observed because of increased productivity of other inputs rather than greater efficiency on the part of labor itself. So, partial productivities do not measure overall changes in productive efficiency since they are affected by changes in the composition of inputs, i.e., by factor substitutions.

 

Therefore, measuring total productivity level is essential. Total factor productivity (TFP) can be thought of as an index that sums up the partial productivities of all inputs in a production process, so that the efficiency with which all inputs are utilized and combined in production can be captured jointly. In quantitative terms it is a measure that compares output not only with labor input but also with tangible capital each weighted by market value of its services.

 

Consider a production function with labor and capital as the major factors of production and a parameter, which measures the total productivity of the available technology. The available production technology is therefore, the production function, which determines how factors combine to produce output.

 

            Y = ALa Kb[3]                                                                (1)

 

Where, Y is output (in our case value added[4]);

L is labor measured in wages;

K is capital (net fixed asset);

A indicates the current level of technology, measuring total factor productivity; and

a & b are output elasticities (factor shares) of labor and capital respectively[5].

 

Total factor productivity (TFP) is thus measured by:

 

            A = Y/La Kb                                                                (2)

 

“A” in equation 2 above measures the TFP for a firm or the average TFP for an industry. But average productivity at a point in time and by itself, may not give full information about a firm or an industry. Comparison of average productivity levels of different firms within an industry, and of similar industries in different countries (output valued at the same international price), provides relative efficiency levels. TFP also has some implication for the level of efficiency of a given firm or industry. If factors are paid their marginal product, then a productivity level greater than one implies efficiency; conversely, a productivity level less than one implies inefficiency, hence less competitive. Therefore, for a firm to stay in business, A >= 1.

 

 This is a measure of efficiency. Improvement or deterioration in the efficiency of production, however, will also be reflected in changes in the unit cost of production. A TFP increase (decrease) implies a decrease (increase) in unit cost of production accounted for changes in all input prices.

 

2.3 Factors affecting total factor productivity change

 

What is more important, however, is the rate of change of total productivity over time, that is, technological progress. Technological capability, the learning process of production and engineering management improves the production function, hence productivity levels. More output would be generated with the same level of inputs. Considering the same production function, and by total differentiation, the rate of growth of total factor productivity can be obtained thus:

 

            Y = ALa Kb

            (ΔY/Y) = (∂Y/∂A)ΔA/Y + (∂Y /∂L)ΔL/Y +(∂Y /∂K)ΔK/Y

            ΔY/Y[6]   = ΔA/A + a(ΔL/L) + b (ΔK/K)                                             (3)

 

Rearranging (3) further, the rate of change of TFP can be derived as:

 

            ΔA/A   =  ΔY/Y - a(ΔL/L) - b (ΔK/K)                                               (4)

 

The rate of change of TFP is estimated as the growth rate in output net of the contribution of growth in inputs, i.e., what remains after the determinants that can be measured (capital and labor) are accounted for. TFP captures anything that changes the relation between measured inputs and measured output.[7]

 

But note that productivity change may not be a measure of efficiency. A firm, which has already attained an efficient level of resource allocation, i.e., equilibrium condition under a competitive market, may not make further growth in productivity. In this case a decline in productivity growth indicates that the firm is becoming inefficient.

 

For further analysis it is useful to rewrite the above equation in the following way:

 

Δ(Y/L)/(Y/L)   = β[Δ(K/L)/(K/L)] + ΔA/A                                           (5)

 

This is a decomposition of labor productivity growth into the contribution of capital deepening plus the residual, the rate of growth of TFP. [Dollar, et al. 1990] The first term in the right hand side of equation (5) is the rate of growth of labor productivity attributable to the increase in capital utilized per unit of labor. The residual, (ΔA/A), is the difference between the actual growth in labor productivity and the amount of the advance that can be accounted for by capital deepening.

 

Conceptually, the factors affecting the efficiency of an economic unit of production, such as a firm, can be classified into two categories: those within the firm’s sphere of direct influence and those outside a firm’s direct control. [Nishimizu, et al. 1986] The distinction between these categories is useful in understanding some of the limitations of the analytical framework for measuring TFP, appreciating what TFP indices represent, their uses and applications.

 

Factors within a firm’s sphere of direct control are those referred to as technology. These factors can be further divided into two groups. One group has to do with the efficiency of each input, which can change quite independently of the input’s quantity in production and also independently of the amount and efficiency of any other input combined in production. This group includes factors such as the influence of training and education on labor productivity, new technology embodied in machinery and equipment, and high grades of primary inputs. The other group of factors affect the efficiency of performance of different inputs simultaneously and the efficiency of interaction among different inputs in a production process. It includes management of a firm, layout of physical plant, economies of scale, efficiency in the management of product portfolio, and other factors that take advantage of what is called economies of scope (for example, shared overhead costs among different production lines).

 

Factors beyond a firm’s direct control have to do with the production environment. They include availability of infrastructure (roads, telecommunication, power, water, etc.) and demand conditions that affect the performance of a firm through fluctuations in capacity utilization. They include, inter alia, government policies and regulations that affect prices or allocation of products and inputs (for example, tariffs, taxes, subsidies, foreign exchange allocation system, pricing policy), the degree of competition in the market place (for example, investment, licensing, state monopoly), and the management autonomy of firms themselves.

 

Measured TFP changes capture the impact of all these factors. Changes in technological levels – that is shift in the production function – are difficult to distinguish empirically from changes in TFP that occur within the given level of technology. Both changes, however, respond to decisions at the enterprise level. These decisions in turn are motivated and constrained by changes in the production environment. One objective of TFP analysis is to measure the impact of changes in the production environment on cost performance. For all these reasons, TFP analysis, when there is good quality data, is quite comprehensive and tells a good story about the firm or the industry. However, as useful as TFP analysis is, it is quite sensitive to the availability and quality of data; hence the need to be cautious in its interpretation especially in countries where there is reason to suspect the quality of the data.

 

2.4 Factors influencing competitiveness in the leather sector

 

Similar to other sectors, the competitive status of the Ethiopian leather sector is determined by factors internal as well as external to the industry discussed above. With respect to the internal factors, perhaps the most crucial determinant is the technological capability, that is the learning process, manifested by the management of production and the level of available skill in tanning industries. The technology employed, too, is another major determinant of total productivity, and hence competitiveness, which is internal to an industry or a firm.

 

Regarding external factors, major determinants of the competitive status of the leather sector include the availability and quality of raw materials, availability of infrastructure which affects transaction costs, trade and overall industrialization policy of governments, exchange rate policy and the like. In addition to government policies, the international competitiveness of the leather sector also crucially depends on the fairness of the trading regime that operate at the international level. 

 

 

3. Profile of the Ethiopian Leather Industry

 

3.1 The tanning sub-sector

 

Livestock base and off-take rate: Resource base is one of the factors, if not the major factor, that influences the expansion of the leather sector. But the extent to which the available resource is exploited depends on the off-take rate, which is in-turn a result of the level of economic development of a country.

 

Table 1: Livestock population distribution 1999 (Million heads)

    Economic Zone

   Cattle

   Sheep

   Goats

  Livestock

World

   1323

    1056

    705

      3117

Developing Countries

   1007

      678

    681

      2366

Developed Countries

     331

      391

      29

        751

Africa

     223   

      234

    206

        669

Ethiopia

       35

        22

      17

          74

Source: FAO, Production Year Book, Vol. 51 1996

 

Ethiopia is relatively well endowed in its livestock base in the continent with a share of 15.7% in cattle and 9% in sheep and goats. (Table 1) However, being one of the poorest countries in region (currently with the lowest per capita income) it has the lowest off-take rate. Annual production is only 2 million pieces of hides and 13.6 million pieces of skins. This amounts to only 21 percent of the country’s livestock population.

 

The fact that production of hides and skins heavily relies on the demand for meat, makes the rate of expansion of the leather sector dependant on the rate of growth of the economy. Though Ethiopia has a large livestock population, its leather sector significantly lags behind many countries that are less endowed.

 

Processing capacity of tanning industries: A common feature of the tanning sub-sector in Ethiopia, and in many African countries too, is the low level of capacity utilization. [Berhanu & Kibre, 2001]

                       

Table 2. Capacity utilization

   Description

    Value

Number of firms

    18

Installed Capacity

111, 000 pcs

Operating Capacity

73, 000 pcs

Capacity utilization (OC/IC)

65.8%

Source: Survey of manufacturing industries 2000, CSA

 

The tanning industry in Ethiopia operates, on average, at two-third of its full potential. (Table 2) Though various reasons are provided for this under capacity utilization, the major ones include shortage of hides and skins due, inter alia, to low level of domestic livestock production, the high traditional human consumption of hides and skins for traditional clothing, furnishing and handicrafts, low off-take rate and low recovery rate (damage) of hides and skins arising from the process of flaying and preservation. Moreover, the poor quality of their semi-processed leather, which resulted in low export demand, also contributed to this low capacity operation.

 

All tanning firms interviewed asserted that they are operating at much below full capacity due mainly to lack of demand and partly to lack of raw material inputs. The latter is due to absence of effective marketing networks between households who supplied the great proportion of raw materials through out the country and factory gate points. One tanning firm also pointed out that the price of hides and skins supplied to firms by traders is based on international price speculation and exchange rate movement which does not correspond to the quality of domestic raw materials, often damaged and badly handled.

 

As the degree of utilizing available capacity is a significant factor for lowering unit costs, the low level of operating capacity of the leather industry is an indication of its weak potential for competitiveness.

 

Raw material input structure and product specialization of tanning industries: Regularity and reliability of raw material supply, that is hides and skins, influence the productivity and efficiency levels of tanning firms. Adequate domestic raw material supply provides some advantage over imports, which is subject to many supply irregularities. In Ethiopia supply of raw hides and skins is totally from domestic sources. (Table 3)

 

        Table 3: Input source, specialization and processing

      

Level (%)

Raw material input structure

         Local

         Import

 

  100

    0

Product Specialization by type of skin

         Bovine

         Sheep

         Goats

 

   33

   37

   30

Degree of processing

         Semi-processed

         Finished leather

 

    86

    14

        Source: Survey result and other secondary sources

 

The degree of specialization, both by type of skin and level of processing, is an indication of the level of productivity and efficiency industries have attained. While specialization by type of skin may be dictated by availability of the livestock resource, the level of processing, on the other hand, may be determined by the prevailing technology in the country.

 

The tanning industries in Ethiopia process diversified skin types. There is little discernible pattern of specialization in this regard. Some firms responded that they prefer to diversify their raw material input to avoid the risk of price and/or supply variation as well as to have access to a broader market. With respect to the degree of processing/tanning, firms are largely limited to semi-processing activities. Only 14 percent of the total production is finished leather

 

The limitation of tanning firms in Ethiopia to semi-processing stage is perhaps due to the possibility of export earnings at such an early stage, which has been the case for decades and also due to lack of adequate demand for finished leather from domestic downstream industries. Moreover, the lack of clear policy direction encouraging higher levels of processing might have contributed to the lack of incentives to higher levels of processing fixing the tanning sector to their traditional activity and level of processing.

 

In the tanning trade a higher stage of processing results in higher value added per unit factor cost. This implies that productivity of tanning firms in Ethiopia, where the process of tanning is limited to wet-blue stage, is likely to be lower than firms in other countries producing finished leather.

 

3.2 Leather products: The footwear sub-sector

 

As discussed in the introduction, one of the major advantages that could give a competitive edge to the Ethiopian leather sector is its large livestock base. However, maximizing the benefit from this resource requires expanding the leather products industries including footwear & accessories, leather garments, auto upholstery, etc, and fully integrating it into the domestic upstream industry. This, primarily, necessitates establishing a tanning sub-sector that is capable of producing high-grade finished leather to feed the downstream industries. This is so because in this sector relatively higher value added can be attained by processing raw hides & skins to the finish and further proceeding to the leather product industry than being limited to semi-processing for export. It is this network, the linkage between the tanning and leather products industries, which is missing most in Ethiopia and also in many African leather sectors.

 

As explained above, what is domestically supplied to the leather products industry is only the 14 percent of the total product of the tanning industry. The bulk of the tanning industry output is exported in semi-processed form, a testimony to the underdeveloped nature of the sector as a whole: inefficient tanning and infant leather products sub-sectors. On average, Ethiopia produces only 25 million dollars worth of footwear annually. But this is less than 50 percent of the tanning industry’s output.

 

4. Ethiopian Leather in International Trade

 

4.1 Export performance of the tanning sub-sector

 

Given that labor is currently Ethiopia’s most abundant factor, and that activities in the leather sector are relatively labor-intensive, such a significant livestock resource potential provides the opportunity for substantially expanding the leather and leather products output for the external market.

 

Despite this potential, however, Ethiopia has not yet exploited this resource to any appreciable extent. At the outset, animals are not raised for the value of their hides or skins. The supply of hides and skins is constrained by the production of animals for their meat and milk, which is a high-income consumption item. Given the low level of income of the majority of the population, the effective demand for meat is very low. This is despite the fact that meat is the most preferred consumption item in the Ethiopian diet. Second, its export share in meat production is insignificant, hence unable to exploit the external market. Third, cattle in traditional Ethiopian agriculture are also and largely used as a means of production. Fourth, hide recovery is very low for a variety of reasons, including low hide quality caused by a variety of traditional animal husbandry practices as well as poor slaughter treatment. These factors collectively result in low supply of hides and skins relative to the available livestock potential. So Ethiopia’s share in the export market for leather and leather products is from the outset constrained, at least partly, by internal factors associated with inadequate raw material supply.

 

 

 

  Year

 

Production

(M. USD)

                       Export

   Value

(M. USD)

Volume

(M Ton)

As % of

Production

 1995

  78.27

  59.76

     8387

     76.3

 1996

  77.28

  50.81

    7566

     65.7

 1997