A long-term Egyptian recovery in place since currency devaluation in 2016 can resume after the war between Russia and Ukraine ends, Mathias Althoff, ... partner at Swedish frontier markets investor Tundra Fonder, tells The Africa Report.
The sector, which is largely dominated by the northern part of the country, attracted over $645m in the last quarter of 2021 alone.
This is important not only because the sector has attracted very little foreign investment since 2013 when the report started covering the tanning sector, but also because it may be a boon for the northern states, which have traditionally received little to no investment over the years.
In the last quarter of 2021, out of a total of 36 states, 24 attracted zero investments, 17 of which are in the north.
Nigeria’s top five capital-receiving sectors, Q4 2021
|Sector/Name of Business||Capital Imported ($million)|
Source: NBS Nigerian Capital Importation Report (Q4 2021)
In 2019, President Muhammadu Buhari vowed to lift 100 million Nigerians out of poverty in 10 years. A productive and viable tanning sector may therefore be low-hanging fruit, a tool to reduce poverty and unemployment – especially in the northern part of the country, where according to the World Bank, 87% of Nigeria’s poor people live.
Reasons for surge
The Director-General of Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, tells The Africa Report that the chamber has noted the attraction of foreign investors to the leather tanning industry, especially in the last quarter of 2021.
She explains that Nigerian leather ranks among the highest quality globally and are competitively priced, attracting importers from Europe and Asia.
“Kano, the hub of leather products in Nigeria, is still considered relatively peaceful to accommodate industries and manufacturers. The proximity to raw materials in that region also encourages foreign investors to set up industrial tanneries to process leather and export it,” says Dr Almona.
Kano is home to some of the oldest tanneries in the country, some spanning generations. GB Tannery, for example, is a third-generation family business that has been in operation for over 100 years.
How this Nigerian tannery has supplied the world's biggest luxury brands. GB Tannery CEO, Mustapha Tijjani Sule Garo, talks to @CNNAfrica about the legacy of this century-old company and the importance of keeping the business in the family. https://t.co/FIlzgPg8JJ
— Mohammed BELLO 🇳🇬 (@Pastoralist1) January 23, 2022
Some of the newcomers, such as Z Tannery, have been running for more than 10 years, under handlers with decades of experience in the market.
The state has been relatively peaceful compared to its counterparts like Kaduna in the northwest region of Nigeria where there are incidents of banditry, inter-communal clashes and, most recently, terrorism.
The LCCI boss also implied that one of the reasons for the renewed interest in the country’s tanning industry is the shift by major athletic footwear makers to leather manufacturing.
Shakirudeen Taiwo, an economist at the Nigerian Economic Summit Group (NESG), a private sector-led think-tank and policy advocacy group, tells The Africa Report that the new spike in foreign investment inflow into the sector can be traced to the actions of foreign companies, which decided to set up shop domestically due to constraints around Nigeria’s foreign exchange administration and a ban on leather imports by President Buhari to boost local leather production.
“A good example is the Sokoto government’s partnership with the Asian-based Simple Factory Group to establish a tannery and shoemaking factory in the state in 2019,” he says. “But the investment couldn’t materialise until 2021 due to Covid-19. There are many others like this and the result is what you are seeing in the capital importation report.”
Shakirudeen thinks that a potential impact of a viable tanning industry is a refocused livestock production system in Nigeria. He believes that the current model, which largely rears livestock for consumption, can be repurposed to create a dedicated resource reservoir for tanning.
This can incentivise large-scale ranching, which could in turn end the herder-farmer clashes in the country.
This is not to say it is all positive. Joseph (not his real name), who does not want to be named because he is well known by the authorities, says his tannery, like another “five to six functioning tanneries in Kano,” has not been doing well for a while.
He says the company’s employees were reduced from over 500 to 107. He admits that Covid-19 dealt a heavy blow to the sector, but the issues are much bigger than that and have been lingering for a while.
A major challenge facing the sector, he says, is the lack of access to low-interest finance. He says the high interests charged on naira loans made them opt for dollar loans. This turned out to be a disaster due to the country’s fluctuating foreign exchange rate over the years.
The dollar was at N150 ($0.36) when the loans were collected, but now the exchange rate is over N580 ($1.40) at the parallel market, Joseph says.
The situation was further worsened by the government’s refusal to pay the “incentives” promised to them since 2013. He says the government initiated a foreign exchange rebate policy, an assurance to pay non-oil exporters, including tannery operators, 15% of the foreign exchange they brought into the country via official windows.
Operating Guidelines for RT200 Non-Oil Export Proceeds Repatriation Rebate Scheme.
— Central Bank of Nigeria (@cenbank) February 28, 2022
Earlier this year, the CBN released new guidelines for the foreign exchange rebate policy, promising to pay N65 every quarter to non-oil exporters for every $1 they bring into the country through official windows. The policy, dubbed RX200 Non-Oil Export Proceeds Repatriation Rebate Scheme, is part of the CBN’s plans to stabilise the country’s FX regime by boosting its foreign reserves to $200bn and diversifying the economy by stimulating the non-oil sectors.
The apex bank claimed that it had issued some N3.5bn as payment for the first quarter of this year, but Joseph says businesses are yet to receive it and he fears the situation may end up like previous schemes.
He thinks the sector is gradually crashing in the region and can only be revived if these issues are addressed, especially access to low-interest finance.
Takes two to tan goat
Shakirudeen believes that public-private partnerships can transform the sector – but that is a second step.
The sector has enormous yet latent potential, but foreign capital won’t flow in at scale unless something is done to remove bottlenecks and make the potential apparent. To this end, he suggests that the government should first embark on what he calls “catalytic investment” in the sector to reengineer the technology and boost productivity.
“Public-private partnerships (PPPs) and impact investing will then follow because the potential would have become obvious and the constraints would be minimal,” he says.
Although the north has a comparative advantage over tan due to its access to raw materials, Dr Almona believes that there is a need to link them to other industrial parts of the country that have also developed certain comparative advantages along the leather value chain.
She adds that for that to happen, the country must:
- Provide a conducive environment where foreign investors and local processors can thrive. “We should produce locally for the domestic consumer market (foreign exchange savings) and export for foreign exchange earnings. This will enable us to become the manufacturing hub for ECOWAS and Africa. Becoming the manufacturing hub can be supported through the establishment of special industrial leather manufacturing clusters across the country. This will also create more job opportunities.”
- Dedicate funds for special interventions to boost leather production across the country. The funds will support the local businesses to obtain the necessary equipment to process leather into semi and final leather products.
- Adequately fund the Nigerian Institute of Leather and Science Technology, Zaria to produce actionable research that can support innovation in the sector.
- Launch more campaigns against the use of leather as meat in Nigeria to save the skin for leather products.
This will help build a viable and sustainable leather industry, says Dr Almona, one that she believes will create quality jobs and have an impact across the country.
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