High interest, port congestion, taxation, endangering Nigeria leather export

By PHILLIP ISAKPA, IN LAGOS & JACOB AJAKAIYE, IN KANO

Nigeria’s leather export business is in serious danger of running into a sudden halt following threats to the industry by a combination of high interest rates, congestion at the ports, multiple taxation and inconsistencies in the implementation of policies that were designed to ramp up the country’s leather export numbers.

The danger being faced by the sector comes in what appears to be against the run of play, especially when Nigeria is pushing for diversification of its economy and looking to increase non-oil sources for export revenues to generate foreign exchange.

It is also coming against the backdrop of what is believed to be the advantageous rating that Nigeria appears to enjoy in the global leather production club. But prevailing realities now indicate diminishing activity in the leather sector across the country in recent times, a development which industry experts believe is already reducing the contribution of the country to the international leather market.

The implication of the diminishing productive activity in the sector, the experts say, is also having grave consequences for return on investment (ROI), as well as  job creation, for the companies playing in the sector  .

Investigations conducted by Business A.M. over the weekend in Kano, which is known to be the hub for leather activity in West Africa, revealed that the chief factors driving low activity in the sector are the high cost of borrowing, the on-going congestion being experienced at the nation sea ports, multiple taxation, and inconsistencies in the implementation of policies, including some of the special incentive packages conceived by the federal government to stimulate the growth of the sector.     

As a result of these factors, the number of leather processing plants in the country, which data obtained from the office of the Tanners Council of Nigeria put in the range of 38 to 40 before now, has gone down to just about six (6).

Business A.M.’s on-the-spot assessment of production activity in some of the few remaining tanneries that are still in operation in the commercial city of Kano, which used to be home to the largest number of such plants, shows that they are just managing to keep their production plants on.

Commenting on the development, a Nigerian-Lebanese (who did not want his name and that of his company in print), who owns a tannery company in Challawa Industrial Estate in Kano State, hinted that the leather production activity in the country, is facing a lot of challenges, despite being the second biggest source of foreign exchange earner for the country, after oil and gas.

The industrialist, who disclosed that he has been in the business of leather processing for over 20 years, said that in recent times, he has been forced to close down his other leather processing plants, because of the difficulties associated with high cost of production, and the Covid pandemic.

“The biggest of all the challenges hampering the growth of the Nigerian Leather Sector at the moment, is the high cost of borrowing being experienced by manufacturers in the country. You know that leather processing requires a lot of money, and presently, if you approach the commercial banks for a facility for production, they charge between 26 and 30 percent as interest. Tell me, how can one remain in business when he needs to pay this kind of interest?” He asked.

The industrialist disclosed that the problem of high interest rate is made worse by the fact that accessing a loan facility from federal government owned bank designated to support industries, such as Nigerian Export Import Bank (NEXIM) and the Bank of Industry (BoI), at one digit interest rate, still requires going through the commercial banks to get the loan delivered to you. “The banks will tell you that they can’t guarantee the loan as they are required to do, so you will be unable to access the facility,” he added.

He explained that he has facilities worth over N2 billion from federal government owned banks that he cannot access as a result of this condition, adding that in order to keep his operation going he has to source whatever money he requires from the commercial banks.  “This is the situation that we are facing,” said the industrialist.             

Leather process companies are also said to be faced with congestion at the sea ports. As a perishable commodity that is usually bulky, and being an export material, leather is mostly transported via the sea ports to the countries where it is in demand. But leather exporters say their goods wait for up to six months in Lagos, before they can be shipped out.

“If we have to wait for six months for what we produced to be taken out, it implies that we have to wait for another six months for the next production to take place. This is really bad for our kind of business,” the manufacturer lamented.                                                     

On the issue of multiple taxation, the industrialist disclosed that in spite of what he described as the ‘depressing situation’ under which they are operating, they are usually visited daily by agents of the Federal Inland Revenue Service (FIRS), and Kano State Internal Revenue Service, demanding for payment for all kinds of taxes, not minding what they are going through.           

“In the midst of all these challenges, the federal government has made commendable moves to boost activities in the sector, such as the introduction of the Export Expansion Grant (EGG), but the way and manner that the incentive is being implemented is not helping the matter at hand. You will not believe it, EGGs earned by companies in the sector, from 2012 to 2017, were only paid in 2018. The implication of this was that earnings when paid had been eaten up by interest rate and inflation,” he lamented.

He suggested that the government look into these issues so that the leather sector can become active contributors to the revenue growth and the economic development of the country as desired.

But John Isemede, a highly regarded value chain and trade expert, told Business A.M. in Lagos that the issues of the sector have a much broader dimension when put through a value-chain examination, chief of which he said was the lack of coordination, leading him to call for the reintroduction of commodities boards.

In a joint presentation with William Ezeagu, another value chain expert, at a National Quality Infrastructure Project for Nigeria workshop, under the auspices of the United Nations Industrial Development Organisation (UNIDO), the European Union (EU) and the Federal Ministry of Trade and Investment, Isemede located problems along the three levels – upstream, midstream and downstream – on the value chain of skin to leather products designed for local, regional and export markets.

But focusing on the downstream level, which captures export and the threat it faces with regards to Nigeria’s leather, Isemede and Ezeagu identified the broader problems of the sector to include lack of knowledge of the global market terrain and foreign requirements; exporting leather as produce without traceability and no stamp of authority by any agency or institution; selling as produce without real marketing activities in terms of value addition; poor methods of skins collection to the production of leather; no real testing, inspection and certification by institutions; weak guaranties by laboratories and assistance on value addition; leather can’t be traced back to the source, before and after export, among many other factors.

They, therefore, called for product branding and identification, noting that one million pairs of shoes are exported informally weekly without records.

Isemede also told Business A.M. that there was no protection in the leather production value chain, adding that specific government agencies should be doing more than staying back in their offices expecting transformation to take place in the quest by Nigeria to export high quantities of leather.

Meanwhile, available data indicate that the leather processing companies, which have a combined capacity of providing direct employment for close to a million workers, is at present employing less than 10,000 people.

About seven million hide and skins generated from cows, goats, horses, donkeys, and others are produced in Nigeria annually, with  most of them being exported in a semi-processed form (Wet Blue) to  countries such as Italy, China, France, and others, where they are used for the production of shoes, bags, belts, among other items.