Positioning Aba leather industry for global competitiveness

Positioning Aba leather industry for global competitiveness

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Over the years, Aba, the industrial capital of Abia State, South-East Nigeria, has been a hub of creativity and manufacturing. The city is well-known for production of garments, shoes, bags and trunk boxes.

There are over 80,000 players in the leather industry, with some producing shoes, and others making bags and trunk boxes.

The industry is estimated at N120 billion, though key players think it is much more than that.

The Aba leather industry is made up of shoes, trunk boxes and belts. It provides employment for tens of thousands of people, with many specialising in different stages of production such as designing, patterning, cutting, skiving, stitching, peeling and finishing. It is made up of clusters such as Powerline, Imo Avenue, Bakassi, Aba North Shoe Plaza, Omemma Traders and Workers, ATE Bag, and Ochendo Industrial Market, comprising input suppliers, among others.

Aba is indubitably a shoes’ paradise, producing 48 million pairs of shoes and slippers annually, according to BusinessDay calculations.

Available data show that China produces 12.6 billion pairs of leather shoes annually, while Vietnam produces 760 million pairs. Indonesia produces 660 million pairs, while Italy produces 205 million of the same commodity annually.

From 2013 to 2017 show that the top four leather shoe producing countries were China, India, Vietnam, Indonesia and Brazil, according to a research report conducted by Statista.

In the top ten global ranking of leather shoe producing countries, Italy occupies the tenth position. China, Vietnam and Indonesia make it to the top ten producing countries and top ten exporting countries.

The leading exporting countries of China, Italy, Vietnam, Germany and Indonesia have laid substantial foundations to the shoe production and exports industry a way of boosting their economies.

China exports shoes and leather valued at $9.1 billion annually, while Vietnam’s export is estimated at $6 billion. Indonesia, on the other hand, exports shoes worth $2.6 billion.

However, there is currently no record of export done by Aba shoemakers and other players in the leather industry.

Industry experts say the first step to making Aba a globally competitive hub is to track the leather products that leave the country from the city.

Secondly, many shoemakers are not yet in the global map as they are not seen even on the internet.

It is only recently that the likes of Gada Africa, Jiji.ng and abanaijamade.com.ng, among others, have come in to  handle marketing and distribution of shoes, including belts and trunk boxes. Online shops take 20 to 50 percent cuts from sellers, BusinessDay gathered from the shoe makers.

However, marketing and distribution are still a big challenge. An average Aba pair of shoes costs $7, but China goes as low as $5 on platforms like Alibaba.

Interest rate in Vietnam is about 8 percent, while Indonesia’s is around 5.75 percent. China is less than 6 percent and so are many shoe exporting countries.

In Nigeria, Monetary Policy Rate is 13.5 percent and banks lend as high as 20 to 30 percent. In many cases, deposit money banks are not even interested in funding Aba shoes because the financial institutions believe that the players are largely informal and the majority do not have business plans. More so, it is a fact that many players are not even registered at the Corporate Affairs Commission. Analysts suggest that the government and the Nigerian Export Promotion Council begin to intensify efforts to formalise this industry.

Due to lack of funds, many players use crude machines and do much of their work by human labour.

Ken Anyanwu, secretary of the Association of Leather and Allied Industrialists of Nigeria (ALAN), who produced Nigerian armed forces shoes in 2016, told BusinessDAY recently in Aba that the industry suffers from lack of access to credit.

“This is where the problem lies. We in Aba have no good machines,” Anyanwu of ALAIN said.

“The Bank of Industry has done its best by giving some of us N300,000 each, but it takes $250,000 to N750,000 to set up a standard shoe factory. So, what can N300,000 do when the industry is capital intensive?” he asked.

According to the Manufacturers Association of Nigeria (MAN), the sector got leans from banks at over 22 percent in 2018.

But this is not the case in many sub-Saharan African countries. The current repo rate (central bank lending rate to commercial banks) in South Africa is 6.5 percent while the prime lending rate (lending rate to customers) is 10 percent.

Kenya Central Bank’s monetary policy committee cut the determining bank rate in late July to 9 per cent from 9.5 per cent.

BusinessDay gathered that Kenyans now borrow at an interest of 13 per cent (as against from 13.5 percent  earlier) in line with the interest rate capping rule that limits lending rates to 4 percentage points above the CBR.

Zambia is one of the emerging countries in SSA and its central bank cut benchmark lending rate by 50 basis points to 9.75 percent in February 2018, citing lower consumer inflation and weaker economic growth, according to Reuters.

Experts believe that only a single-digit rate will spur the leather industry in Aba. MAN wants the Bank of Industry recapitalised to enable it lend more to the industrial sector. They equally urge the Development Bank of Nigeria to lend at single-digits, rather than double digits.

Moreover, players, especially the big players, struggle to get inputs from the local market. They can’t buy animal skins locally because tanneries process and sell to make foreign exchange. This is purely a business case, but big players are hard hit by dollar scarcity, like the one experienced in 2016 and 2017.

“What happens is that the tanneries in Kano and Kaduna process animal skins and sell them as leather in the global market, earning foreign exchange,” said Chinatu Nwagbara, coordinator of Made-in-Aba Project, who produced shoes for Olusegun Obasanjo in 2016.

“So we go to China and other countries to buy. Sometimes, we buy our products and re-import,” he said.

Apart from animal skins, they also cannot buy quality synthetic leather and adhesives because of their high prices in the global market.

Experts call for backward integration in the industry to make access to inputs easy and reduce exposure to the foreign exchange.




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