INVESTING IN UGANDA LEATHER SECTOR

CONTENTS

SECTOR OVERVIEW.................................................................................................................................................... 2

MARKETS...................................................................................................................................................................... 14

UGANDA'S COMPETITIVE ADVANTAGE............................................................................................................ 16

INVESTMENT OPPORTUNITIES............................................................................................................................. 18

INVESTMENT INCENTIVES...................................................................................................................................... 20

ESSENTIAL CONTACTS........................................................................................................................................... 23

INVESTING IN UGANDA LEATHER SECTOR

SECTOR OVERVIEW

Introduction

· The leather industry in Uganda has a big potential to thrive. Uganda is well endowed with natural resources that put it at a competitive advantage.

· Hides and skins, the raw materials for leather, are by-products of the meat industry. They are derived from either urban or rural slaughters of cattle, sheep, goats and recently fish and crocodiles.

· With a population of 5.6 million cattle, l.3 million sheep and 4 million goats (SR Study- MAAIF, 1999) and off-take rates in the range of 15-17% for cattle, 25 -35% for goats and sheep, the potential raw material available in Uganda is about 1 million cattle hides and 2 million goat/sheep skins.

· Uganda’s leather is of high quality and texture and of heavy substance. The industry has tremendous potential for foreign exchange earnings, creating employment and has the capacity to attract tremendous and profitable foreign investment.

· Today most of the leather (88%) is exported in raw form, mainly air-dried and some, wet-salted. The existing leather capacity is limited to only one tannery (for hides and skins from cattle, goats and sheep) with an installed capacity of 150,000 hides and 500,000 skins per year, and one fish skin tannery.

· The industrial potential for these raw materials remains largely untapped. A lot of investment opportunities exist for entrepreneurs interested in establishing tanning, leather processing and foot wear units. Therefore Uganda has a reliable resource base for a vibrant leather industry.

Animal Resource And Raw Material Availability

Animal resource

Uganda has a viable livestock resource base to sustain the growing leather industry. The livestock population has been growing steadily at an annual rate of 3%. Favourable climatic conditions and fertile soils endow the country with potential high livestock carrying capacity and productivity. The livestock population trend for the period 1995-1999 is shown in figure 1.

Source: Ministry of Agriculture, Animal Industry and Fisheries (MAAIF)

Uganda Bureau of Statistics

Fish

Fish production in Uganda has been increasing and peaked at 240,000 tons in 1990. Fish farming is also on the increase giving Uganda a reliable resource base for fish skin. Two species, Nile Perch and Tilapia combined form 90% of the fish catch and are of most commercial value in Uganda. The source of the raw material for fish skins is therefore assured. Uganda fish Tannery Ltd is currently the only tannery processing fish skins.

Crocodile

Crocodile farming started in Uganda in the 1980’s but is yet to pick up. There is only one crocodile farm -Uganda Crocodile Ltd with 4,000 crocodiles.

Raw materials and quality

Uganda bovine hides have a distinct advantage because of their high texture and heavy substance that makes them suitable for production of heavy upper leather and vegetable tanned sole leather.

Sixty percent (60%) of the cattle slaughters and 90% of the goat and sheep slaughters occur in rural areas. The only preservation method availble in these areas is sun drying that leads to the production of fair to good grades of hides and skins.

The main slaughterhouses are located in urban centres of Kampala (3) Jinja (1) Mukono (1) Masaka (1) Mbarara (1). To reduce large scale movement of livestock from upcountry production areas to the slaughter houses, Government encourages the establishment of slaughter houses countrywide.

Hides/skins produced in the main slaughter houses are traded as fresh stock and transported directly to the tanneries for processing. Processing of fresh hides guarantees high quality leather. To further improve on this quality, there is need to set up additional slaughter facilities and drying sheds in rural areas throughout the country.

Hides and skins production trends

Production of hides and skins has been increasing as shown in table 1.

Table 1:The hides and skins production trends from 1990 -1996

Year	Hides (pieces)	Goat skins (pieces)	Sheep skins (pieces
1990	380,788	706,174	88,723
1991	358,288	621,059	75,723
1992	435,593	649,048	132,157
1993	814,567	976,473	181,380
1994	793,181	2,173,000	229,000
1995	855,000	1,946,169	269,047
1996	1,151,000	1,404,750	369,116
1997	928,200	1,647,500	294,000
1998	960,670	1,799,700	304,000
1999	989,400	1,854,000	413,200
2000	1,129,680	-	-

Source: Annual Reports, 1996 and 1997 ; Department of Animal Production &Marketing, MAAIF

Fish skin

Over the last 5 years investment in fish processing has been on the increase and more than 12 companies have set up plants for fish processing and export. However there is only one processing plant in the country, Uganda Fish Tannery Ltd, processing leather from the Nile Perch skin. The the market response for fish skin has been positive.

Crocodile skin

Uganda has a CITES export quota of 2,500 crocodile skins annually granted in 1992 which has never been met. Exports of crocodile hides and skins are neglible as indicated in table 8 .

Development Trends

There is growing recognition that the leather industry in Uganda has great economic potential. The Government of Uganda is committed to encourage private sector participation in leather development, in line with liberalisation and privatisation policies.

Hides and skins improvement

To improve the quality and grading of the raw materials, the Government of Austria through United Nations Industrial Development Organisation (UNIDO) and Uganda Leather and Allied Industries Association (ULAIA), gave quality improvement assistance to Uganda. The assitance covered improved flaying, handeling and preservation. It has upgraded the selection system by grades and increased the quantity of salted hides, much wanted on international markets.

Austrian funding provided technical and capital assistance in:

· improvement of slaughter facilities for improved production of hides/skins. Kamuli and Iganga districts each had a new abattoir constructed in 1995.

· enhanced production technologies for the tanning industry.

· upgrading existing tannery waste treatment plants of Leather Industries of Uganda (LIU) and training personnel to upgrade the units.

· broad based training programmes for butchers, flayers, hides/skins dealers and manufacturers of leather goods.

· financially supporting the local manufacture of leather and leather products.

Resulting from this assistance:

· None collection of hides and skins has been reduced from 30% in 1994 to 10% in 1999.

· ULAIA has assisted in buying proper flaying knives and machine units.

· ULAIA funds an incentive bonus scheme of 500/= and 300/= for first and second grade hide respectively.

ULAIA also operates a series of depots where green hides are processed and grading carried out to approved standards. This is in an effort to convince the hides/skins dealers to abandon the sun-dried stock and encourage preparation of salted hides/skins for direct processing. Green hides of a high standard estimated at 2% of the hide production are now reaching the market. This could rise depending on market prices and wide application of the ULAIA incentive scheme that encourages green salting

The quality improvement effort of hides and skins has also been extended to the fish and crocodile skin industry. Previously, fish skins were thrown away but are now tanned by the Uganda Fish Skin Tannery set up with the encouragement of UNIDO.

Leather tanning

The tanning industry in Uganda is at an infant stage and largely unexploited. Only two tanneries are operational. Leather Industries of Uganda (LIU) for hides and skins and Uganda Fish Skin Tannery for processing fish skins.

LIU has a capacity for 700 hides and 2500 skins per day. Production stands at 160 hides and a few hundred goat skins of wet blue, 100,000 square ft per month of finished leather mainly for export and about 1000 hides per month of finished leather for the domestic market.

Masaka Tannery Ltd, half way between Kampala and Mbarara with a capacity of 600 hides and 1500 skins per day will start operating soon

Table2: Major operating Tanneries in Uganda

Name and town location	Products	Installed Capacity	Present capacity	Employment No
Uganda Leather Industries, Jinja	Wet blue and finished leather	700 hides per day 2,500 skins per day	160 hides per day	120
Uganda Fish Skin Tannery Ltd, Jinja	Crust and finished skin from Nile Perch	250,000 skins p.a	-	25
Tannery & Leather Industries of Uganda, Masaka	Wet blue Hides/skins	600 hides per day & 1500 skins per day.	To be commissioned in 2001	130.

Source: Marketing Division; Department of Animal Production & Marketing, MAAIF, 2001

The major constraints affecting the tanning industry are, environmental impact issues and high cost of establishment of tanneries particularly the pollution treatment plants.

At present leather processing is done mostly up to wet blue stage with limited production of finished leather. This situation will only change with the development of local leather products industries (Footwear and leather goods). A substantial amount of unprocessed hides and skins mostly air dried, are exported. The exported numbers of hides and skins have shown an upward trend as indicated in tables 3 and 4. The downward trend for wet blue hides and skins in 1998, as seen in table 4, was due to the global recession experienced by the leather industry .

Table 3: Export of raw hides/skins (salted and dried) in tons 1991-2000

Year	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000
Tons	2,798	3,679	5,781	6,955	4,359	4,916	8,541	11,552	6,351	12,875

Source: Uganda Leather and Allied Industries Association, Leather Profile; 1999

Dept. of Animal Production and Marketing MAAIF (Feb 2001)

Table 4: Export of wet blue hides/skins in tons & its value for 1994-2000

Year	1994	1995	1996	1997	1998	1999	2000
Tons	19	36	276	1127	202	106	412
USh (millions)	31	88	480	2094	355	185	742

Source: Uganda Leather and Allied Industries Association, Leather Profile, 1999

Dept. of Animal Production and Marketing MAAIF (Feb 2001)

Uganda needs to focus on production of good quality finished and ultimately higher value added leather products through the use of modern machinery and training of personnel.

Leather goods manufacture

Footwear

Table 5 shows the major footwear manufacturers in Uganda.

Table 5: Major Footwear manufacturers in Uganda:

Name of Firm	Products	Installed Capacity/Year	Employment
Uganda Bata Shoe Co.	Leather & Synthetic Footwear	Five Million pairs of assorted products	110
Uganda Shoe Co.	Gents, Ladies, Children and Service Boots.	15,000 pairs of leather shoes	8
Simba Footwear Ltd	Gents, Ladies & Service Boots.	75,000 pairs of leather footwear.	20

Source: Uganda Leather and Allied Industries Association, Leather Profile; 1999

Uganda has:

· Three large shoe factories, Bata Shoe Co. Ltd, the only large footwear producer with a modern plant, and Uganda Shoe Co. Ltd and Simba Footwear.

· Four small capacity ones and about 160 small artisan footwear enterprises producing mixed range of foot wear.

· One training centre, The Training and Common Facility Centre (TCFC), which also produces footwear.

Bata Shoe Co. Ltd

Bata Shoe Co. Ltd in Kampala produces 250 leather pairs per day, 3000 rubber and plastic pairs and 8000 open sandals. Almost all are sold in Uganda with a few going to the Congo and Rwanda. Limited supply of leather has constrianed Bata’s expansion.

Uganda Shoe Co. Ltd

This company was founded over 60 years ago. It fell in the doldrums but has made phenomenon progress since 1997. It used to make general lines of footwear but competition from second hand shoes is a major probem. The factory had confined itself to the production of veldschoens, but the price of soles went up and resorted to making security and miners boots.

The plant capacity is 100 pairs per day each of veldeschoens and safety foot wear, and the primary effort is directed at getting on top of enormous demand for the latter. An upcoming legislation requiring industrial workers to wear protective boots will increase the demand for safety foot wear.

Foot wear and other leather products

People footwear and Gebneral Enterprises

This small scale enterprises produces 25 pais per day, some belts and sachets.

Expert shoe makers and handbag

It produces 45 pairs per day.

In addition to foot wear, the above small scale enterprises are engaged in the production of handcrafts, handbags, belts, sachets, key holders and balls.

Universal Sports and Equator sports Limited

The sports balls market is estimated at 700,000 balls per year (ULAIA Leather profile; 1999) but the two companies combined produce only 80 balls per day.

The secondary schools’ annual demand is 1,600 balls and that for primary schools is over 15,000 balls.

Training and Common Facility Centre (TCFC)

The Austrian Government funded Training and Common Facility Centre (TCFC) set up by the ULAIA in 1997 has helped in improving Ugandan shoes quality. The centre trains in all aspects of shoe making and provides extension services to small shoe and leather goods enterprises. The TCFC also manufactures shoes under the brand name “Crane Shoes” and has a reservoir of trained workers. TCFC accepts orders from 5 to 200 pairs, with sub contract arrangements to small workshops and plants which the centre has upgraded. If a workshop does not have the equipment necessary, it is obliged to take staff to the TCFC and use the equipment. The “Crane shoes” quality standard has established a reputation in Uganda.

The centre delivers materials and components, carries out clicking and cuts belts, and provides on site advice, supervision and instruction. Upcoming developments include among others, a screen printing section in the leather goods department, hiring out of lasts (tools) and bulk purchase of materials and components on behalf of small scale plants. The centre is to expand.

Shoe and leather goods small scale enterprises

There are many small scale leather enterprises in Uganda. Output is often surprisingly good despite what are often rudimentally operating conditions. UNIDO has helped in supplying essential machines in deserving cases, through a revolving fund, but demand far exceeds the agency resources. Most of the proprietors and employees have received training from the TCFC. This group comprising about 160 the cottage manufacturers, each producing 1-3 pairs per day are located in various parts of the country.

Trade

Trade specifications of raw hides and skins take into account the distinction between hides and skins, their categories of weight and the criteria of quality (grade) distinctions. All these effect the price paid for hides and skins.

Categories of hides and skins by weight and length

In Uganda, hides and skins are classified according to weight and length. The average weights of Hides and Skins are given in table 6.

Table 6: Average weights of hides and skins

Type	Average weight per piece (kg)