Tuesday, November 11, 2008

Ethiopia Eyes a Big Role in Global Leather Industry

By Phillip Kurata

Well-heeled shoppers in New York, Paris, Tokyo and other global fashion centers are beginning to see a new name, Taytu, beside familiar Guccis and Chanels among the ladies' handbags in exclusive shops.

Ethiopia, home to the largest livestock population in Africa, produces and exports millions of hides annually, mainly in the form of semiprocessed leather. Eyeing higher profits, Ethiopia is moving to develop its own trademarked leather products. The U.S. Agency for International Development (USAID) is helping Ethiopia develop its leather processing and branding sector; the United Nations Industrial Development Organization (UNIDO) and other development groups are also assisting.

"The Ethiopian government supports an export sector of high-value, finished leather products, not semiprocessed leather," said Taytu Trade and Industry Managing Director Salpi Nalbandian.

Taytu markets the products of 12 Ethiopian manufacturers of leather goods. The consortium was formed in 2006, when the Ethiopian government identified the leather industry as a potentially lucrative sector.

For example, Cabretta leather, prized for golf gloves, because of its strength and elasticity, brings the Ethiopian herder $2 for the skin needed for one glove, $5 to the exporter of the leather, and $25 to the retailer of a glove manufactured outside of Ethiopia.

Another Ethiopian leather product, the Bati goat skin, is reputed to produce the softest, finest suede. Ethiopian herders make about $10 for the skin need to make one suede coat. The leather exporter collects about $40-$50 after tanning. The coat, which is manufactured outside Ethiopia, will bring at least $400 to the retailer, according to Light Years IP, a group that helps developing countries spur growth through the use of intellectual property rights.

Taytu handbags sold by the upscale Barneys New York fetch prices around $1,500; one particular Taytu handbag design is priced at $22,000, according to the company's Web site. Taytu made contact with Barneys and other high-end foreign retailers by participating in trade shows in New York, Paris and Los Angeles. Theory, another high-end retailer of clothing and accessories, is considering marketing Taytu bags, according to Nalbandian.

Entering the international market is difficult, and Nalbandian credits USAID and UNIDO for helping to make that happen.

"It involves a long chain of work, getting the raw materials, meeting delivery deadlines, correspondence, understanding the work and business conditions abroad. We must win the confidence and trust of foreign buyers," she said. She said UNIDO provided expertise in design and manufacturing and USAID, in marketing. "They have guided Ethiopia into the high-end market niche," she said. "They have advised that Ethiopia should not compete with China and India in producing for the mass market."

Taytu's sales revenues have risen from $25,000 in 2006, when the consortium was formed, to $85,000 in the last fiscal year. Five months into the current fiscal year, which runs from July to June, Taytu has received about $70,000 in foreign orders. Sales from its shop in Addis Ababa, Ethiopia's capital, also are rising sharply as a result of Taytu's entry into foreign markets.

"When local newspapers wrote about Taytu's success in New York and other cities, Ethiopian consumers became excited about the Taytu name," said Teshome Kebede Redie, a USAID contractor working in the Ethiopian leather sector.

Nalbandian said as Taytu profits rise, it will wean itself from USAID financial support. USAID pays the Taytu shop rent in Addis Ababa and the salaries of the shop staff. The agency also bought the computers and furniture in the Taytu shop.

In another attempt to extract potential leather profits, one Ethiopian leather company, Jonzo PLC, plans to enter the shoe business, which absorbs 60 percent of the world's leather output. Now, Jonzo specializes in leather garments and handbags, some of which are marketed by Taytu.

"Footwear is a big opportunity for Ethiopia," said Jonzo General Manager Solomon Yesuf. He said he expects Jonzo to start shipping footwear to the St. Louis-based Brown Shoe Company in 2009.

USAID's Redie said that many shoe companies in the United States, Germany and Italy are looking away from China to shoe suppliers in other regions because of rising prices that Chinese manufacturers are charging.

Jonzo is building a shoe factory on the outskirts of Addis Ababa and expects to have the capacity to make 55,000 pairs a day by the end of 2009. Its goal is to export half the production. The Ethiopian government facilitates the growth of the shoe industry by providing customs facilities, bonded warehouses and concessionary rates for land rental at the factory site.

Getting the financing for expansion from Ethiopian banks has presented a challenge for Jonzo. But USAID has played a helpful role by offering to guarantee 50 percent of the loans as an enticement for an Ethiopian bank to put up the other 50 percent.