Ethiopia… Must Meet [Investors] Half way

Since 1826, Pittards has been making high quality leather in England. The company set foot in Ethiopia in 2009 when it took over the management of the state owned Ethiopian Tannery. Two years later, the company bought the factory and started supplying leather to the four companies under Pittards Products Manufacturing (PPM). EBR’s Ashenafi Endale sat down with Tsedenia Mekbib, managing director at Pittards Ethiopia, to learn more. 

 EBR: How do you evaluate Pittards’ achievements in Ethiopia?

Tsedenia: Pittards had been buying rawhide and skin from Ethiopia since 1909, because it knew the quality of the raw material. In 2009, Pittards agreed to take over the management of the former Ethiopian Tannery Share Company in Modjo. In 2011, Pittards managed to buy the factory when the government privatized it. This was at a time when many western companies were heading to Asian countries such as China. Pittards’ decision however, was to come to Ethiopia—which was cost effective. Starting in 2011, Pittards established four factories in Addis Ababa and created vertical integration in the value chain. The company produces leather garments such as jackets, bags and gloves. Recently, Pittards started producing footwear. The company employs 800 people in Modjo, and another 800 in Addis Ababa.

Since Pittards has accumulated immense experience in the sector, the company is helping Ethiopia by facilitating the transfer of skill, knowledge, and technology. The company now exports USD20 million to USD25 million worth of items per annum.

How much money has Pittards invested in these factories? 

Pittards invested close to USD5 million, total.

What percent of its installed capacity does Pittards utilize? 

The company has an installed capacity of processing 12,000 pieces of sheepskin and 1,000 pieces of cattle hide per day. Our actual production during the initial years of our operation was 50Pct of the installed capacity. Currently, this figure stands at 80Pct as we process 10,000 pieces of sheepskin, and 800 pieces of cattle hide per day.

Was the quality of Ethiopia’s rawhide and skin as advertised?

The main reason the company came to Ethiopia was because the availability of quality hides and skins in highland areas. The sheepskin found in this area has unique substances and features needed to make gloves and other fashionable leather goods.

In reality, Pittards found that the unique quality was highly eroded because of poor handling. This is because the primary focus in Ethiopia is on meat; hides and skins are seen as waste instead of as useful by-products.

Out of the total rawhide and skin supplied to the company, what percentage would you say is defective?

It depends on the location the hide and skin is coming from. If it is from highland areas, up to 80Pct of the hide and skin meets the quality standards. Yet, this is seasonal. The quality deteriorates and the share of defective raw materials reaches over 50Pct during summer because parasites attack the animal skin. You get better quality supply in the dry season that follows January. In terms of availability, there is no problem. We can find 12,000 pieces of hide and skin on a daily basis if necessary.

What are the specific places in the highland and lowland areas that supply good quality hide and skin? 

Hide and skin with clean surfaces and low parasite effect can be found in Gojam, Gonder, and Jimma. Larger surface hide and skins can also be found in Jimma and Shashemene.  There is huge potential in the production of hide and skin in the country but the leather companies are failing to expand their operations to make use of the tanned skins. The critical challenge is the lack of chemicals needed in every value addition process. In Ethiopia, these chemicals are expensive and take a long time to import. There is no local production of chemicals. Even though there was a plan to establish bonded warehousing in the country, it has not happened. We cannot operate at full capacity and undertake expansion projects unless the chemicals reach our factories on time. For instance, Pittards mostly imports chemicals from Spain, Germany and Italy.  But 90Pct of the time, the imported chemicals arrive after much delay.

How many types of chemicals does Pittards import and what is their share of the total production cost?

Close to 53 chemicals are imported for various production levels such as dipping, tanning, finishing, and colouring. The cost of these chemicals constitutes 30Pct of our total production cost while other raw materials constitute 60Pct.

How do you evaluate the demand for Ethiopian leather products in the international market?

Pittards has been around for over 200 years and has globally recognized brands as clients. We have buyers in the United States, the European Union; and countries such as United Kingdom and China. We have strong relationships with leading brands in footwear, and golf and industrial gloves among others. So there is no problem when it comes to demand.  Our main problem is meeting the large orders that come from these countries, on time.

Pittards employs unique technologies because it invests in research and development by creating strong and well integrated relationships with universities, especially with the University of Northampton. This allows the company to produce quality manpower by equipping workers with knowledge, skill, and advanced technology.

In this way, the company develops different technologies and new leather products every year. In addition to manufacturing basic products, the company also produces high-tech and specialized products, like water and fire resistant products, and leather seats for fighter jets. So Pittards has managed to diversify its market coverage.

Does Pittards supply the local market?

Our main target is export. We export 90Pct of our final products, and 10Pct goes to the local market. Shoe factories like Anbessa, Tikur Abay, OK Jamaica and Ramsey use our products to manufacture shoes. We also have an outlet inside Hilton Hotel.

How many orders do you receive from international buyers annually?

It stands around close to 14 million square feet of leather from sheepskin and seven million square feet of leather from cattle hide.

Considering the difficulties in accessing quality raw materials and the growing demand for your products at the international market, how do you see the future?

Although there are problems related to raw materials, slowing operation is not viable because there is great demand in the international market. In addition, there is fierce competition from India, Pakistan, and South East Asian countries. Since the level of industry in Ethiopia is light manufacturing, the availability of skilled manpower, technological advancement, knowledge, and strong work culture impacts our competitive edge in the global market.   However, we have seen accelerated growth in the last six years, despite these challenges. So I see a bright future.

Many foreign companies operating in Ethiopia complain about the lack of skilled manpower in the country. What is your experience in this regard?

Over the years we have established links with Bahir Dar and Kombolcha universities. Every year we take mechanical and electrical graduates from these universities.  Most of the students have good grades and discipline. But because they do not have work experience, we give them training to develop their skills.  I see them become productive and efficient at work, after the training programs. We also send employees who have worked at the company for more than six years to the University of Northampton and other universities. This is because Pittards has long term plans to integrate itself into the local value chain and ultimately replace the entire management with Ethiopians.

There were 50 to 60 expats working at our company in the early days. Italians and Chinese experts trained the local work force on machinery operation and maintenance while experts from the United Kingdom worked on the whole production processing.  They stayed a maximum of one year. Then they transferred everything to Ethiopians. There is no permanent resident expert now. They come only when they are needed.

Do you agree with the government decision to levy export tax on hide, skin, and semi-processed leather products?

The government’s decision is to encourage local value addition, technology advancement, and to create job opportunities and earn more foreign currency. Yet, these targets can only be achieved by making the necessary preparation prior to the decision.  Systems like establishing bonded warehouses to insure quality and sustainable chemical supply should be in place. If these were done, it would be simple for the policy to achieve its target.

Big international companies like the Chinese Huajian are coming into the sector with huge production capacity.

Do you think this will have an effect on the existing companies, for instance, by raising the price of hide and skin, which is cheap at this moment?

The word cheap is relative. The price of hide and skin is directly related to quality most of the time. So considering its quality, the price of hide and skin is not cheap at the moment. Price increment without improvements in quality discourages new investment, as well as final buyers. Therefore, it is better to work on improving quality so that the final products can fetch a better price.  We must keep the balance between supply and demand. It is necessary to make sure there is adequate, good quality, and sustainable input supply for every newcomer in the industry. You must make sure the demand from the incoming companies does not affect existing industries.  Attracting new investment is necessary. But you must be cautious it will not come at a great cost.

How is the price of hide and skin, not considered cheap when goat skin is currently sold for ETB5 to ETB10, while cattle hide fetches less than ETB3 per kilogram? 

If the hide and skin had a clean surface without scars, scratches and parasite effects, I can say the price is cheaper because we can use the full surface area. But, if we buy it cheaper and discharge most of the hide and skin because of quality problems, it becomes expensive. I’d rather buy quality hide and skin at a higher price. The price of hide and skin should be compared with its usable surface area. The usable surface area of hide and skins in Ethiopia is mostly between 40Pct and 50Pct of the total area. In competitive countries like India, this figure is much higher. To say the current price is cheap, the usable surface area must be between 80Pct and 90Pct.  The surface area of the cattle hide found in Ethiopia is 24 square feet; in Latin America, this area is 40 square feet. Hides from Latin America are thick and strong, with clean surfaces; this is favourable for shoe manufacturing. That is why globally renowned shoe makers like Timberland source from there. We only get hide and skin that meet these criteria from a few areas.

Despite having one of the largest livestock populations in the world, Ethiopia is not benefiting from foreign investment in this sector, as much as other countries seem to be. What do you think are the reasons for this?

There are more than 100 million cattle, goat and sheep in Ethiopia. But the livestock resource breeding system is traditional. Had the agricultural sector been modernized, parallel with the mushrooming light manufacturing, it would have met the demand from leather industries, besides fulfilling the growing meat and milk demand from the growing population. Ethiopia needs to modernize the livestock breeding system; for instance, by opening ranches. There is little investment towards this.

Do you have a plan to diversify your investment by establishing a ranch so you can source the best quality hide and skin?

Yes. Self-sufficiency necessary for the sustainability of our company. It simplifies our job and satisfies the needs of our customers. Of course being involved in everything can be a distraction. So we will look for partners.

How do you evaluate the investment climate in Ethiopia?

Because industrialization in Ethiopia is in its infancy, there are challenges, especially in infrastructure and power supply. China was at the same level 25 years ago. I believe industrialization is a process. The challenges we were facing five years ago have improved today. The main thing is sustainability and stability; everything else can come gradually.

Constructing industrial parks and providing incentives is part of the effort underway to attract investment. But there are challenges investors face after arriving here. I believe they can be solved by closely working with the government. Experiences from countries like India, Singapore, and others, can help us. But the country needs to develop its own solutions based on our problems and socio economics. The government should caution every investor not to expect Ethiopia to look like China within days. But we must also improve our work culture, and meet them half way.

To what extent has the recent political unrest and violence affected your business?

Every country has its own challenges. We observed many of our customers were [concerned] when the government declared the State of Emergency last year. And although we were worried, we continued production and exports. We cannot survive as a business if customers lose interest. So we had to discharge our responsibility to build the country’s image, by telling them everything will be fine and bringing them back.

Have you achieved your dream of building Ethiopia’s image by promoting Ethiopia’s leather brands? 

Ethiopian leather has unique feature especially for glove making. [The country] is more known for its sheepskin leather and Pittards has a long-term plan to develop and promote this segment.  We have tried leathers from Sudan and Yemen but only leather from Ethiopian highlands has the unique features we need.

Currently, Pittards sells such leather products with ‘made in Ethiopia’ and ‘Pittards Ethiopia’ tags. We also promote them on our website and through different outlets. The promotion of unique and premium products from Ethiopia is ongoing. Our future plan is to develop the brands and divert the interest of the international buyers towards this unique Ethiopian leather.

What drove you to this sector?

I believe leather can reflect Ethiopia’s culture. I spent most of my life in the United Kingdom. When I decided to come back, I was thinking about how I could promote Ethiopia and build the country’s image using its potential. I received my first degree in chemistry while I was in United Kingdom. Then I studied management and earned my MBA. Now, I integrate the science and management. I use both to solve challenges I face on a daily basis.

6th Year . February 16  – March 15 2018 . No.58


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