«Subsector Assessment of the Nigerian Hides and Skins Industry Prepared by: Chemonics International Inc. 1133 20th Street NW Washington, DC 20036 ...»
A.1.c. Export Expansion Grant Scheme The Export Expansion Grant Scheme provides for cash inducement of exporter who has exported a minimum of N500, 000 (five hundred thousand Naira) worth of processed products. Exporters of processed products initially received a 4% rebate, which, as of 2002, has been increased to 20%.
This scheme was discussed most often by the exporters’ interview. Due to the 6-8 month delay in payment, there is a secondary market for the Duty Credit Certificates. The Certificates are essentially cash, to be collected eventually from the Government. Usually the exporters sell these certificates to importers through the banks at a 10%.
• Participation in training courses, symposia, and seminars in all expects of export promotion
• Advertising and publicity campaigns in abroad
• Export market research
• Product design and consultancy
• Participation in trade fairs, missions
• Cost of collecting trade information and
• Backing up the development of export oriented industries Also the Nigerian Export Council meets regularly with exporters to discuss, develop and improve new incentives A.2. The Nigerian Export-Import Bank (NEXIM) NEXIM was established by the Federal Government of Nigeria by Decree 38 of 1991 to replace the defunct Nigerian Export Credit Guarantee and Insurance Corporation with the main objective of providing a commercially oriented and export-stimulating institution that is committed to bringing about export-led recovery as well as a culture of self-inspired and sustained exporting in Nigeria.
The bank was established to provide, among others: credit in local currency to support Nigerian exports; export credit guarantee and export credit insurance; domestic credit insurance when such a facility will help export; credit insurance in respect of external trade, transit trade and entrepot trade; and investment guarantees and investment insurance facilities. NEXIM maintains a foreign exchange revolving fund for lending to exporters who need to import foreign inputs; raw materials and packaging materials to help export production and a trade information system to support export business. NEXIM also buys and sells foreign exchange.
Presently, NEXIM is mainly involved in the production of financial and risk bearing services, market information export education and advisory services, to mention a few. NEXIM has emerged as the predominant source of short-term trade financing provided to the export sector. The major
financial facilities offered by NEXIM in support of non-oil export include:
A.2.a. Rediscounting and Refinancing Facility (RRF):
This helps banks to provide pre and post shipment finance in local currency to support non-oil exports. While the refinancing scheme provides a bank with credit of up to one year, the rediscounting scheme provides short-term pre-shipment credit up to 120 days and post-shipment credit up to 60 days. As at the time of this report, exporters were receiving a NEXIM rediscounting rate of 21% (inclusive of bank charges, about 4%) as compared to commercial bank rate of 35%
A.2.c. Stocking Facility:
This is provided in local currency and it enables manufacturers of exportable goods to procure adequate stocks of raw materials to keep their production at optimal levels.
NEXIM Risk Bearing Services include:
• Export Credit Guarantee Facility
• Export Credit Insurance Facility
• Investment Guarantee and Investment Insurance Facilities
• Interstate Road Transit Scheme to guarantee goods transiting Nigeria to other member states of the Economic Community of West African States (ECOWAS) In 2000, NEXIM was able to generate $15.90 million of foreign exchange from its Export Credit Rediscounting and Refinancing Facility (RRF), which represents an increase of 99.5% over levels achieved in the previous year. The foreign exchange generated from RRF operations serves as a barometer of effectiveness of NEXIM’s export support activities. Besides these export incentives, the Federal Government still has a way to go with bureaucratic procedures, particularly at the port, and with unreliable and in most cases, non existent recorded data/information.
Under the first National Development Plan, the Federal Government restricted itself to research activities for improving production of cash crops. However, following the emergence of many problems, especially food shortages, the government decided to play a more dynamic role in primary production, beginning from the mid-1970s. Consequently, the policy instruments adopted were: provision of credit; intensification of agricultural research; input subsidy; price support;
manpower development and training; mechanization; land reform and international trade regulation.
In order to ensure the realization of policy goals, various institutions were established for supervising or for providing some of the essential supporting services required by the sector.
A.3. The Africa Project Development Facility (APDF)
The APDF was launched in 1986 to support the development of competitive African small and medium enterprises, with services that are needed and affordable, working mainly through local institutions and consultants. The APDF has assisted over 460 enterprises in Sub Saharan Africa.
APDF helps to improve operations through capacity building and training. While APDF itself does not provide finance, it helps to source financing from the market and to find appropriate business solutions.
B. Socio-Economic Issues Due to the nature of the ADAN project, there is a special need to address socio-economic concerns as well as business issues. Both are important to the success of any project.
Industrial processing or preservation of leather can be toxic due to the accumulation of Chromic acid in the locations where such activities are located. The effluent and odor from these activities are also of significant concern, especially with tanneries located close to residential areas.
B.2. Impact on Employment and Incomes
The processing of hides and skins into finished leather and leather products presents an investment opportunity that is capable of significantly improving both urban and rural economies. Adding value to hides and skins and producing leather-based products for both international and domestic markets create job opportunities and limit importation of leather products. Also improvements in livestock rearing can increase incomes, particularly for women.
B.3. Geographic Distribution
Cattle, sheep and pigs thrive in every part of Nigeria. However, cattle, sheep and goats are better adapted to the northern region than the south. For instance, the concentration of hides and skins production in northern Nigeria is based on ecological adaptation of Sokoto, Kebbi, Zamfara, Katsina, Jigawa, Kano, Katsina, Borno, Bauchi cattle and sheep. Certain locations in the south with grassland vegetation can also support large farm animal production.
A Farm Animal Production and Meat Packaging
• The export skins and leather industry is huge, believed to be worth around $4.4 billion for raw hides and skins, $14 billion in rough-tanned and finished leathers of all types and $25 billion for footwear with leather uppers.
• Over the last two decades, the average growth in trade has been 3% for raw hides and skins, 10% for rough-tanned and finished leathers, and nearly 8% for footwear and leathers. In developing countries, however, the percentage growth in both rough-tanned products and footwear has been increasing at over 12% per year.
• Large and growing domestic demand for animals and hides and skins, which is being met by domestic production and regional imports.
• Substantially higher prices (between 5-10 times) for food grades hide (ponmo) than industrial grades.Opportunities in the commercial production of roughages (hay, silages, etc) and grass seed for the cattle industry across the nation
• Extensive opportunities for provision of veterinary, artificial insemination, breeding and fattening services
• Job creation and capacity building through standardization and regulation of trade in livestock and meat products
• Limited lands for grazing which cause disputes between herdsmen and farmers
• Absence of commercial cattle, sheep and goat projects
• Challenges arising from land acquisition
• Poor infrastructure – water, electricity
• High cost of capital B. Tanneries and Leather Products Manufacturing Opportunities
• Large and growing domestic, regional and international market for hides/skins & leather products
• Highly competitive domestic market for leather products
• Competitive production rates of good quality leather products
• Franchise production arrangement with small scale leather products by industrial tanneries and shoe manufacturers (industry networking) Constraints
• Scarcity of hides and skins in the right quality and quantity
• Scarcity of leather in the right quality and quantity for domestic value addition
• Absence of direct linkage with the international market
• Absence of transparency and standard in the Nigerian tannery industry
The global export market for hides and skins is $4.4 billion, $14 billion for rough-tanned and finished leathers of all types and $72 billion for all leather products (footwear, cloths, upholstery, handbags). These markets are growing by a minimum of 3%p.a. Developed countries now export their raw material (i.e., hides and skins) for processing in developing countries then purchased the value added leather products. To meet the demands of this large growing market, industry players are looking for more processing capacity, including in Africa. And Nigeria has all of the inputs necessary to take full advantage of these marketing opportunities.
Given the level of competition, success in the industry will demand careful firm-level feasibility studies, technical assistance, sustainable supporting organizations, and government support. It will also require astute forecasting of, and mitigative measures against, efforts by competitors to stymie entry.
In light of the opportunities and constraints examined in the subsector assessment, the authors propose a goal ‘to increasing Nigeria’s leather production to meet both domestic and export
demand.’ To achieve this goal, the specific objectives include:
• To increase Nigeria’s share of the world leather products market from $35 million to $140 million in 10 years;
• Significantly reduce Nigeria’s dependence on imported shoes, hides and skins and animals;
• To increase jobs and incomes of those involved along the marketing chain from livestock rearing, through to leather and leather products (i.e., shoes) and all other ancillary industries.
The first step is to conduct a detailed feasibility study on both the domestic and export markets to validate all assumptions.
Initially, focus on:
• Creating awareness of the opportunities in the leather products industry from production (livestock rearing) to processing of finished goods.
• Provide technical assistance to increase the quantity and quality of developing and strengthening private sector organizations (i.e. cooperatives, trade groups, NGOs, etc.) to increase the quantity, quality and profitability of livestock production, marketing and processing livestock products as well as homestead processing of hides and skins.
Industry stakeholders have developed the following action steps and responsibilities for both the
short and long term:
For sustainability, the team proposes the establishment of a Commodity Business Bureau (CBB).
This CBB will be a private-sector owned entity focused on providing business services for the domestic and international leather products industry. The CBB will work in collaboration with government and multinational organizations. Once established, the CBB will be the focal point for leather activities, enveloping those mentioned above and expanding to include: provision of current marketing information; targeted technical assistance; assistance establishing business and financing linkages; strengthened associations and cooperatives; development of standards.
In the course of this study efforts have been made to carry out a basic analysis of the potential strength, internal weaknesses, opportunities within the operating environment, and the external threats to business operations of the Nigerian livestock industry. These are herein referred to as SWOT analysis. The purpose of this analysis is to provide basic information for strategic restructuring of the investment opportunities within the industry. The analysis will benefit existing investors because it highlights issues that insiders may not capture about the subsector, which a trained, independent, dispassionate and emotionally detached observer would perceive clearly. For the potential investor, it opens up the areas of opportunities within the sub sector while at the same time being mindful and drawing attention to the challenges of the potential investments. The major
points discussed in this analysis have been categorized below:
• Cattle, sheep and goats thrive in most parts of the country, save for the delta region.