Kenya Leather Industry Diagnosis Strategy and Action Plan

Public Disclosure Authorized

99485
REPUBLIC OF KENYA
MINISTRY OF INDUSTRIALIZATION
AND ENTERPRISE DEVELOPMENT
KENYA LEATHER INDUSTRY

Diagnosis, Strategy and Action Plan

June 2015
Prepared for:
Ministry of Industrialization and Enterprise Development
Prepared by:
World Bank Group, Economic and Transformation Group
Sponsored by:
DFID and the Netherlands
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Acknowledgements
his report, funded through the generous sponsorship of DFID and the Netherlands, has been prepared
by a team from the Economic Transformations Group, Inc. (ETG), led by Dr. Eric Rolf Hansen (President
of ETG) and including Ronald Kopicki, Young Moon, Marcela Miceli, Samuel Gerstin, as well as Fred Ogana
and Anne Waweru from East Africa Market Development Associates Ltd. The team worked under the
overall guidance of Maria Paulina (Ina) Mogollon (Finance and Private Sector Development Specialist, East
and Southern Africa Region of the World Bank) and benefited from the comments and support of World
Bank team colleagues, Ganesh Rasagam, Karuna Ramakrishnan, Douglas Zhihua Zeng, Aref Adamali, and
Kennedy Mukuna Opala. The team would like to thank those who provided support with data gathering and
review of report drafts, especially Adan Mohamed (Cabinet Secretary), Wilson Songa (Principal Secretary),
Julius K. Korir and Hezekiah Bunde Okeyo of the Ministry of Industrialization, Sam Kiruthu (Chair, Leather
Task Force), P.V. Sambasiva Rao (Alpharama), Charles Mwangi Ndungu (Kenya Leather Development
Council-KLDC), Beatrice Mwasi and Maurice Omondi (Leather Articles Entrepreneurs AssociationLAEA),
and Nicholas Mutisya and Peter Kitheka (Nairobi County Cobblers Association). Finally, the team would like
to thank the many leather industry stakeholders interviewed for this study.
TABLE OF CONTENTS
ABBREVIATIONS ...........................................................................................................................................................................................
EXECUTIVE SUMMARY ..............................................................................................................................................................................
Introduction and background to the study ................................................................................................................
i
iii
x
1. GLOBAL TRENDS IN THE LEATHER INDUSTRY ..............................................................................................................................

1.1 Demand for leather and leather products is growing faster than supply .................................................................
1.2 Chinese tanneries facing increasingly stringent environmental regulations ..........................................................
1.3 Growing push towards clean production technologies ..................................................................................................
1.4 Implications for Kenya ..................................................................................................................................................................
1.4.1 Capitalize on global trends ...............................................................................................................................................
1.4 Key finding of chapter 1 ..............................................................................................................................................................
1
1
2
2
3
3
4
7
2. KENYAN LEATHER PRODUCTS AND MARKETS .............................................................................................................................
2.1 Kenyas leather products .............................................................................................................................................................
7
2.2 Kenyas export and import of leather footwear .................................................................................................................. 11
2.3 Kenyas export and import of leather bags, travel ware, corporate items ................................................................. 13
2.4 Domestic footwear market ......................................................................................................................................................... 14
2.5 The second-hand mitumba market .......................................................................................................................................... 15
2.6 Key findings of chapter 2 ............................................................................................................................................................. 19
3. KENYAS LEATHER SECTOR .................................................................................................................................................................. 21
3.1 Overall structure of Kenyas leather sector ............................................................................................................................ 21
3.2 Leather product manufacturers in the formal sector ........................................................................................................ 28
3.3 Leather product manufacturers in the informal (Jua Kali) Sector - Kariokor Market (KM) ................................... 33
3.4 Tanneries ........................................................................................................................................................................................... 37
3.5 Institutions supporting the leather sector ............................................................................................................................ 39
3.6 Key findings from chapter 3 ....................................................................................................................................................... 42
4. COMPETITIVENESS ANALYSIS ............................................................................................................................................................ 45
4.1 SWOT analysis of Kenyas leather industry ............................................................................................................................ 45
4.2 Benchmarking and gap analysis ............................................................................................................................................... 49
4.3 Value chain analysis ....................................................................................................................................................................... 51
4.4 Competitive positioning analysis of Kenyas leather products ...................................................................................... 55
4.5 Key findings from chapter 4 ...................................................................................................................................................... 59
5. IMPLEMENTATION RECOMMENDATIONS & ACTION PLAN ..................................................................................................... 61
5.1 Strategic targeting of leather products and markets ....................................................................................................... 61
5.2 Promote the dynamic restructuring of the leather industry by improving governance and strengthening
collaboration (Strategy 1) ........................................................................................................................................................... 63
5.3 Increase access to markets and induce greater demand for Kenyan leather and leather products
(Strategy 2) ....................................................................................................................................................................................... 66
5.4 Build quality and standards (Strategy 3) ................................................................................................................................ 68
List of Figures
Figure 1: Leather industry employment projections, 2015-2030 .......................................................................................... ix
Figure 2: Global export earnings from raw hides and skins ....................................................................................................
1
Figure 3: Demand for leather shoes in Africa far exceeds local supply ................................................................................
3
Figure 4: Value of Chinese imports of raw leather (2007-2013) ..............................................................................................
4
Figure 5: Chinese imports of raw leather from Kenya (2007-2013) .......................................................................................
4
Figure 6: Kenyas leather industry exports (2007-2013) .............................................................................................................
7
Figure 7: Kenyas wet blue export markets, 2013 .........................................................................................................................
8
Figure 8: Total export value of Kenyan leather products (2013) ............................................................................................
9
Figure 9: Kenyas final leather products, dominated by footwear ......................................................................................... 10
Figure 10: Types of leather footwear produced in Kenya ........................................................................................................... 10
Figure 11: Value of leather footwear exports by leading countries (2013) ........................................................................... 11
Figure 12: Kenyan leather footwear exports (2007-2013) ........................................................................................................... 11
Figure 13: Leather footwear export to EAC countries ................................................................................................................... 12
Figure 14: Growth of leather footwear imports in Kenya (1996-2012) ................................................................................... 12
Figure 15: Sources of Kenyan leather footwear imports (2013) ................................................................................................ 13
Figure 16: Exports of Kenyan leather bags, travelware, and corporate items ...................................................................... 13
Figure 17: Kenyan market share of footwear by point of distribution/price ......................................................................... 14
Figure 18: The Mitumba market product flow chart ...................................................................................................................... 16
Figure 19: Origin of second-hand footwear in Kenya .................................................................................................................... 16
Figure 20: Origin of second-hand leather footwear in Kenya (8.5 million pairs) ................................................................. 17
Figure 21: Simplified leather industry value chain ......................................................................................................................... 22
Figure 22: The value chain of Kenyas leather industry ................................................................................................................. 22
Figure 23: Kenyan leather cluster map (Nairobi and its surrounding region) ...................................................................... 24
Figure 24: Strengthened Kenyan leather cluster map (Nairobi and its surrounding region) ......................................... 27
Figure 25: Structure of the Kariokor market leather cluster ........................................................................................................ 33
Figure 26: Spider diagram benchmarking Kenyas leather industry competitiveness ...................................................... 49
Figure 27: Competitive position of Kenyan leather footwear (2014) ....................................................................................... 56
Figure 28: Projections of future global competition of leather footwear .............................................................................. 59
Figure 39: Projections of future global competition in other leather products ................................................................... 59
Figure 30: Leather industry employment projections, 2015-2030 ........................................................................................... 81
List of Tables
Table 1:
Table 2:
Table 3:
Table 4:
Table 5:
Table 6:
Table 7:
Table 8:
Table 9:
Table 10:
Table 11:
Table 12:
Table 13:
Table 14:
Table 15:
Leather industry strategy and actions ........................................................................................................................... vi

Exports of Kenyan leather and leather products, 2007-2013 ................................................................................
7
Top 10 destinations for Kenyan leather footwear exports, 2009-2013 (US$000s) ........................................ 12
Sales of all footwear in Kenya, 2014 (millions of pairs) ............................................................................................ 14
Employment in Kenyas leather industry (2009-2013) ............................................................................................. 35
Details of tanneries operating in Kenya ........................................................................................................................ 38
Training courses offered by AHITI, TPCSI, and KITI .................................................................................................... 41
SWOT analysis of the leather industry in Kenya ......................................................................................................... 47
SWOT analysis of the informal (Jua Kali) leather sector in Kenya ........................................................................ 48
Competitive benchmarking of Kenyas leather industry vs. Ethiopia, China, and Italy (scale of 0-10) ... 50
Comparative costs of tanning leather in Kenya and Ethiopia ............................................................................... 52
Comparative costs of producing a pair of low-cost shoes (Kenya) v.s loafers (Ethiopia) ............................ 52
Comparisons of raw material inputs for producing a pair of loafers in Ethiopia, Tanzania, and China .. 54
Breakdown of costs involved in producing boots in Kenya (Formal sector) .................................................... 54
Breakdown of costs involved in producing mens dress shoes in Kenya (Informal sector) ......................... 55
Table 16:
Table 17:
Table 18:
Table 19:
Table 20:

Breakdown of costs involved in producing mens safari boot in Kenya (Informal sector) ..........................
Profit margins for producing school shoes, sandals, and belts (Informal sector) ..........................................
Strategic targeting of Kenyan leather products and markets ...............................................................................
Leather industry strategy & actions ................................................................................................................................
Comparison of formal employment generation and productivity in the leather footwear sectors
among leading countries (2010-2013)*** ....................................................................................................................
Annex 1:
Annex 2:
Annex 3:
Annex 4:
Annex 5:
Annex 6:
Annexes
Leather strategy implementation: Expected activities and results for clustering process (Strategy 1)
86
Ethiopian trade and investment policy to promote value addition .................................................................... 87
Kariokor market satellite leather accelerator (for informal sector) ...................................................................... 89
Leather city (Leather industry park) ................................................................................................................................ 91
Action plan for implementation of the leather sector strategy ............................................................................ 94
List of interviewees ............................................................................................................................................................... 100
REFERENCES .................................................................................................................................................................................................
55
55
61
62
82
103
List of BOXES
Box 1: Branding Ethiopian sheep leather in Japan .........................................................................................................................
Box 2: Case studySlovakia .....................................................................................................................................................................
Box 4: Lessons learned in developing industry parks in Kenya and other countries .........................................................
Box 5: Case study: Ethiopia Leather Industries Development Institutes (LIDI) ....................................................................
Box 6: Promoting environmental practices in the leather industry .........................................................................................
66
68
73
75
79
ABBREVIATIONS
AGOA
AHITI
AI
B2B
CFC
COMESA
EAC
EU
FDI
FTA
GI
GoK
ICT
ILDP
JICA
KAM
KIRDI
KITI
KLDC
KM
LAEA
LIDI
LWG
MOU
MSME
NGO
PPP
R&D
SME
SPV
TPCSI
UK
UNIDO
US
VAT
WTO
African Growth and Opportunity Act

Animal Health and Training Institute
Artificial Insemination
Business to Business
Common Facility Center
Common Market for Eastern and Southern Africa
East African Community
European Union
Foreign Direct Investment
Free Trade Agreement
Geographic Indicator
Government of Kenya
Information Communications Technology
Indian Leather Development Programme
Japan International Cooperation Agency
Kenya Association of Manufacturers
Kenya Industrial Research and Development Institute
Kenya Industrial Training Institute
Kenya Leather Development Council
Kariokor Market
Leather Articles Entrepreneurs Association
Leather Industry Development Institute
Leather Working Group
Memorandum of Understanding
Ministry of Small and Medium Enterprises
Non-Governmental Organization
Public Private Partnership
Research and Development
Small and Medium Enterprise
Special Purpose Vehicle
Training and Production Center for the Shoe Industry
United Kingdom
UN Industrial Development Organization
United States
Value Added Tax
World Trade Organization
EXECUTIVE SUMMARY
The Global and African Context
orld trade in leatherone of the

most widely traded commoditiesis
currently growing and is estimated at over
US$100 billion a year.1 In 2013, leather footwear
accounted for half of that figure, amounting to
US$53.5 billion. Globally, demand for leather and
leather products is growing faster than supply.
Although the leather sector in Africa, including
in Kenya, has many natural strengths, it risks
missing out on opportunities in an expanding
global market. Despite the growing global
market for leather products such as footwear,
fine leather, handbags, and auto upholstery,
African countries, including Kenya, remain
marginal players. The key questions concern
whether and how Kenya can grow its leather
industry, increase its competitiveness in leather
and leather products, grow exports and jobs,
and create a viable and sustainable industry to
propel the country toward inclusive prosperity.
Despite owning a fifth of the global livestock
population, African countries account for
only 4 percent of world leather production
and 3.3 percent of value addition in leather.
Most African nations, including Kenya, are
essentially exporters of raw hides and skins
and wet blue leather and maintain a low
production capacity for finished leather. Just
to Kenyas North, Ethiopia is emerging as an
exception to this trend.
The Kenyan Context
Although Kenya served as a leather footwear
hub for East Africa two decades ago, it is
currently a very minor exporter of leather
and leather products (only US$140 million,
0.14 percent of world export in 2013). Kenya

is also significantly less competitive than global
leaders including China, Italy, and Vietnam
in all competitiveness indicators, except
availability of and access to raw materials.
Its competitive position has been eroded
by global imports of new low-cost footwear
penetrating Kenyan and East African markets
and second-hand imported footwear invading
domestic markets. Today, Kenya is a low-cost
producer of undifferentiated, low-end shoes
and boots, producing an estimated 3.3 million
pairs of leather footwear per year, mostly
for the domestic market. For instance, Bata,
Kenyas largest and dominant footwear maker,
has significantly reduced its production of
low-end, mens leather shoes for the domestic
market, and its export of leather shoes to the
East African market has also declined.
Currently, most Kenyan leather is produced
and sold as a commodity with little quality
or design differentiation. Kenyas leather
exports consist of semi-processed tanned wet
blue leather (89 percent), raw hides and skins
(5 percent), finished leather (2 percent), and
leather footwear and handbags, travel ware,
and other leather products (4 percent). Up until
the imposition of an 80 percent export tariff
on raw hides and skins in 2009, raw hides and
skins accounted for more than 25 percent of
Kenyas total leather exports. Interviews with
industry experts confirm that despite the tariff,
there continues to be a high level of smuggled
exports of raw hides and skins. Unfortunately,
trade in raw and semi-processed leather only
generates a marginal trickle-down effect on the
rest of the Kenyan population.
All dollar amounts are U.S. dollars unless otherwise indicated.
ii
Executive Summary
Footwear is the biggest leather goods

subsector in Kenya, while the handbag
subsector is the most competitive vis--vis
global markets. In the case of leather handbags,
travel ware, and cases, Kenyas exports in 2013
(US$2.2 million) were almost quadruple the
export size of Ethiopias (US$0.57 million) in the
same year. Kenya can build on its reputation
for quality hand bags, travel ware, and cases by
improving the quality of its products, building
the made in Kenya brand distinction, and
creating a mass customization delivery capacity.
There is also a range of other leather product
categories where opportunities exist such as
belts, industrial boots, and gloves. However,
they would be starting with a scale and level
of competitiveness that is extremely low and
would be at a competitive disadvantage when
faced with the labor intensive, global market.
Employment in Kenyas leather industry is
relatively low (estimated at 14,000 during
peak times) and the informal sector is the
bigger employer, accounting for 10,000 of
the 14,000 workers. According to the Kenya
National Bureau of Statistics, Kenyas leather
sector accounted for only 2 percent of formal
manufacturing employment and 1.3 percent of
manufacturing value added in 2013.
Under the prevailing structure of the
leather industry, wealth is very narrowly
distributed among a small number of traders/
manufacturers. The industry has failed to
generate any significant level of employment
because most of the value is captured by the
tanneries, which represent the most capital
intensive and employment light segment of
the value chain. The mode of competition
that exists within the leather industry and the
prevailing business models both fail to capture

growth potential or broadly distribute the
wealth created.
Industry Competitiveness
Kenyas leather sector competitiveness is
currently based on the nations comparative
cost advantages, derived from its abundant
natural resources of cattle, goats, and sheep
(Kenya is the third largest livestock holder in
Africa), its relatively low labor costs, and its
comparative disregard for environmental
and related social costs.2 The leather sectors
costs of production are subsidized to the
extent that government policies (and their
poor enforcement) fail to force producers to
internalize environmental and social costs
associated with sustaining the sector, including
most importantly, water resource clean up,
long term health care, and natural resource
replenishment costs.
Several factors hinder the growth of Kenyas
leather industry. In the footwear subsector,
Kenyas lack of cost competitiveness results
from the following three major constraints
that disadvantage Kenyan producers: (i) the
high cost of domestically sold leather and
leather inputs (including 25 percent duty on
imported inputs); (ii) the high cost of labor; and
(iii) the high cost of electricity. In addition, on the
demand side, it is very difficult for local leather
footwear producers to compete in the domestic
market against the inflow of cheap and new
leather and non-leather footwear imports
(mainly from China and India) and against the
growth of the second-hand Mitumba market,
which offers an enormous range of high and
low quality leather and non-leather footwear at
bargain prices.
As will be evident further on in the report, some tanners have already invested heavily to safeguard the environment. However, they are the exception
and not the norm.
iii
Executive Summary
Meanwhile, Ethiopia is emerging as a new

world-class player in leather footwear due to
its low cost skilled labor, improvements in the
quality of its raw material supply, the stable
business climate, and the establishment of
new economic zones. Ethiopia is attracting an
increasing number of foreign investors who
are using the country as a production site,
predominantly to enter the EU and US markets
the latter through the AGOA program.
Ethiopia has made tremendous productivity
gains in recent years and now surpasses Kenya
in terms of a cost competitiveness advantage.
Indeed, it is approximately 30 percent more
costly to produce a pair of low-cost mens
leather shoes in Kenya than in Ethiopia. In Kenya,
the cost of producing a pair of low-cost mens
shoes is approximately US$9.44, compared to
Ethiopias US$7.28 for a pair of mens loafers.
Industry Structure
There is a vibrant and competitive informal
sector, concentrated in the Kariokor Market
cluster in Nairobi, that produces low cost
leather footwear and goods for Kenya and the
region. Most of the leather good producers are
micro and small enterprises and many prefer to
stay in the informal sector in order to remain
competitive. There is an intricate link between
the formal and informal sector but it is weak and
unbalanced. Many institutes and associations
exist to support the industrymost of which
are government owned or controlled, but few
play a significant role due to lack coordination,
funding, and authority.
Additionally, only a few tanneries process

finished leather for sale in the domestic Kenyan
market. The finished leather market is tightly
controlled and often resembles a sellers market.
Kenyas largest and most modern tannery,
Alpharama, dominates the production and
commands a great influence over the market.
For the tanning subsector of the leather value
chain, the relatively high cost of raw materials
and chemicals in Kenya (largely due to the 25
percent import duty on inputs) represents its
most significant competitiveness challenge.3
The current comparative cost advantage
of Kenyas tanneries in the production and
export of semi-finished wet blue leather
derives from the fact that North American,
South American, the EU, and most recently,
Chinese governments are unwilling to
continue to absorb externalities in the sector,
including most importantly, those associated
with environmental clean up. As a result, they
are attempting to export those costs to nations
such as Kenya that are willing to absorb them in
exchange for production cost structures, which
are artificially depressed. Over the long term,
these deferred costs may reemerge in various
forms including, for instance, reduced life
spans, increased medical costs, and significantly
increased costs associated with water
purification. Sustainable production should
thus be a high priority for government policy.
Strategy for the Industry
According to our competitive analyses, the
most promising targets for Kenyas leather
industry include three key products with
corresponding market thrusts.
Tanners who export have access to surface treating agents under EAC duty remission. Tanneries selling into the EAC market must pay the duty.
iv
Executive Summary
Strategic Products
Strategic Markets
Low value added leather footwear
Domestic Marketincrease share of domestic leather footwear market, particularly with low-cost
mens shoes, low-cost school shoes, and boots.
Regional Marketincrease exports to EACs of low cost-mens shoes and boots.
High value added specialty products
EU and US Marketsincrease exports of specialty leather products, leather handbags, travel ware,
and cases, with a focus on EU and US markets.
Domestic and EAC Marketsincrease domestic and regional sales, especially safari-type products
sold to tourists in Kenya and EAC.
Finished leather
China and EU MarketsIncrease exports of higher value added finished leather (and crust leather),
especially to China and EU.
Recommendations
To increase the competitiveness of the leather
industry and accomplish the above productmarket objectives, strategies and actions
are recommended in Table 1 and grouped
according to a framework, which consists of
three key strategies. The table also matches
action initiatives to the three product/market
competitiveness strategies for low-value-added

leather footwear, high-value added specialty
products, and/or finished leather. A detailed
evaluation of these recommended initiatives
and a priority action plan, including how they
should be staggered over time, is provided in
the full report.
Table 1: Leather industry strategy & actions

Recommendations to improve the competitiveness of:
Low value-added
leather footwear
High valueadded specialty

products
Finished
leather
Strategy 1: Promote the dynamic restructuring of the leather industry
1.1 Establish a collaborative, stakeholder-driven leather industry strategy

implementation process
1.2 Strengthen the Kenya Leather Development Council (KLDC)
1.3 Improve the regulatory framework to reduce production costs and safeguard
the environment
2.1 Develop a leather marketing entity to increase awareness, coordinate

branding and promote exports
2.2 Design a transparent public procurement policy
i. Nairobi Leather Accelerator (for formal sector)
ii. Kariokor Market Satellite Leather Accelerator
X
X
Strategy 2: Increase access to markets and induce greater demand for

Kenyan leather & leather products
Strategy 3: Build quality and standards

3.1 Improve the Production Process, Technology and Machinery
3.1.1 Establish leather product development accelerators (or leather wealth
creation centers)
3.1.2 Develop a leather industry park
Executive Summary

Low value-added
leather footwear

products
Finished
leather
3.2 Improve skills

3.2.1 Restructure and upgrade the Training and Production Center for the
Shoe Industry (TPCSI)
3.2.2 Strengthen university leather design, technology, and marketing
capacities
3.2.3 Enhance human resource placement services for the leather industry
3.3 Encourage quality & enforce standards

3.3.1 Align incentives for quality and promote quality certification systems
3.3.2 Develop leather award and recognition programs
3.3.3 Initiate regional branding of the leather industry to promote

specialization
3.3.4 Increase enforcement of quality standards for imported leather products
Due to the highly fragmented structure of the

Kenyan leather industry, the limited linkages
among stakeholders, and lack of a coherent and
shared competitiveness strategy by private
sector, government, and other institutions, the
overall plan is to improve access to markets,
while enhancing productivity and movement
to value addition and strengthening
collaboration in the industry. Three important
strategies are recommended: (i) promote the
dynamic restructuring of the industry; (ii)
increase access to markets and induce greater
demand for leather and leather products; and
(iii) build quality and standards throughout the
value chain.
According to the first strategy, a critical
cornerstone for improving the competitiveness
of the leather industry is a well-functioning
set of institutions to support the industry,
coupled with a strong legal framework and
business climate. This involves (i) establishing
a leather cluster working group and strategy
implementation process, (ii) strengthening and
positioning KLDC as a driving institutional vehicle
to enhance leather industry competitiveness,

and (iii) improving the regulatory framework
to reduce the sectors production costs
by reducing import duties on intermediary
goodsand safeguard the environmentby
adopting and enforcing international leatherrelated environmental standards, particularly at
the tannery level.
Increasing access to markets for Kenyan
leather is the key ingredient for the success
of the leather industry. To this end, the second
strategy suggests (i) developing a leather
marketing entity to increase domestic and
international awareness of Kenyan leather,
coordinate the branding of Kenyan leather,
and promote exports. Such an entity could
promote exports by organizing match-making
between international buyers of crust and
finished leather and Kenyan producers, and
leveraging global business-to-business (B2B)
e-commerce platforms. Importantly, the
strategy to increase access to markets would
also include (ii) facilitating access of local
producers to the domestic market by improving
vi
Executive Summary
their opportunities to succeed with public

procurement contracts, in line with the Buy
Kenya, Build Kenya policy.4
Kenyas leather industry trails behind
global and regional competitors in terms of
productivity, quality, and cost of products.
Strategies and actions to enhance quality
and standards throughout the leather value
chain are vital to Kenyas ability to compete
both within its own domestic market and
globally. The third strategy rests on three
pillars: (i) improving the production process,
technology and machinery; (ii) enhancing
training and skill development centers; and (iii)
encouraging quality and enforcing standards.
The first of these pillars can be achieved by
establishing an industry accelerator for the
formal sector and a common manufacturing
facility for the informal sectorboth to support
firm development and linkage, and by
developing critical infrastructure, including a
water effluent treatment facility in, potentially,
a leather industrial park. Critically, if the latter is
to succeed, then it must have a strong market
orientation. The World Bank believes that a
publicly-driven industrial park will not achieve
the goals the Government of Kenya envisions
for the industry.
Regarding skills and training in the industry,
the government could restructure and
upgrade the Training and Production Center
for the Shoe Industry (TPCSI) and place it
under the direction of KLDC. In parallel, leather
design, technology, and marketing skills could
be strengthened at the tertiary level through
the endowment of professorships in these
areas, such that current and future students
enrolled in leather-related degrees receive
vii
high-level training. Relatedly, a human resource

placement service for the leather industry could
be organized in order to develop an efficient
market for technically competent managers,
technicians, and workers. Lastly, professional
certification programs within the industry could
be improved and extended to assure that critical
skills and competencies remain current and
competitive through post graduate, continuous
training. These measures would greatly enhance
the level of skills and training in the industry.
The third pillar of the strategy aimed at building
quality and standards rests on a combination
of
encouragement
and
enforcement.
Throughout the value chain, and particularly
at the very beginning with animal husbandry,
incentives for quality should be aligned and
quality certification systems promoted. Regional
branding of the leather industry can further
help by promoting geographic specialization
and distinction (i.e. Turkana Leather, A Tradition
as Old as Man). At the manufacturing end of
the value chain, leather quality awards and
recognition programs can be developed to
induce innovation and foster competition
based on distinct quality and design. Finally,
the enforcement of quality standards can be
increased, particularly for imported products.
Regarding the second-hands goods trade, the
World Bank believes that its benefits in terms
of employment generation and a lower cost
of living for all Kenyans outweigh its costs in
terms of a smaller domestic market for leather
goods producers. To this end, the target market
segments for the Kenyan leather industry are
those where second-hand leather products are
less prevalent, while a do-nothing course of
action is suggested for Mitumba.
The Ministry of Industrialization and Enterprise Development is in the process of finalizing The Buy Kenya, Build Kenya policy, which is seen as a way of
creating markets for local products and services. The policy aims to reduce government and private expenditure on imported products and services and
reduce the unemployment rate by supporting the local economy to grow.
Executive Summary
It is envisaged that the recommendations

and action plan proposed in this report will
provide the basis for Kenyas leather industry
to increase its competitiveness and grow
jobs and income. Projections of future leather
industry employment have been generated to
show the likely impact of minimal vs. substantial
implementation of recommended policy
initiatives (see Figure 1).
Figure 1: Leather industry employment projections 2015-2030
successful implementation of only a few

recommended actions.
c. Action across vc. Scenario: This positive
scenario implies successful implementation
of many of the recommended initiatives,
improvement in the competitiveness of
both the formal and informal sectors, which
results in a quadrupling of leather industry
employment within 15 years. If Kenya
successfully brings transformation across
the value chain, scenario C is feasible.
Number of industry employees
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2009
2010
2011
Do Nothing
2012
2013
Partial Action
2015
2020
2025
2030
High Action
Source: ETG Projections
Three scenarios have been generated to depict

the future of the Kenyan leather industry.
a. Do Nothing Scenario: If no significant effort
is observed on the policy level, and private
sector-led initiatives are not implemented,
we project a stagnant industry where there
is no notable growth.
b. Partial Action Scenario: According to this
scenario, there will be a minor improvement
in the competitiveness of both the formal
and informal sectors, resulting from the
Based on a cross-country (China, Vietnam,

Turkey, Ethiopia) average estimate of 1,500
formal jobs per million pairs of shoes produced,
if Kenya was able to increase its competitiveness,
market share, and annual production of
shoes by 15 million pairsfrom its current 3.3
million pairs of shoes to 18.3 million, then
employment in the leather footwear industry
would grow by 22,500 jobs (from 14,000 to
36,500 jobs). This estimate is roughly consistent
with Scenario B above. In terms of value, the net
exports of the leather industry could grow from
US$140 million a year to close to US$500 million.
To achieve this target and more, Kenyas
public and private sector leaders will need
to collaborate and work intelligently to create
this vision and strategy, implement actions,
and develop the conditions for a renewal of
competitive strength and dynamism in the
leather industry.
viii
Executive Summary
INTRODUCTION AND BACKGROUND TO THE STUDY
n 2014, Kenyas Ministry of Industrialization

requested technical assistance from the World
Bank to conduct competitiveness assessments
and develop competitiveness strategies for
four key industries: textiles and apparel, food
processing, furniture, and leather and leather
products. The Ministry selected these four
industry sectors for serious consideration as
priority sectors for industrial development and
job creation in Kenya.
The Economic Transformations Group, Inc.
(ETG), a sustainable economic development
consultancy from New York and Silicon Valley,
was contracted to complete the analysis and
strategy for the leather industry. ETG built on
prior analytical work by Kyram Consultants Ltd.
In the context of Kenyas long-term vision
to become an industrialized middle-income
country by 2030, its leather and leather products
sector offers an important opportunity for
industrialization and diversification of exports.
However, value addition in the leather sector
has been minimal, and most of Kenyas exports
have been in the form of unprocessed, raw hides
and skins. The leather sector can contribute to
economic growth through expanding exports
of both semi-processed and finished leather
goods. The development of the sector involves
improving the raw material base (especially
the quality of hides and skins), boosting the
tanning subsector, producing leather goods,
and marketing.
Key strategic questions about the leather
industry include: what is the status of
development of the industry, what are the

ix
most critical competitiveness challenges

and opportunities, what are the most are
promising leather products that Kenya should
focus on moving forward, and how can support
be increased to value addition and exports by
upgrading production processes, technology,
marketing and branding of leather products.
The basic research methodology followed
a standard approach of gathering existing
reports and data, and interviewing a wide
range of local and international experts
(see Annex 2). The study team also visited
Ethiopias Leather Industry Development
Institute, and footwear firms in Vietnam. Due
to the challenge of very minimal and poor
quality data, particularly about the domestic
market for leather products, and unrecorded
exports of hides and skins, the team relied
heavily on interviews with key experts, industry
stakeholders, and adapted a modified Delphi
methodology to establish expert consensus
estimations for leather production levels, size
of markets, and cross-country comparative
analyses of competitiveness indicators and
production costs.5 We asked selected industry
experts to rank and scale competitive advantage
of Kenyan leather producers in comparison
to other counterparts in the market. Similarly,
a modified Delphi methodology was used to
conduct a competitiveness benchmarking
exercise, which entailed surveying a number
of leather experts, policy makers, and business
leaders in Kenyan leather industry to rate country
competitiveness. Selected experts were asked to
compare Kenyas leather industry performance
and ten competitiveness indicators against that
of the three representative countries. Further
The modified Delphi method is a structured communication technique or method developed as a systematic, interactive forecasting method which
relies on a panel of experts. The experts answer questions in two or more rounds, and after each round, a summary of the experts forecasts from the
previous round as well as the reasons they provided for their judgments is presented. Experts are encouraged to revise their earlier answers in light of the
replies of others. It is believed that during this process the range of the answers will decrease and the group will converge towards the "correct" answer.
Executive Summary
analysis was conducted to compare cost of

production of shoes in Kenya vs. Ethiopia,
drawing on a combination of costs indicated
in reports, confirmed by expert opinions of
producers and industry experts.
The analysis and recommendations herein
emphasize the tanning and manufacturing
segments of the leather and leather goods
value chainand the markets to which these
sellover the animal husbandry and abattoir

segments of the chain. Very little information
and analysis existed about the former, while
a significant number of reports had been
written already about the latter. In addition,
while the recommendations for tanning and
manufacturing fall under the purview of MOIED,
the interventions necessary for the earlier stages
of the value chain are largely the responsibility
of the Ministry of Agriculture.
S E C T I O N ON E
GLOBAL TRENDS IN THE LEATHER INDUSTRY
1.1 Demand for Leather and

Leather Products Is Growing
Faster Than Supply
major global shift has taken place in

leather and leather products production,
with a resetting of competitive advantage
from Europe to Asia (and within Asia from
East Asia to South Asia). In 2013, total leather
production in Europe was 6.3 billion sq. ft., while
Asian countries (e.g., China, India, Vietnam,
Korea, Japan etc.) produced almost double
that amount (12.1 billion sq. ft.). Of total annual
global leather production (approximately 23
billion sq. ft.), the leather footwear industry uses
65 percent of leather (or 14.9 billion sq. ft.). The
remaining 8.1 billion sq. ft. (35 percent of total
leather production) goes into the manufacturing
of a diversity of other types of leather products
for example, furniture (14 percent), automobile
seats and interiors (10.2 percent), garments
Figure 2: Global export earnings from raw hides and skins
Global Export Earnings: Raw Hides and Skins
6,000
5,000
Million US$
4,000
Bovine
3,000
2,000
Sheep
1,000
0
2004
Source: UN Comtrade
2005
2006
2007
2008
2009
2010
2011
(10 percent), and miscellaneous other leather

products (8.0 percent).6 The US is currently
the largest importer of footwear in the world,
accounting for 2.3 billion pairs, 24.8 percent of
the world footwear trade, at a value of US$24.2
billion in 2013.7
The big message coming from comparisons
of demand and supply across regions is that
demand for leather products is growing
much faster than supply.8 Moreover, long term
growth rates for leather products in developing
countries are twice as high as in developed
countries. This phenomenon has two causes:
more rapid population growth, particularly
within younger population cohorts, and rapidly
increasing disposable income. Yet, insofar as the
market is concerned, this is expected to result
in chronic supply deficits and increased upward
pressure on prices.
Recent years show a growth in earnings for raw
hides and skins (Figure 2) as well as exported
leather. In 2010, global export earnings from
raw hides and skins increased by nearly 60
percent (and a further 18 percent in 2011). At
the same time, export earnings from leather
products increased by 28 percent in 2010 and
14 percent in 2011, while the value of footwear
exports grew by a more modest 11 and 13
percent, respectively, over the two years. All
leather-producing regions of the world showed
a broadly similar pattern. Prices for all categories
M. Mwinyihija, (2014). Emerging World Leather Trends and Continental Shifts on Leather and Leather Goods Production, Advances in Business
Management and Administration, Vol. 1 (1): 1-13.
7
United States International Trade Commission (USITC) Trade Dataweb http://dataweb.usitc.gov/ compiled from tariff and trade data from the U.S.
Department of Commerce, the U.S. Treasury, and the U.S. International Trade Commission. https://www.wewear.org/assets/1/7/usimportsfootwear1312.pdf
8
Demand for leather within certain product segments fluctuates. For instance, sports footwear is now almost 99% synthetic. Car upholstery is also
shifting, and now only visible parts of the seat are made of leather.
6
I. Global Trends in the Leather Industry
of leather, including raw, wet blue, crusted, and

finished leather have increased since 2009, and
they reached new highs in 2013 and 2014.9
1.2 Chinese Tanneries Facing

Increasingly Stringent
Environmental Regulations
China remains one of the major producers of
leather products in the world, yet the nations
recent change in direction to become more
environmentally sustainable has caused a
significant drop in leather production. In
March 2014, local governments in the northern
provinces of Hebei and Xinji stopped a number
of tanneries from operating due to excessive
effluence.10 In April of the same year, over 100
community members raided a tannery complex
in Quanzhou, in the eastern Fujian Province,
over pollution concerns.11 Although China
continues to import a great amount of raw hides
and skins, its environmental regulations are
expected to become all the more stringent. This
internalization of environmental costs, rising
production costs associated with an increasing
private sector share in tanning, as well as labor
demand issues have sapped the competitiveness
of Chinese leather manufacturers with the result
that the worlds third largest leather exporter has
become one of the largest emerging importers
of finished leather.
1.3 Growing Push towards Clean

Production Technologies
The leather industry is a heavily polluting
industry as effluents produced by tanneries
have a significant negative impact on local
water and air resources. In particular, chromium
contamination and high chemical oxygen
demand are typical problems associated with
tannery effluents, both of which can pose serious
risks to the environment and human health.12 In
many low-income countries these pollutants
are responsible for the contamination of nearby
surface and groundwater systems with severely
high levels of chromium.13 Human Rights Watch
has noted that workers might be handling
tanning chemicals without any sort of hand
protection). Thus, while global leather demand
is on the rise, consumers in developed countries
especially are pushing for an acceleration of the
green14 leather industry. Today in the US, green
apparel and accessories make up 2 percent of
the fashion industrya marketable increase
from 0.25 percent a decade ago.15 Major brand
(Earthkeepers),
H&M
namesTimberland
(Conscious Collection), and Gucci (Rainforest
Alliance)have introduced new materials
that are stylish and fully recyclable (attractive
to consumers), and at the same time costcutting. Their product lines are buttressed by
the technological advances of leather research
centers around the world: in 2009, Centre
M Mwinyihija, (2014).
Litehide, (2014), Northern Chinese Government enforces new policy, tanneries closed until they become compliant, April 3. http://litehide.com/
archives/3403
11
World Watch Institute, (2015), Villagers Attack Factories over Pollution in Eastern China May 22. http://www.worldwatch.org/villagers-attack-factoriesover-pollution-eastern-china
12
Z Song, C.J. Williams, and R.G.J. Edyvean, (2000), Sedimentation of Tannery Wastewater. Water Research, Vol. 34, No. 7: 2171-2176.
13
Mohammad Amir Hossain. Bhuiyan, et al. (2010) Investigation of the Possible Sources of Heavy Metal Contamination in Lagoon and Canal Water in the
Tannery Industrial Area in Dhaka, Bangladesh. Environmental Monitoring and Assessment, Vol. 175, No. 1-4: 633-649; and http://www.hrw.org/sites/
default/files/reports/bangladesh1012webwcover.pdf
14
Just what constitutes eco-friendly or green leather is ambiguous. Generally, a leather product is considered eco-friendly if it has been produced
through means other than chromium sulphate tanning (which, along with about 250 other chemicals typically used in the tanning process, releases
unfriendly toxins into the atmosphere). It is not clear, however, whether this assumes that the husbandry involved in delivering the hide was done so in
an organic and/or humane manner.
15
Business Insider, (2013), The Rise of Green Fashion, April 28. http://www.usatoday.com/story/money/business/2013/04/28/the-rise-of-greenfashion/1996773/
9
10
Technique Cuir (France) opened a state-of-theart laboratory in Dongguan, China following

the request of domestic producers; in 2012,
Stahl Holdings (Denmark) developed Stahlite
in order to reduce the weight of finished leather
by 40 percent, thus requiring less extensive
chemical finishing; and in 2013, TILEATHER
researchers (Spain) pioneered titanium tanning
as an alternative to chromium.
coordination between them. This leads to

frequent discrepancies within the activities of
regulation and control, and results in inefficient
implementation.17 Therefore, it may be
capacity-building (in industrial strengthening,
standardization, and technology), motivated
by national development planning, which
can instill an environmentally friendly leather
processing culture.
In the developing world, where there is less

disposable income (although rising) and
therefore less demand for green leather
products, governments have begun to step
in. In China, the Ministry of Industry and
Informations (MOI) 2009 directive Guiding
Options of Tanning Industry Structural
Adjustment proclaimed that tanneries whose
production scale fell below 30,000 pieces of
standard cattle hide per year would be shut
down, while those producing below 100,000
pieces would be subject to limits. The MOI
expressly encouraged Chinese tanneries to
obtain Eco-Leather certification16 as defined
by the China Leather Industry Association
(CLIA). Since 2003, the CLIA has encouraged
tanneries to meet or exceed international
standards in the production process and as
regards the finished goods themselvesin
terms of leather quality, the use of specialized
green chemicals, pollution control, waste
treatment, and corporate social responsibility.
1.4 Implications for Kenya

Capitalize on global trends
Even though the global market for leather

products (footwear, fine leather, etc.) is
trending upwards (Figure 3), African countries
remain marginal players. Despite owning a fifth
of global livestock population, African countries
account for only 4 percent of world leather and
leather products production.18 Most African
nations, including Kenya, are essentially exporters
of raw hides and skins and wet blue leather, and
maintain a low production capacity for finished
leather. Consequently, there is an emerging
imbalance of supply and demand for leather
products. Figure 3 demonstrates this trend for
the leather footwear industry; unsurprisingly,
Africa is a significant net importer.
Figure 3: Demand for leather shoes in Africa far exceeds
local supply
1,950
1,800
1,650
1,500
Regarding the leather industry in Africa,

although environmental measures have
been introduced (usually along the
lines of EU regulations), there tends to
be a lack of cohesiveness. According to
UNIDO, Governments have established
environmental protection offices in different
departments and bureaus with insufficient
Shoes in million pairs
1,350
1,200
1,050
900
750
600
450
300
150
0
1950 1960 1970 1980 1990 2000 2005 2010 2015 2020 2025 2030
African leather shoes production
(Million pairs)
Expected potenial shoes demand

(Million pairs)
Source: UN Comtrade
Leather International, (2010). Government backs CLIAs Eco-Leather mark, February 2010.
UNIDO, (2010), Future Trends in the World Leather and Leather Products Industry and Trade.
18
Mwinyihija Mwinyihija, and W. Quiesenberry, (2013), Review of the challenges towards value addition of the leather sector in Africa, Global Advanced
Research Journal of Management and Business Studies (ISSN: 2315-5086) Vol. 2(11): 518-528, November, 2013.
16
17
On the other hand, developing country

marketsparticularly in Africa including
Kenyaoffer attractive niches for aspiring
shoe manufacturers. A major factor is at work
here: increasing per capita demand for shoes
(taking into account rising disposable income
and population growth, particularly among
school-aged children).
Beyond the regional market, there is an
emerging opportunity for Kenyan tanneries
to export more forms of processed leather
to China, where imports are growing. Figure
4 shows that Chinese raw leather imports, as
well as tanned and further prepared leather
increased between 2007 to 2013.
Yet when considering direct imports from
Kenya over this same period, China appears
to be importing an increasing percentage of
tanned leather (wet blue and crust) (Figure 5).
The implications of reduced Chinese
production and competitiveness for Kenyan
leather producers are profound. Stricter
enforcement of environmental regulations
in China make importing Kenyan-produced
1.4 Key Finding of Chapter 1

Globally, demand for leather products is
growing much faster than supply. Most
African nations, including Kenya, are essentially
exporters of raw hides and skins and wet
blue leather, and maintain a low production
capacity for finished leather. Chinese tanneries
face increasingly stringent environmental
regulations, which affords new opportunities
for exporting Kenyan-produced semi-processed
leather to China.
Figure 5: Chinese imports of raw leather from Kenya (2007-2013)
9,000,000
16,000
8,000,000
14,000
7,000,000
12,000
6,000,000
10,000
USD 000's
US$ 000's
Figure 4: Value of Chinese imports of raw leather (2007-2013)
intermediate goods more attractive (this is

confirmed by increased activity of Chinese
buyers in Kenyan markets of wet blue and crust
leathers). With its Vision 2030,19 the Kenyan
government is aiming towards a prosperous
nation anchored by competitive high value
industries, abundant human and social capital,
political maturity, and sound infrastructure.
Kenya is thus looking to capture a significant
share of the world employment opportunity that
will be generated by Chinas expecting shedding
of millions of jobs in the light manufacturing
industry, including the leather industry.20
5,000,000
4,000,000
8,000
6,000
3,000,000
4,000
2,000,000
2,000
1,000,000
2007
2007
2008
Total Raw
Source: UN Comtrade
2009
2010
Total Tanned
2011
2012
2008
2013
Total Further Prepared
Total Raw
2009
2010
Year
Total Tanned
2011
2012
2013
Total Further Prepared
Source: UN Comtrade
The number of Kenyans working for wage jobs grew gradually over the last few decades, and since the year 2009, has exceeded self-employment. The
nature of employment is in transition as well, as more people are moving away from traditional family-owned farming to higher value-added jobs.
20
At the same time, there exists an ever present challenge for Kenyan manufactures to reclaim market share in their own home market (particularly
for footwear), where Chinese producers remain extremely aggressive price-wise and are apparently committed to preserving their dominant market
position.
19
The near and medium-term outlook described

in the previous section necessitates a
successful revitalization of the entire Kenyan
leather sector. Already, Kenya is benefiting from
recent price increases for wet salted hides and
goatskins (such that buying skins, processing
them into blue leather, and exporting semifinished leathers has become a lucrative
business for established tanneries).
sector developer might be targeted in leading

the development of a leather industry park. The
government can broaden local procurement
opportunities to Kenya leather producers. The
entire local leather value chain can collaborate
to enhance its competitiveness vis--vis Kenyas
second-hand markets and imported new
footwear. These strategies (and others) are
discussed at length in Chapter 5.
Competitiveness analyses for Kenya in terms

of its value-added leather products suggest
that additional investment in downstream
processes, as well as improved quality control,
policies designed to encourage Foreign Direct
Investment (FDI), and up-scaling of product
designs and manufacturing processes are
needed (and make good economic sense).
These analyses are detailed in Chapter 4 of
this report.
An important mechanism for achieving the

basic goal of value addition and product quality
enhancement is the adoption of sustainable,
clean technologies. Discriminating buyers,
particularly in the developed world, value
green leather and are willing to pay a premium
for it. It follows that adhering to international
best practices21 for limiting pollutants and
remediating their impact on the environment
is not only a socially responsible strategy for
industry development but one which can
help position the Kenyan industry for the
production and sale of higher-value products.
Developing a clean, uniquely Kenyan brand
will help in this regard.
Furthermore, the leather sector itself merits

restructuring, notably in the manner of both
formal and informal network clusters to reduce
input costs and accelerate capacity. A private
Kenya lacks systematic conformity to international standards at present, so these need to be adopted not only at the discretionary level of individual
firms but also at the compulsory level of the entire leather industry.
21
SECTION T WO
KENYAN LEATHER PRODUCTS AND MARKETS
n developing a strategy for Kenyas leather

industry, the starting place for analysis
begins with an understanding of Kenyas
existing leather products and markets. This
chapter identifies Kenyas most important
leather products and highlights the most
significant segments and trends of domestic
and export markets.
processed tanned wet blue leather is Kenyas

leading leather industry export, accounting
for 89 percent (US$131 million) of the value of
total leather exports in 2012-13. As shown in
Figure 6, raw hides and skins accounted for 27
percent of total leather exports in 2007, until the
government began imposing duties. Since the
imposition of an 80 percent export tariff on raw
hides and skins in 2009, official statistics show
that exports of raw hides and skins dropped
to 3 percent of leather exports, with the share
of tanned leather product exports increasing
substantially.24
2.1 Kenyas Leather Products

Kenyas leather production consists mainly
(89 percent) of semi-processed tanned wet
blue and some crust leather. The remaining
production consists of finished leather (2
percent), leather footwear and handbags, travel
ware, and other leather products (4 percent),
and raw hides and skins (5 percent). This section
profiles the size and relative advantages of
Kenyas main leather products.23
Figure 6: Kenyas leather industry exports (2007-2013)

160,000
140,000
USD '000s
120,000
80% export tari on
raw hides, 2009
100,000
80,000
60,000
Wet Blue Production and Exports Dominate

Kenyas Leather Industry
40,000
20,000
Over the last few years and including 2013, the

size of the leather export market as a whole has
been showing an upward trend. Currently, semi-
2007
Raw
2008
2009
Wet-blue and Crust
2010
2011
2012
2013
Finished leather Leather Product
Source: UN Comtrade
Table 2: Exports of Kenyan leather and leather products (2007-2013) (thousands of US$)
Kenyan leather/leather products
2007
2008
2009
2010
2011
2012
2013
CAGR
Raw hides and skins
14,337
19,830
9,374
9,603
15,538
9,154
6,652
-12%
Wet blue/crust
38,477
52,505
32,467
58,355
84,309
102,888
130,905
23%
Finished leather
456
524
843
2,987
4,206
4,439
3,542
41%
Finished leather products
717
1,647
2,521
5,545
3,030
5,078
5,632
41%
53,987
74,507
45,206
76,491
107,082
121,560
146,731
18%
Total
Source: UN Comtrade
22
23
UN Comtrad.
UN Comtrad.
II. Kenyan Leather Products and Markets
The following trade data shows that India,

Italy, and China/Hong Kong were the biggest
importers of Kenyas wet blue leather in 2013.
China tops the list with US$63 million, followed
by Italy and India with US$45 million and US$10
million, respectively (Figure 7).
Figure 7: Kenyas wet blue export markets, 2013
70,000
60,000
USD '000s
50,000
40,000
30,000
20,000
10,000
-
China/HongKong
Italy
India
Source: UN Comtrade
It is important to examine the state of the

leather industry in the countries importing
Kenyas wet blue. All three of Kenyas biggest
wet blue importers are major leather good
producers in the global market. China is by far
the most dominant leather good producer in the
world in terms of production and export volume.
Italy is considered as the leading and most
advanced country in high-end leather products.
India has also risen to be a major force, backed
by its cheap and abundant labor, and concerted
government policies. The major difference
between Kenya and these three countries is
that Kenyas leather industry is not only small
in size, but it is only capturing a marginal share
in the global value chain. Greater wealth and
jobs are created in countries that are focused
on downstream manufacturing. In order for

Kenya to move into greater value addition and
job creation, Kenya must produce more finished
leather and finished leather products.
Furthermore, leather good producers and
industry experts in Kenya claim that high
quality hides and skins are more likely to fall in
the hands of foreign leather good producers,
which are able to pay higher prices for leather
products, while the domestic market is left
with low-quality finished leather. A natural
explanation is that a lot of small leather good
producers cannot afford to purchase high
quality leather due to their lack of capital. As the
majority of leather good producers in Kenya are
competing in the low-end market, purchasing
high quality leather for more will render their
products uncompetitive in the market. A number
of leather good producers also claim that some
tanneries cut corners to minimize their tanning
costs. The relationship between tanneries and
manufacturers was more balanced when more
sizable manufacturers existed in Kenya.
Kenyas vision to move up the value chain
According to UN Comtrade, in 2013, wet blue
and crust accounted for 89 percent of total
leather exports in Kenya while finished leather
and finished leather products together only
accounted for around 6 percent.24 Experts
emphasize that crust only makes up a fraction
within the 89 percent share and they estimate
that wet blue leather must be responsible for at
least 80 percent of total Kenyan leather exports.
Figure 8 summarizes the value chain and exports
of leather products in 2013.
There is concern among industry leaders that official sources of data underrepresent actual leather exports. A significant quantity of raw hides and skins
are being smuggled out from Kenya without being taxed. At the leather processing level, a key tannery owner reports that Alpharama tannery alone
exports over US$6 million worth of finished leather and the industry total is estimated to be around US$10 million. Finished leather product exports
also appear to be undervalued. Bata is estimated to export around US$4 million worth of leather shoes. Also, a large share of leather sandals and other
goods are leaving the country without declaration. Based upon interviews and analysis of the official data, in our judgment, the share of each stage of
the value chain in figure 8 portrays a relatively accurate picture of reality.
24
Figure 8: Total export value of Kenyan leather products (2013)

Abaitoirs &
Traders
Raw Hides
& Skins
Export
Value
% of
Exports
Capital/
Labour
Intensity
US$6.7 Million
Manufacturing
Tanning
Wet Blue
& Crust
US$131 Million
Finished
Leather
US$3.5 Million
Bovine US$59m
Sheep & Lamb US$23.4m
Other 49m
5%
Labor Intensive
89%
Leather
Products
US$5.6 Million
Footwear US$2.8m
Handbags etc. US$2.25m
Other US$0.6m
2%
Capital Intensive
4%
Labour Intensive
Source: UN Comtrade, 2014 Kenya Statistical Abstract, ETG Primary Research
Value is added when an industry moves right

in the above value-chain diagram, indicating
that Kenya is not currently capturing significant
earnings in the global value chain. Also, moving
to the right will mean that more jobs will be
created as the downstream (manufacturing) of
the leather industry is the more labor-intensive
sector. Kenya exports mostly semi-processed
wet blue, and a big share of value addition is thus
captured in other countries that have vibrant
leather product manufacturing industries
such as China, India, and Vietnam. As the
aforementioned data indicates, Kenya has made
notable strides in moving away from exporting
raw hides and skins to processed wet blue. The
goal is to leverage the current momentum and
move into more value added products, further
down the leather value-chain.
The Government of Kenya (GoK) envisions
the leather and leather industrial sector
playing a crucial role in the development of
its economy. On the leather processing side,
the goal is to move away from wet blue and
into crust, finished leather, and leather product
exports. On the leather product production
25
side, the goal is to capture an increased supply

of finished leather available in local markets and
produce more final leather goods such as shoes,
belts, and bags for the local and export markets.
However, it is important to note that once
leather reaches the finished stage in its
particular color, texture and pattern, the
local market has a limited number of buyers
for finished leather. Most international buyers
prefer leather in crust form as they still have
room to manipulate hides and skins according
to their preference. Tanneries must have a
good idea about which buyer or market their
finished leather is heading before undergoing
the finishing process. Because of international
buyers preferences of buying leather in crust
form, finished leathers are generally consumed
by local producers. In this light, our report
investigates whether the Kenyan market has
the capacity to absorb the potential surplus of
finished leather as well as whether Kenya can
increase its final leather products export market,
particularly to the East African Community (EAC)
regional market.
Kenyas final leather products
In the absence of statistical information about
the volume of production of different leather
products in Kenya, we approached local leather
experts and key players in the industry to
estimate the relative size and competitiveness
of Kenyas various leather products, using a
modified Delphi approach.25 According to the
data gathered, Kenyan producers are currently
producing various leather products that range
from low-end leather footwear to high-end
leather bags.
Chia-Chien Hsu, and Brian A. Sandford, (2007), The Delphi Technique: Making Sense Of Consensus, Practical Assessment, Research and Evaluation, vol
12, No. 10. http://pareonline.net/pdf/v12n10.pdf
Figure 9: Kenyas final leather products, dominated by footwear26

6
Footwear
Handbags
Competitive Advantage
5
Handicrafts
Leather Garments
Belts
Corporate Items
Industrial Gloves
Accessories
Saddlery & Harness
Types of leather footwear

As Figure 10 indicates, there is a wide range
of leather goods currently being produced
in Kenya. Kenya produces a range of leather
footwear, most prominently mens dress shoes,
school shoes, safari boots, military/security
boots, and sandals.
Figure 10: Types of leather footwear produced in Kenya
1
8
0
Price
Source: ETG based on modified Delphi method; bubble size indicates relative
production volume.
The consensus estimate by leather experts

indicates that footwear is Kenyas largest
finished product subsector, followed by
handbags, handicrafts, and belts. Bags earn
the highest selling price, with leather garments
in close second, followed by corporate items.
The other leather goods subsector along with
industrial gloves collectively have the lowest
selling points and production volumes, and also
offer the lowest competitive advantage. Other
leather goods include items such as sports balls,
knife cases, etc.
While the footwear subsector has the biggest
production volume, leather bags have the
highest competitive advantage in Kenya. The
reason for leather footwears low competitive
advantage, despite its dominance in production
volume, derives from the varying level of
competitiveness among different types of
footwear. This variance is illustrated in Figure
10. Contrary to the varied differences among
leather footwears competitive advantages,
many leather bags produced in Kenya are
considered high quality and high-end, and they
naturally receive higher prices in the market.
Safari Boots
School Shoes
Comptitive Advantage
Military/Security
Boots
Sandals
Men's Dress Shoes
4
3
Industrial Boots
Women's Shoes
1
0
0
Price
Source: ETG based on modified Delphi method; bubble size indicates relative
production volume
Many formal and informal producers are

engaged in the production of school shoes,
sandals, military/security boots, and mens
shoes for two reasons: First, there is a high
demand. A significant share of the Kenyan
population is in school and in the working age
bracket. Also, rising security concerns due to
terrorism and other factors has led to an increased
demand of military/security boots over the last
few years; Second, these items are considered
more as uniform products that do not require
advanced design capacity or sophistication.
These Kenyan-made products seldom have high
variety and the ones from the informal sector
share a similar rudimentary design. This explains
the reason behind the meager production of
womens shoes, which tend to be highly trendy
We asked the industry experts to scale (from 1 to 10: 1 being the lowest and 10 being the highest) each subsector by production volume (indicated by
the size of bubbles), competitive advantage (how competitive each domestic subsector is perceived to be in comparison to other counterparts in the
market), and price (how much value each product from each subsector commands in the market).
26
10
and require sophisticated design. The following

section further explores trends in the leather
footwear market, which as mentioned, accounts
for the biggest production volume and thus,
requires further exploration.
2.2 Kenyas Export and Import of

Leather Footwear
Kenyas export of leather footwear is relatively
small, totaling only US$2.8 million in 2013.
There has been an overall positive upward trend
of Kenyan leather exports since 2007, with a
spike in the year 2010. Kenyan leather footwear
exports have increased significantly (by a factor
of 31.4) from a negligible US$88,000 in 2007 and
US$555,000 in 2008, to US$2.8 million in 2013.22
According to interviews with experts, most
exports are Batas exports of military/industrial
and safari boots to the regional market (Uganda,
Tanzania, Zambia). However, it is important to
note that the number reflects official trade data,
which is always highly underestimated. Many
are exported or smuggled through Kenyas
porous borders to neighboring countries. There
is also export of belts, handicrafts, and sandals
to the regional market by local producers from

the informal (Jua Kali) sector.
Figure 11 highlights the 2013 value of leather
footwear exports of some of the key countries
with a vibrant leather production industry. The
total export value in 2013 was US$54.5 billion
of which China accounted for over 33 percent,
followed by Italy and Vietnam with 13.7 percent
and 9.5 percent, respectively. Although Ethiopia,
Kenyas regional competitor, only accounts
for mere 0.03 percent, it shows promise with a
near quadruple increase in the world leather
footwear export share since 2011. Kenya
currently contributes an insignificant amount to
the global leather footwear market.
Table 3 shows that the biggest buyers of
Kenyan leather footwear are mostly located in
Africa. East African Community (EAC) countries
such as Uganda and Tanzania are the top markets
for Kenyas leather footwear. Although the top
10 markets include countries from various
continents, export values are insignificant
except to a few African countries.
Figure 11: Value of leather footwear exports by

leading countries (2013)
60,000
Figure 12: Kenyan leather footwear exports (2007-2013)

4,000
54,534
3,500
50,000
US$ '000s
US$ (Millions)
3,000
40,000
30,000
7,452
10,000
1,000
5,180
2,139
0
World
2,000
1,500
17,969
20,000
2,500
540
18
500
0
China
Italy
Vietnam
India
Brazil
Ethiopia Kenya
2007
2013
Source: UN Comtrade
27
2008
2009
2010
Year
2011
2012
2013
Source: UN Comtrade
UN Comtrad.
11
Table 3: Top 10 destinations for Kenyan leather footwear exports, 2009-2013 (US$ 000s)
2009
2010
2011
2012
2013
1. Uganda
460
Zambia
1,575
Uganda
360
Zambia
743
Uganda
827.87
2. Tanzania
241
Uganda
1,292
Tanzania
313
Uganda
558
Zambia
735.86
3. U.K
182
Tanzania
294
Zambia
189
U.S
207
Tanzania
322.9
4. Malawi
122
U.K
251
South
Africa
134
Japan
196
Zimbabwe
156.22
5. Israel
64
Malawi
108
Japan
131
Tanzania
196
Malawi
143.21
6. South
Africa
41
U.S
93
U.S
112
South
Africa
155
U.S
113.78
7. U.S
37
South
Africa
45
U.K
109
Turkey
148
Japan
99.364
8. Rwanda
34
Australia
31
Rwanda
37
U.K
112
Italy
71.045
9. Germany
29
Austria
21
Spain
26
Zimbabwe
95
U.K
54.849
25
Germany
19
Austria
25
Rwanda
41
South
Africa
36.742
10. Italy
Total
1,233
3,729
1,436
2,452
2,562
Source: UN Comtrade
The upward trend of the leather footwear

export to EAC countries from 2007 through
2013 is consistent with the global export trend.
This suggests that the main export destinations
for increased Kenyan leather products will be
the regional market, through the EAC countries.
Figure 13: Leather footwear export to EAC countries
Kenya leather footwear imports

Although the majority of new footwear
imported into Kenya consists of plastic/nonleather shoes, imported leather footwear has
grown rapidly in recent years, from US$2.4
million in 1995 to US$5.5 million in 2007, and
reached US$12.3 million in 2011 and US$11
million in 2012, as indicated in Figure 14.
Figure 14: Growth of leather footwear imports in Kenya
(1996-2012)
1,400
1,200
USD'000s
1,000
800
600
400
200
2008
2009
Uganda
Source: UN Comtrade
2010
Tanzania
2011
Rwanda
2012
2013
Buruni
Source: The Atlas of Economic Complexity
Beatrice E. Imo, and Rael C. Maiyo, (2012), Lessons from Thriving Second-Hand Clothing Businesses for Kenyas Fashion Industry, Journal of
Emerging Trends in Economics and Management Sciences. 3 (1): 32-37.
27
12
Figure 15: Sources of Kenyan leather footwear imports (2013)
Source: The Atlas of Economic Complexity
In addition, although the Kenya Bureau of

Standards (KEBS) has implemented guidelines
called the Pre-Export Verification of Conformity
(PVoC) to Standards Programme for exports
to Kenya to assure Kenyan consumers of the
safety and quality of the imported goods they
buy, and to protect Kenyan manufacturers
from unfair competition, many believe these
are not rigorously implemented.
Comparison of exports and imports of leather
footwear
Despite the fact that footwear takes up
the biggest share of final leather products
produced in Kenya, the country still imports
more than it exports. In 2012, the value of

Kenyas total export of leather footwear was
US$2.7 million, while import value was US$11
million. The data available demonstrates that
Kenya is a net importer (US$8.3 million)29 of
leather footwear and many experts estimate
the true value of leather footwear imports to be
greater than US$8.3 million.
2.3 Kenyas Export and Import

of Leather Bags, Travel Ware,
Corporate Items
After footwear, leather bags make up the
second biggest leather subsector in Kenya.
There are many small and medium size players
involved.30 The trend of Kenyas export of
leather bags, travelware, and corporate items
mirrors that of the Kenyan footwear sector.
Although small in absolute value, there has
been an overall upward trend of exports since
2007. Kenyan leather handbag, travelware,
and corporate item exports have increased
significantly from a negligible US$383,000
in 2007 to around US$2.3 million in 2013,31
showing potential for future growth.
Figure 16: Exports of Kenyan leather bags, travelware
and corporate items
2,500
2,000
US$ '000s
The above diagram shows that China is the

biggest exporter of leather footwear to
Kenyan market, followed by India. The total
amount sums up to US$11 million.28 However,
similar to other official trade data in Kenya,
pundits claim that this number is greatly
undervalued. The market suspects that a
significant amount of imported products,
especially from China, are brought into Kenya
via Uganda without formal declaration.
1,500
1,000
500
2007
2008
2009
2010
2011
2012
2013
Source: UN Comtrade
The Atlas of Economic Complexity, Center for International Development, Harvard Universiry. www.atlas.cid.harvard.edu
Ibid.
30
This will be discussed more in detail in Chapter 3.
31
UN Comtrade
28
29
13
2.4 Domestic Footwear Market

In the absence of data about the size of Kenyas
domestic market for footwear, the team
conducted interviews with experts to obtain
consensus estimations based on a modified
Delphi Approach. The findings indicate that
the second hand market (Mitumba) accounts
for around 63 percent of footwear sold in Kenya.
Around 26.5 million pairs of Kenyan footwear are
sold per year in second-hand Mitumba markets
as illustrated in Figure 17.
Among new shoes, the majority of purchased
shoes are in the low-cost category, with an
insignificant amount of shoes in the high-cost
category. This trend hints at the purchasing
power of the Kenyan population as well as the
distribution of economic class in Kenya.
low-price leather shoes are being produced

and this is the only category that Kenya is more
competitive vis--vis international footwear
importers. Experts emphasize that in the lowprice leather shoe market, there are still vibrant
local producers, mainly the informal (Jua Kali)
sector, competing against cheap imports from
China and Ethiopia. In the mid-price category,
only about 0.8 million leather shoes are made in
Kenya, with the other 1 million pairs imported.
Shoes in this category are mainly attributable to
Bata Shoe production. Again, there are currently
no local producers of high-end leather footwear.
Non-leather shoes dominate in both the

Mitumba and lower price range footwear,
which dominate the Kenyan footwear market.
Out of an estimated 42 million pairs of shoes
that are being purchased in Kenya annually,
15 million pairs (36 percent) are leather shoes.
According to experts estimations, domestic
producers only supply low-price and mid-price
leather shoes into the market. Around 2.6 million
This estimation indicates that 11.7 million

leather shoes are imported from overseas
while only about 3.3 million pairs (including
2.6 million low-price shoes and 0.7 million midprice shoes) are being made domestically. The
majority of imported leather shoes arrive via the
second hand Mitumba market (8.5 million) while
the majority of Kenyan-made leather shoes
come in the form of low-price shoes produced
mainly by the informal sector. In order for
Kenyan leather footwear producers to grow and
capture increased market share, it is critical to
understand the trends of both Kenyas informal
sector and the Mitumba market and what makes
them competitive in the Kenyan market.
Figure 17: Kenyan market share of footwear by point

of distribution/price
Table 4: Sales of all footwear in Kenya, 2014 (millions of pairs)
30
Total
pairs sold
(millions)
Nonleather
Leatherimported
LeatherKenyan
Second hand mitumba
26.5
18.0
8.5
0.0
New-low price
12.8
8.1
2.2
2.6
New-mid price
2.5
0.6
0.9
0.7
New-high price
0.2
0.0
0.2
0.0
Total
42
26.7
11.7
3.3
Type of footwear
Pairs of shoes sold (millions)
25
20
15
10
5
0
Source: ETG based on Modified Delphi Method

2nd HandMitumba
Non-Leather
New-Low
Cost
Leather-imported
Source: ETGs based on Modified Delphi Method
14
New-Mid
Cost
Leather-Kenyan
New-High
Cost
2.5 The Second-Hand Mitumba

Market
Kenyan leather footwear producers are facing
steep competition in the domestic market from
the second-hand leather footwear market,
known in Kiswahili as Mitumba, which
imports footwear from overseas. In fact, the
majority of footwear purchased in Kenya comes
from these second-hand Mitumba markets. The
Mitumba markets are highly popular across the
entire Kenyan socio-economic spectrum due
to the relatively high-quality, low-cost goods
that can be obtained. Experts point out that
locally produced leather goods, particularly
shoes, carry a stigma of being high priced, lowquality products with a generally plain design.
Mitumba is thus the market of preference for
many Kenyans, because it grants access to
low-cost, good-quality products to the poorer
populations, while at the same time, allows the
upper class to enjoy stylish trends and designer
brands that the Kenyan domestic leather
producers lack. Because of the prominence
of Mitumba in the leather sector and its direct
competition with domestically produced leather
goods, it is critical to analyze this informal,
thriving sector market. Our research indicates
that the Mitumba market accounts for some 57
percent of the total leather shoes purchased
in Kenya, while new, low-cost leather footwear
accounts for 32 percent, and Kenyan produced,
low-cost leather shoes only account for 17
percent. An understanding of the Mitumba
market and how it holds a strategic advantage
in the competition for low-cost goods will allow
for an informed approach to increasing growth
in sales of new, low-cost goods and making them
more competitive with second-hand goods.
Brief History of Kenyas Mitumba Market
the creation of the Mitumba market has an
interesting historical context, embedded in

humanitarian relief. Second-hand products
started to flow into Kenya in the 1970s and
80s, when many NGOs and humanitarian
organizations began sending donated clothes
to the refugees from neighboring warring
states.32 Initially, the GoK imposed a stringent
tariff to limit their entry and protect its
manufacturing industries. The inflow reached
new heights, however, when the IMF and the
World Bank imposed a structural adjustment
program to the Kenyan government, which
further liberalized the market to the outside
world. Many manufacturers operating in Kenya
struggled to compete with the low cost, secondhand influx of shoes (and clothing) that followed.
This market liberalization, combined with the
low purchasing power of its general population,
has made many Sub-Saharan African countries
like Kenya fertile grounds for the flourishing
of second-hand product markets. Started as
a charitable act, the trade of second-hand
products has now become a lucrative business
in the world. UN Comtrade statistics indicate
that the global second-hand clothing trade has
increased from US$1.4 billion in 1990 to US$5.9
billion in 2011.33 Many experts even claim this
number to be a major underestimation, as a big
share of second-hand products are also being
smuggled through the borders undeclared.
The informality of this market segment makes
precise economic calculations difficult.
Mitumba Market Import ProcessMost of the
second-hand shoes that arrive in Kenya are
donated by people in Europe, North America,
and Asia to charity shops and donation bins
that NGOs manage. NGOs, such as the Salvation
Army, then sell their collection to commercial
companies that sort the products by type and
degree of quality before exporting them to
Beatrice E. Imo, and Rael C. Maiyo, (2012),Lessons from Thriving Second-Hand Clothing Businesses for Kenyas Fashion Industry,Journal of Emerging
Trends in Economics and Management Sciences. 3 (1): 32-37.
33
A. Hoogerbrugge,(2012),Trust in Mitumba: Trade relationships in the Kenyan second-hand clothing market (Masters Thesis). Leiden University.
32
15
Figure 18: The mitumba market product flow chart

Donated Clothes
and Shoes
Donated
Donation Bin
Charity Shops
Overseas
(Germany, UK,
China etc.)
Commercialized
Reclamation / Used Textile and Shoe Industry
Kenya
Commercial Importers
Wholesalers
Open Air Market
Boutique Shops
Large and Medium Size

Retailers
Small Retail Stores /

Stores / Hawkers
(Urban)
Bale
Opened
Small Retail Stores /

Stands / Hawkers
(Rural)
Consumers
Source: ETG
Kenya upon order from the Kenyan market.

Commercial importers in Kenya purchase bags
of shoes and clothes by weight (kg) and when
containers reach the port of Mombasa they pay
16 percent VAT and import duties depending on
their value. Wholesalers buy bales of shoes and
clothes from the commercial importers and sell
them to their corresponding retailers all across
Kenya. Small retailers, in both urban and rural
areas, who cannot afford to purchase in bales
purchase goods in smaller quantities (pairs of
shoes and/or pieces of clothing). One can see
individuals without retail stores selling Mitumba
shoes and clothes on the streets in Kenya.
16
Figure 19: Origin of second-hand footwear in Kenya

2%
0.5%
8%
16%
China & Hong Kong
Source: ETG
Germany & EU
North America
East Asia
A notable commercial importer claims that the

second-hand footwear market is much smaller
than the clothes market. Our primary research
estimates that around 26.5 million pairs of shoes
are being purchased annually via second-hand
markets in Kenya. Among these 26.5 million
pairs, one industry expert estimates that around
16 million pairs (60 percent) come from China/
Hong Kong, 7.5 million (30 percent) from
Europe, with the rest coming from countries in
North America and East Asia.
A bale of second-hand footwear from China
contains around 10 percent leather shoes,
while around 80 percent of the shoes that come
from Europe are made of leather. As shown in
the figure below, the total number of leather
shoes bought from the second-hand Mitumba
market is estimated to be around 8.5 million
pairs. Europe, despite contributing to a smaller
share of footwear than China, remains the main
source for second-hand leather footwear for
Kenya, with an estimated 6 million pairs. China/
Hong Kong rank second with 1.5 million pairs,
while the rest is provided by North America and
East Asian countries.
Figure 20: Origin of second-hand leather footwear in Kenya
(8.5 million pairs)
0.2
1
1.5
6
China & Hong Kong
Germany & EU
North America
East Asia
Source: ETG
While the origin of second-hand shoes in Kenya

has been dominated by European countries
such as Germany and the UK, second-hand
products originating from China and Hong

Kong have been increasing gradually due
to their low price, as commercial exporters
in China and Hong Kong charge lower fees.
On average, a bale of second-hand shoes from
Germany costs approximately double of a bale
coming from China. As is the case in other lowcost manufacturing markets, in the Mitumba
market we are witnessing a gradual gravitation
towards cheaper products from China/Hong
Kong. From an economic perspective, this
gravitation allows wholesalers and retailers to
pursue larger profit margins by lowering their
costs through the purchase of cheaper bales.
The distribution of these higher cost European
shoes and lower cost Chinese/Hong Kong
shoes varies by income level and quality
needs. In general, cheaper and more diverse
second-hand footwear bales of Chinese origin
are sold better in urban areas where there is a
higher concentration of low-income Kenyans.
Bales of durable and higher quality secondhand shoes from Europe are sold to rural areas
where there is a higher concentration of people
walking long distances and therefore, in need
of higher-quality shoes. However, the high-end
designer shoes are normally sorted and sold in
boutique shops in the cities where people can
afford such luxury products and prices.
Employment in the Mitumba MarketSecondhand markets have been controversial across
Sub-Saharan Africa, and Kenya is no exception.
The robustness of this informal sector has had
dramatic implications for the formal sector of
the manufacturing economy, and a number of
policy ideas have been generated for limiting
the supply of second-hand goods and their
prevalence in the market. Many industrialists
have argued that the influx of cheap products
drove a number of Kenyan textile and leather
footwear manufacturers out of business and
17
also took away employment opportunities

from the population. To this end, countries
such as Nigeria, Ethiopia, and South Africa have
banned the import of second-hand products.
On the other hand, studies have found that the
Mitumba market generates great employment
opportunities for the low-skilled population.34
Although it is hard to measure the precise
number of people involved in the informal
sector, Nairobi City Council estimates that
over 65,000 people work in the Gikomba
market alone, Kenyas biggest second-hand
market in Nairobi. This figure is likely to go up to
hundreds of thousands when official estimates
are conducted nationally.35 This estimation far
exceeds the number of people employed in the
leather industry (which is estimated at 16,000
workers-see Chapter 3). Thus, the second-hand
Mitumba market not only brings low-cost, goodquality, stylish clothes and shoes to Kenya, but it
also serves as a critical source of much needed
employment opportunities across Kenya.
Implications of the Mitumba Market for the
Local IndustryOne important implication of
the growth of the Mitumba market is that as
Chinese non-leather shoe imports continue
to make up a larger share of the second-hand
footwear market, there will be a gradual
reduction in the availability of second-hand
leather shoes in the Kenyan Mitumba market.
As noted, bales that originate from China/Hong
Kong contain mostly synthetic, plastic, and
canvas shoes. Global trends indicate that the
demand of leather goods is growing faster than
the supply. Therefore, in developing economies
with growing populations, and especially among
the younger cohorts, the demand for leather
goods such as school shoes will rise. Projected

economic growth rates and the expansion of
the middle class in countries like Kenya indicate
that there is an increasing market opportunity
for Kenyan leather products. Decreasing supply
of leather goods from countries like China, in
conjunction with increased demand for leather
products in emerging economies, presents a
unique opportunity for Kenya to capitalize on
this supply gap.
It will be highly unlikely for local manufacturers
to replace the high-end, designer leather
shoes that arrive from European countries,
at least for the foreseeable future. However,
high-end, second-hand leather shoes are only a
small fraction of the entire 8.5 million Mitumba
leather footwear market. By far, the largest
share belongs to low and mid-cost shoes,
which appeal to the majority of the Kenyan
population. This presents an opportunity for
local leather footwear producers to fill this
gap. The Mitumba market contains a rich web
of activity in the leather industry, from buyers,
suppliers, manufacturers, and skilled artisans
(see Chapter 3). However, there are a number
of areas in which the leather value chain must
be improved in order for low-cost, new goods
to be able to compete with second hand
products coming into the market. This includes
improved finishing techniques, standardization
throughout production for reliably consistent
goods, and light use of mechanization. The key
is to retain the low cost of production of these
goods while improving the quality and finish.
Reduced competition from Chinese leather
goods also creates an opportunity for Kenyan
leather goods to compete on a regional scale, in
other East African markets.
Philip K. Rono, (1998) Womens and Mens Second-hand Clothes Businesses in Two Secondary Towns in Kenya IDS Working PaperNo. 521, Institute for
Development Studies, University of Nairobi.
Business Insider, (2014), Nairobi's Gikomba Market Is Like Fifth Avenue, Except Everything's Secondhand, October 15. http://www.businessinsider.
com/r-the-global-business-of-secondhand-clothes-thrives-in-kenya-2014-10
34
35
18
2.6 Key Findings of Chapter 2

This chapter investigated the principal leather
products, markets, market dynamics, and
influence of second-hand products in Kenya.
Currently, Kenya fails to capture much of the
potential value inherent in the global leather
product value chain. Almost 90 percent of
leather products are exported in the semiprocessed, wet blue form and only a small
amount of finished leather goods are being
exported. Even worse, unofficial estimates
of exports of raw skins and hides and semiprocessed leather are speculated to be much
higher than official statistics.
Our estimates of leather products production
(using our modified Delphi method) indicate
that the handbag subsector is the most
competitive, while footwear is the biggest
leather goods subsector in Kenya. There is
also a range of other leather products produced
such as belts and industrial boots; however,
the scale and competitiveness of production in
these more diverse subsectors is very low and

almost insignificant. The failure of the leather
sector to test and diversify new processes,
markets, and products is a major obstacle to
discovering sources of competitive advantage.
Failure to formally integrate the formal and
informal sector and to create incentives for
quality differentiation between the agricultural
and the manufacturing sectors are the most
significant. However, many other factors also
hinder growth. This chapter identified the inflow
of cheap, new and second-hand products into
the Mitumba market as among the major
challenges to greater value addition for Kenyan
leather made goods.
The following chapter describes in detail the
strategies and market approaches of specific
Kenyan companies. It is intended to add
context and texture to the findings presented
in Chapter 2, and to describe the structure,
key stakeholders, and dynamics within Kenyas
leather industry.
19
20
S E C T I O N THRE E
KENYAS LEATHER SECTOR
his chapter maps the structure and

organization of Kenyas leather sector.
It deals separately with leather and leather
products production in the formal and informal
sectors because, as noted in the previous
chapter, the two sectors of activities are
strategically autonomous. Participants in both
sectors are linked only through arms-length
transactional relationships, if at all.
3.1 Overall Structure of Kenyas

Leather Sector
Kenyas leather sector has been on a
rollercoaster in recent decades. Due to its
abundant livestock population, Kenya has
been a net exporter of meat as well as hides
and skins for decades. As hides and skins
have traditionally been perceived only as by
products of meat, leather export predominantly
took place in the form of raw hides and skins.
Between 1979 and 1980, approximately 75
percent of total leather export was in raw
hides.36 As the Kenyan government recognized
that higher value resided in processing and
in finished products, they experimented with
the idea of banning export of raw hides and
skins in 1980. Although the ban was reversed
quickly, this initiative encouraged the rise of the
tanning industry in Kenya.37 With support from
the government, a number of tanneries and
manufacturers appeared. The leather footwear
sector, spearheaded by Bata, Kenyas leading
footwear company, made an impressive stride
in the market.
The heyday of the Kenya leather industry did

not last long, however. Market liberalization
combined with abolishment of 22 percent
export compensation to local manufacturers
upended the state of the Kenyan leather
industry. Many manufacturers were no longer
competitive and were forced to close. As
the number and capacity of leather good
producers decreased, tanneries also faced a
significantly reduced market capacity to absorb
further processed leather. Few tanneries and
manufacturers made proper adjustments and
few survived to this day.
Today, Kenyas leather sector is composed of
suppliers of raw hides and skins, abattoirs,
traders, tanneries, and producers of leather
products in varying sizes. Broadly, the sector is
divided into the formal and informal sector. Total
employment in the leather industry is estimated
to be around 14,000 during peak times. As
shown in Chapter 2, according to official trade
statistics, the total value of leather and leather
products exports was US$122 million in 2012 and
US$147 million in 2013. Almost all leather goods
manufacturers that operate in Kenya today are
considered small and micro enterprises. Only a
few constitute medium enterprises.38 Among
small and micro scale producers, the majority
prefer to be in the informal sector in order to
avoid the tax burden.
USAID, (c.1987), Leather Industries of Kenya: Direct Loan Case Study, PRE Project Number 940-0002.12, unpublished manuscript, Available online:
http://pdf.usaid.gov/pdf_docs/PNAAY145.pdf
37
Ibid.
38
The Micro and Small Enterprises Act defines micro and small enterprises as those who employ no more than 50 employees, with annual turnover of less
than 5 million Ksh, while medium enterprise are those who employ between 51 and 100 employees.
36
21
III. Kenyas Leather Sector
Figure 21: Simplified leather industry value chain
Animal
Herders
Abattoirs
Leather Good
Producers
Tanneries
Market
Consumers
Source: ETG
The industry is constrained on the supply side

by the quality of raw hides and skins,39 the
limited focus of tanneries on exporting wet
blue, and the limited capacity for producing
finished leather products. On the demand side,
the industry faces extremely intense competition
due to imports of shoes and leather products
for the second-hand (Mitumba) market, and low
price footwear imports, particularly from China,
India, and Ethiopia.
The below diagram illustrates the leather
value chain from herders to leather footwear
manufacturers. It is an industry that generally
involves three subclusters: livestock breeding,
raw hides and skins, and leather and leather
products. Production efficiency and quality in
the previous stages of the value chain directly
affect the success of the players in the later
stage. Thus, for an industry which involves a wide
range of players such as the leather industry, it

is critical to have sophisticated infrastructure,
linkage, and communication.
For the purpose of this investigation, the
report will treat the supply of crust and
finished leather as a starting point. It is by no
means to undermine the importance the earlier
stage of the leather value chain, but to highlight
the inter-linkage of players that are directly
responsible for the value added products and
their markets.
Kenyas leather product sector is a complex
network of various stakeholders playing
different roles. On the supply end, only a few
tanneries supply crust and finished leather and
Alpharama is the major supplier to the local
market. Currently, there are several wholesalers
in between tanneries, and there are leather
Figure 22: Simplified leather industry value chain40

Livestock Breeding Cluster
Raw Hides & Skins Cluster
Leather and Leather Products Cluster

Imported
Accessories
& Equipment
Private Vet
Services
Feed
Suppliers
Private
Fatteners
Livestock
Contraband
Trade
Commercial
Abattoirs
(10%)
Butchers
Household
Livestock
(Farmers)
Livestock
Traders
Livestock
Market
Imported
Chemicals &
Equipment
Urban
RHS
Collectors
Big RHS
Traders
Footwear
Industrial
Tanners
Hotels
Rural RHS
Collectors
Backyard
Slaughtering
Low Quality / High Waste
Local Finished
Leather Traders
Rural RHS
Traders
Traditional
Tanners
Semi-Finished /
Finished Leather
Export Market
Leather Apparel
Other
Leather Goods
Source: ETG
Funding for veterinary support for cattle dipping and animal husbandry has decreased, partially contributing to the poor quality of hides and skins.
RHS = Raw Hides & Skins Cluster.
39
40
22
middleman that even make deliveries to

Mombasa. Many leather middlemen are located
in Kariokor Market in Nairobi where small scale
leather product producers from as far as Thika
come to purchase leather sheets and other key
inputs for their products.
The leather product sector is divided into lowend and high-end producers.
Low-end: Most of the small-scale, low-end
product producers source their inputs from
Kariokor Market (KM) where you normally find
low quality finished leather. Because of the high
concentration of cheap inputs and labor force,
Jua Kalis that belong to this group are found in
KM. Retail shop owners from all over Kenya and
wholesalers from neighboring countries visit
KM to purchase leather products.
High-end: Producers involved in high-end
leather products tend to purchase directly from
tanneries for higher quality finished leather. Due
to the lack of machinery and artisans with skills
that could transform designs into a product,
many designers outsource actual production to
leather workshops that have capacity to do it.
Once the product is finished, the designers and
brands themselves market their products via
various channels.
The following Kenyan leather sector profile
describes the structure of the sector and interlinkages of various players in different part of
the supply chain in more detail.
Kenyan leather cluster

The cluster map in Figure 23 highlights the
main activities and stakeholders in Kenyas
leather industry in Nairobi and its surrounding
areas, and indicates the many interwoven
and complex linkages between stakeholders.
It is somewhat difficult to discern between
the formal and the informal market, which
play complementary roles along the same
value chain but throughout different stages of
production. Formal registration of facilities and
leather companies requires fees and taxes that
are prohibitive for small-scale producers. At the
center of the cluster map is the heart of Kenyas
informal leather clusterthe Kariokor Market
which is a primary informal center of leather
production in Kenya. The size of the bubbles in
the cluster map indicate the relative size of their
production and/or supply. Empty bubbles are
placed to indicate that there are additional, but
less important, players involved in each sector
that, for the purposes of space and efficiency,
are not included in Figure 23.
The KM forms a large part of the informal
market and contains about 300 workshops
and stores, with products ranging from shoes,
belts, wallets, bags, and more. Due to their
smaller size and limited financial capabilities,
some 10-20 stores in the market purchase
leather bundles from the tanneries, as opposed
to buying leather sheets in bulk from these
tanneries. The formal leather market includes
the large tanneries, wholesale producers, largescale producers, some component suppliers,
and institutions and formal market avenues
such as retail stores.
23
Figure 23: Kenyan leather cluster map (Nairobi and its surrounding region)
Leather
Wholesalers
Leather Suppliers/
Tanneries
Small Scale Leather

Good Producers
Trading
Co.
Dimu
Leather
Shop
Dismas
Dogbone
Component
Suppliers
Input
Producer
Handicraft Maker
Sole
Producer
Shoe Producers
Other
Belt
Producers
Ondiri
Alpharama
Leather Middlemen Components Middlemen
Bata
Retail
Stores /
Markets
Sandal Producers
LIK
Raw
Materials
(Raw Hides
and Skins /
Wet Blue)
Sagana
Leather Shoe
Producers
Azia
Wallet Middlemen
Belt Producers
Export
Other Goods Producers
Kariokor Market Leather Cluster

United Footwear
Producers
Own Retail
Stores / Retail
Stores
SandStorm
Manufacturer
Rift
Valley
Leather
Leather
Masters
Bata (Mfg)
Sanabora
Market
Small workshop
Mid-Scale Leather
4
Large Scale Footwear
& Leather Good
Formal Sector
Informal Sector
Strong Linkage
Medium Linkage
Weak Linkage
Adelphi
AHITI
KIRDI
Designers
KLDC
KITI
Tanners
Association
Cobblers
Association
TPCSI
KFMA
University of
Nairobi
KAM
LAEA
Dedan
Kimathi U of T
Technical U.
of Kenya
7
Institutions
Source: ETG
Starting from the top left portion of the cluster

map and proceeding clockwise, the elements
of the cluster map are explained as follows:
1. Leather suppliers: These are the tanneries
in Kenya that are providing finished leather
in different quantities (bulk supply versus
smaller amounts of leather sheets), both
24
directly to vendors at KM as well as to large

scale producers, wholesale producers,
and smaller vendors. Tanneries include
Alpharama, the biggest of the tanneries,
Bata, LIK, Aziz, Sagana, and smaller tanneries
such as Dogbone, which provides wet blue
leather to Alpharama.
2. Wholesale leather suppliers: Located

just to the right of this is the subcluster
of wholesale leather suppliers, which
also procure leather from the tanneries.
This cluster includes Dismas, Balozi, and
Dimu Leather Shop. Alpharama and other
tanneries provide the leather for Dimu
and Dismas. These wholesale producers
buy leather in large bundles and sells it to
various players in the industry.
3. Component suppliers: These provide
pieces and accessories such as buckles,
soles, thread and glue, which are sourced
locally as well as internationally from
China, India, and other countries. Large
scale leather good producers may
purchase directly from the supplier, while
many small-scale producers go to small
retail stores in town or the middlemen at
the KM for the purchase.
4. Large-scale producers: These are leather
factories and workshops that include Bata,
United Footwear, Sandstorm, and Leather
Masters. Because of their larger size, these
producers have enough capital to go
directly to the tanneries to obtain leather
bundles and are thus likely to receive
higher-quality leather products from the
tanneries. Of these companies, Leather
Masters is among the biggest of the East
African workshops contracting production
of leather goods for other designers due to
their large scale and access to machinery
and skilled staff. Leather Masters produces
bags, wallets, champagne cases, and most
leather items except for shoe production,
which they do not partake in.
5. Small-scale, low-cost producers: These are

small-scale producers that are considered
part of the informal market (since many are
not officially fully registered), but do not
specifically sell at the KM. They include shoe
producers, belt producers, and handicraft
makers. They might, for example, be located
outside of the city center and sell their
goods at small shops or stands.
6. Market: The market constituents outside KM
include retail stores and leather products
being exported. Higher quality leather
products are often exported to European,
North American, and Asian markets.
7. Institutions: Institutions include both
governmental and non-governmental
institutions. The Animal Health and Training
Institute (AHITI), Kenya Industrial Research
and Development Institute (KIRDI), Kenya
Leather Development Center (KLDC),
Kenya Industrial Training Institute (KITI) and
Training and Production Center for the Shoe
Industry (TPSCI) are all public government
institutions that, by definition, provide
training, support, and tech transfer
services to the leather sector.41 In reality,
these institutions are underutilized and
underfunded, and currently offer little
support to the leather sector, leaving
vast room for improvements in their
operations. The other institutions include
the Kenya Association of Manufacturers
(KAM), which is also underutilized and
requires membership, the Leather Articles
Entrepreneurs Association (LAEA), a
new movement in the leather sector,
and universities (which include leather
training institutions).
Leather institutions and associations will be discussed in more detail in Chapter 3.3.
41
25
In the cluster map, just to the right of the

larger scale producer companies, we see
designers who do not own workshops and
often contract out their production to the
larger factories/workshops such as Leather
Masters. Alternatively, they might contract out
their production to smaller-scale workshops
such as Adelphi and Sanabora, which are further
to the right.
Adelphi and Sanabora are designers who, as
mentioned, own smaller-scale workshops.
Normally, they produce for their own brand but
at times receive orders from small designers
that do not own workshops. Occasionally, they
receive orders from designers or retail store
owners operating overseas. In these cases, the
designer will put in an order for a certain amount
of unlabeled product (as opposed to putting the
Sanabora brand name on it) and the company
will then put its own name on the product.
Some local designers and producers approach
the Training and Production Center for the
Shoe Industry (TPCSI), an institute whose
main objective is to train artisans. Brands and
designers without workshop facilities outsource
their production to TPCSI with a service charge.
Occasionally, some small-scale producers with
their own workshops, such as Palm Prints and
Adelphi, also reach out to TPCSI to access certain
machinery or in instances when their workshop
is out of capacity to meet orders.
In general, linkages within the Kenya leather
cluster are extremely weak. The distinction
that is frequently made between the formal and
informal production sectors is a distinction that
relates to the minimal exchange of products,
credit, information, and personnel across

organizational barriers (e.g. formal and informal
sectors), which can be described as nearly
impermeable. Other weak links in the cluster
involve vertical linkages between manufacturers
of leather products, and wholesaler/retailer
linkages between leather producers and
leather product manufacturers, and indeed,
even linkages between abattoirs and tanneries.
The relationships which predominate in each
of these instances are trading relationships,
more tactical than strategic, more short term
than long term, and lacking in opportunities
to transfer risks among value chain partners.
Strengthening these linkages and transforming
them into effective conduits through which
products, information, credit, and key personnel
can flow and in which risks can be jointly shared
needs to become an overriding objective of
government policy.
The figure below builds upon Figure 23 and
illustrates strategic linkages that can and
should be strengthened within the cluster
by adopting initiatives that: (i) enhance
communication and trust among cluster
stakeholders; (ii) develop cluster accelerators/
common manufacturing facilities;42 and (iii)
attract key companies to densify the cluster
(see recommendation in Chapter 5). Overall,
the bubbles are bigger in size to indicate
general growth in the Kenyan leather industry.
The highlighted (red) parts indicate the
transformation. Weak linkages are strengthened
by more balanced relationships among various
actors. The informal KM plays a bigger role
in the industry and their marketing channel
is expanded. New red bubbles indicate the
appearance of new players in each subsector.
The accelerators and common manufacturing facilities will be further explained in Chapter
42
26
Figure 24: Strengthened Kenyan leather cluster map (Nairobi and its surrounding region)
Leather
Wholesalers
Leather Suppliers/
Tanneries
Dogbone
Component
Suppliers
Trading
Co.
Dimu
Leather
Shop
Dismas
Small Scale Leather

Good Producers
Input
Producer
Handicraft Maker
Sole
Producer
Shoe Producers
Other
Other
Tannery
Belt
Producers
Ondiri
Alpharama
Leather Middlemen Components Middlemen
Bata
Retail
Stores /
Markets
Sandal Producers
LIK
Wallet Middlemen
Leather Shoe
Producers
Azia
Belt Producers
Accelerator
Raw
Materials
(Raw Hides
and Skins /
Wet Blue)
Sagana
Export
Other Goods Producers
Kariokor Market Leather Cluster

United Footwear
Producers
Own Retail
Stores / Retail
Stores
SandStorm
Manufacturer
Rift
Valley
Leather
Leather
Masters
Bata (Mfg)
Sanabora
Adelphi
Market
Accelerator
Mid-Scale Leather
Large Scale Footwear
& Leather Good
Formal Sector
Informal Sector
Strong Linkage
Medium Linkage
Weak Linkage
AHITI
KIRDI
Designers
KLDC
KITI
Tanners
Association
TPCSI
Cobblers
Association
KFMA
University of
Nairobi
KAM
LAEA
Dedan
Kimathi U of T
Technical U.
of Kenya
Institutions
Source: ETG
Leather industry employment

In 2013, Kenyas leather industry employed
14,000 workers during peak times, a number
based on combining official formal sector
employment data with expert consensus
estimations of informal sector employment,43
as shown in the Table 5. The diverging trend
between the formal and informal sector is
43
noteworthy. The employment figures for the

formal sector have steadily remained around
4,000 while figures of the informal sector have
increased from 7,000 to 10,000 over the past
five years. Importantly, these are not full-time
equivalent workers, given that labor in the
informal sector is transient, and varies during
peak times.
Chia-Chien Hsu, and Brian A. Sandford, (2007),The Delphi Technique: Making Sense Of Consensus. http://pareonline.net/pdf/v12n10.pdf
27
Table 5: Employment in Kenyas leather industry (2009-2013)

2009
2010
2011
2012
2013
Tanning
995
1,002
1,064
1,047
1,077
Footwear
1,691
1,695
1,799
1,800
1,859
Handbags, luggage, etc.
906
984
1,007
1,032
1,075
Sub-total-formal sector*
3,592
3,681
3,870
3,879
4,011
Sub-total-informal sector (jua kali)**
7,000
7,500
8,000
9,000
10,000
Total
10,592
11,181
11,870
12,879
14,011
Sources: *2014 Kenya Statistical Abstract

** ETG primary research,
3.2 Leather Product

Manufacturers in the Formal
Sector
Footwear manufacturing
Kenyas once vibrant footwear manufacturing
industry experienced a downward trend
when the government opened the door to
more cost-competitive footwear from Asian
countries during the 1990s. At the time, a
number of major players closed down their
operations, having failed to adapt to the highly
competitive market. Blueys, a company that
was big enough to export its footwear, for
example, has disappeared from the industry.
Other companies that weathered the storm
were forced to adapt by focusing on more niche
markets. The stories of Bata and United Footwear
reflect the history of the industry.
BATAKenyas biggest player
The biggest player in Kenyas formal footwear
sector is Bata Shoes. It is the largest buyer of
raw leather in the country today. Bata has been
in business in Kenya since 1932 and it produces
the countrys only globally recognized brand of
footwear. The companys reputation has been
built around the shoes it produces which are
comfortable and durable. Its brand proposition

is good shoes that last in difficult working
environments. Batas work boots, work shoes,
and its childrens footwear lines are its most
popular. Its Safari Boot design is a particular
favorite purchase for tourists visiting East Africa.
Bata produces a full set of rugged footwear
and related products, including military boots,
safety boots, childrens school shoes and safety
belts and gloves.
Bata supports a work force of 3,000. In addition
to its well-maintained and modern facilities, it
supports a housing campus near its factory in
Limuru where employees and their families live.
The company has been acclaimed in several
surveys as one of the best companies to work
for in Kenya. Many leather industry managers
of small and medium Enterprises are ex-Bata
employees.
Bata is a multinational company but
remarkably it is also family-owned. Recently,
Mr. Bata set up a Kenyan Entrepreneur Award,
which provides US$25,000 to a Kenyan
entrepreneur who distinguishes him or herself
by the creativity of the business model which
they champion.44
Bata Blog, ( 2014), Bata Shoe Foundation Announces US$25,000 in Award Funding for Young Entrepreneurs Using Business to Make a Difference in East
Africa,September 17. http://batalegacy.org/bata-shoe-foundation-announces-25000-in-award-funding-for-young-entrepreneurs-using-business-tomake-a-difference-in-east-africa/
44
28
Because Bata is privately owned, the long

vision and the social development agenda
of the owners has a more significant impact
on Batas strategy than is the case of other
multinationals. Bata appreciates access to
a large tourist pool visiting Kenya whose
demographicsmiddle
income,
working
classmap nicely into Batas target market.
The company fully expects that Kenyas tourism
industry will rejuvenate and that when it does,
additional demand will arise for its products.
The single biggest challenge that Bata faces
in Kenya is an insufficient supply of quality
leather. The company is the largest purchaser
of leathers in the countrylarger than any
domestic or international buyer. Bata buys
leather from more than 250 abattoirs and from
most of the tanneries in Kenya. Its procurement
methods involve sending its trained technicians
into the plants of its suppliers, physically
inspecting each piece, and hand picking those
hides and skins that meet its standards. Since
it has been in business in Kenya, Bata has
witnessed a progressive reduction in the size
of hides and skins as well as a reduction in their
thickness. This is the direct result of inbreeding
within herds and the failure of the Ministry of
Agricultures Artificial Insemination (AI) program
to be sustained. Other issues that adversely
affect the availability of quality leather include
the increasing prevalence of tick marks on
locally produced skins and the mottling effect
that these have on finished leather.45 Formerly,
the Ministry of Agriculture provided dipping
ponds, which constrained astringents and were
effective in countering ticks. However, when
the ministry terminated its support of ponds,
farmers fell back to hand spraying, which is
not nearly as effective a counter measure.
At the same time, government support of

veterinary services receded with the result that
many farmers simply went without veterinary
support when their animals fell ill or contracted
disfiguring dermatological diseases. These
two factors, together with the progressively
diminishing size of cattle, sheep and goats in
Kenya, which result in smaller and less valuable
hides and skins, are the primary reasons why the
supply of quality inputs has decreased. On the
demand side, interest in purchasing raw hides
and semi-finished products, particularly from
China, has increased significantly over the past
five years.
Bata is fully integrated: It processes wet blue
leather, which it purchases into finished leather
in its own facilities. However, in recent years it
has not been able to secure enough quality
leather to operate at target capacity utilization
levels and as a result, the company has had
to import in order to satisfy its requirements.
Bata has purchased intermediate products
from Uganda and Egypt and from as far away
as New Zealand.
The second biggest challenge the company
faces involves the failure of the GoK to enforce
its own trade regulatory standards. The
Kenyan Bureau of Standards sets the design and
construction standards that apply to footwear
imported into the country. These standards
relate to the minimum flexibility and minimum
leather grade that imported shoes must
attain. However, the company believes that
these standards are not effectively enforced,
and as a result, Bata and other local producers
face unfair competition from overseas
manufacturers who dump substandard shoes
into the Kenyan market.
Mottling results from tick infestation.
45
29
A third challenge faced by Bata is the lack of a

business environment that effectively supports
value addition to leather. Bata, as noted above,
is fully integratedoperating its own tanneries,
manufacturing facilities, and retail outlets.
However, it is not self-sufficient. The company
is part of a global corporate network, which
supports the Kenyan operation with expertise
in cutting edge leather technology, machinery
maintenance and replacement, technical
training and best management practices.
However, within the local business ecosystem,
Bata lacks effective support. The regulation of
the meat industry, for example, falls under the
Kenyan Meat Commission which takes little
interest in hides and skins. Most workers in
abattoirs are paid on a piecework basis and lack
incentives to assure quality removal of hides
and skins from carcasses.
Bata recently engaged a consulting firm
to conduct a study of the primary market
challenges that the company faces in
Kenya. The study found that Batas primary
challengerswhich account for 60 percent of
its lost saleswere offshore, low-cost footwear
manufacturers and not the second hand shoe
market. The second hand market accounts for
40 percent of Batas lost sales. In response to
this competition, Bata has been able to secure
a niche for specialty work shoes and rugged
casual footwear with a simple but distinctive
design. Batas brand and its distinct position
in the East African market is well supported by
its retail distribution network. As of October
2014, Bata owns and operates over 130 retail
stores in Kenya and the number is growing fast.
It opened 34 stores in the year 2013 alone.46
Bata also operates retail stores regionally in
countries such as Rwanda, Uganda, Tanzania,
Burundi, and South Sudan. However, it is not the
low-cost producer and the company prices its
products aggressively (significantly above low

quality, imported products) in order to assure
a profit. The study conducted by the consulting
firm estimated that Bata sales could increase
by as much as 90 percent if competition in the
informal sector were curbed.
The company is more sanguine regarding the
competitive challenges that it faces on the
supply side of its chain. It favorably views both
the federal decentralization and the transfer of
more budgetary authority to the county level
in Kenya. One result of this decentralization
of political power may be the re-institution
of farmers training centers, which support
increased experimentation with good animal
husbandry methods, and enhance quality of
skinning at local abattoirs. A reliable supply of
wet blue leather is Batas primary requirement
and the company is positive about the prospect
of increased export duties on wet blue. Currently,
Uganda imposes 80 percent duty on its wet
blue exports and there is increasing pressure on
Kenyan policy makers to follow suit, albeit at a
lower duty rate.
United footwear
United Footwear was established 35 years ago
as a family business. It was once a burgeoning
company, which hired over 360 employees and
produced over 2,000 pairs of shoes daily. The
scope of its production was diverse, ranging
from boots to womens shoes. Then came the
global competition. As with most footwear
manufacturers in Kenya, they found it difficult
to compete against footwear produced by
international companies that were more
competitive. Open competition forced them to
adjust and the solution was to limit their range of
products to boots. Womens shoes proved to be
too trendy and it was impossible for a medium-
Business Daily, (2014), Bata set to open its largest Africa store in Nairobi,May 14. http://www.businessdailyafrica.com/CorporateNews/-/539550/2314826/-/item/1/-/inm4at/-/index.html
46
30
scale company like United Footwear to keep up

with the ever-changing styles. Currently, United
Footwear focuses its production on security,
military, and industrial boots. In one corner
of the factory, one can still observe boxes of
shoe lasts47 that are no longer being used.
Although the number employees decreased
from 360 to 60 and though the company
now produces 200 pairs of boots per day, the
managing director of the company is hopeful
of the prospects that the Buy Kenya initiative
could bring to the company.
Handbags, travelware, corporate items
At first glance, the growth of the Kenyan
leather bag industry does not appear to be very
promising as it is constrained by numerous
challenges. There are few players, if any, in the
leather bag sector that can match the tradition
or the longevity of some of the leather footwear
producers in Kenya. Currently, there are no big
scale producers operating in Kenya that possess
the capacity to engage in mass production or
to undertake exports on a consistent basis.
Instead of Kenyan producers exporting in
containers, most of the products that reach
the European or North American market go
through retail store owners or designers that
visit Kenya. Leather Masters, one of the biggest
leather product workshops in Kenya, employs
between 30 and 45 staff members, depending
on the market demand. According to several
craftsmen who operate their own workshops,
many young designers aspire to participate in
the field, but find the lack of skilled craftsmen
an insurmountable entrance barrier.
Despite the existence of such prevalent
constraints, the leather handbag market has
grown by a factor of 5.5 over the last six years
and has potential for further expansion. UN
Comtrade shows that Kenya has witnessed a

gradual increase in export of leather suitcases/
handbags from around US$400,000 in 2007 to
US$2.2 million in 2013. While the total export
value remains relatively small compared to
other sectors, the rate of growth is noteworthy.
It is also important to note that these numbers
may not reflect the true amount of handbag
exports, as an increasing amount of leather
bags and cases are crossing the border without
declaration. Only a small portion of production
takes the official route, paralleling the vibrancy
of the informal market for other leather goods
throughout Kenya.
The reason for the growth in the leather
handbag sector can be traced to the rise in the
number of talented designers and producers
participating in the sector. In addition to
some of the traditional players such as Leather
Masters and Adelphi, many small and medium
scale workshops such as Sandstorm Kenya, Rift
Valley Leather, Sanabora Design House, and
Gonzala Leathers have established themselves
in the last decade.
Sandstorm Kenya Kenyas key and growing
player in leather bags
Sandstorm Kenya, a brand that used to
produce luxury safari tents, has transformed
itself into one of the leading leather bag
producers in Kenya under the management
of Mark Stephenson. Initially, the management
envisioned targeting the international market,
with Kenya as a manufacturing base. However,
they learned that the inroads to overseas
markets are difficult without abundant capital
and scale. At the same time, they acknowledged
that the growth in the Kenyan middle class
elicited growth in demand for high quality
leather products, presenting an opportunity
Artificial foot that is inserted into the shoe to maintain its shape.
47
31
for the company to scale production for the

domestic market. Although Sandstorms main
clients continue to be expats and tourists, they
have witnessed local demand surge in the last 12
months. Sandstorms vision is to build a strong
local base endorsed by the growing creative
class in Kenya prior to focusing on expanding to
the global market.
Sandstorm purchases most of the finished
leather from Bata, Alpharama, and Sagana
depending on availability of finished leather
in each tannery. While canvas and zippers
are imported from overseas, the rest of the
components such as glue, brass, and buckles are
mostly sourced locally.
The state of the labor pool reflects the general
trend of the Kenyan leather industry. The
majority of Sandstorms newly hired workers
lack experience and training in making leather
products. Even those who have prior knowledge
in production and machinery from technical
universities lack experience working specifically
with leather and canvas and generally require
additional on-the-job training.
Sandstorms production ranges from leather
bags, canvas bags, travelware and brief cases
to wallets and car seats. The majority of their
finished products are distributed via their
own retail channel: six stores in Kenya, one in
Tanzania, and an online store for the UK market.
Sandstorm expects to add an additional two
retail stores within the next year. Currently,
their workshop, which is located in Karen, just
outside Nairobi, hires over 35 craftsmen who
produce around 600 bags per month. Around
90 percent of the sales occur locally and 10
percent in Europe.
One of the biggest challenges Sandstorm faces
today is the inconsistency in the quality of the
finished leather that they procure from local
32
tanneries. A single order containing a batch of

the same kind of leather can vary considerably
in color and texture. This kind of inconsistency
in leather quality presents a potential barrier
for manufacturers such as Sandstorm to scale
reliable production and build high-end brand
recognition and brand loyalty. The majority of
leather good producers interviewed for this
study also echoed this particular constraint.
The second challenge, equally shared by
companies that produce high quality leather
bags, is the lack of a marketing channel
or platform to increase the international
prominence of Kenya as a quality leather bag
producer. There are a number of international
fairs in Kenya that have been created in order
to promote local brands and increase interest
in the market. Sandstorm and others have
participated in several of these high level
international fairs for leather products, often
receiving generous subsidies from institutions
such as KLDC, but many Kenyan based fairs
fail to attract a substantial crowd. The high
expense incurred from traveling, booth rental,
and accommodation at the international fairs,
however, undermines companies ability to
participate. Due to lack of accessibility to the
global market, Kenyan brand recognition is
insignificant, despite the increasing quality and
scale of companies like Sandstorm.
Belts, leather garments, industrial gloves, and
others
There are only a few formal sector producers of
belts, leather garments, and industrial gloves
in Kenya, with more producers being found
in Kariokor market. East African Tanneries is
one formal sector company that has a small
production line for producing industrial gloves,
primarily making use of hides scraps from its
security boots workshop.
3.3 Leather Product

Manufacturers in the Informal
(Jua Kali) Sector - Kariokor
Market (KM)
There are informal fundis (artisans in
Kiswahili) and markets that produce and sell
leather products in every county across Kenya.
However, none matches the number and the
degree of concentration of KM. The KM is a big,
open-air market located on the Race Course
Road, just outside the city center, where one
can find the largest range of leather inputs and
products in Kenya. More importantly, it is home
to the biggest informal (Jua Kali) leather good
producers in Kenya, loosely governed by the
county government. Out of the 300 plus stores
(at least 200 within the walled boundary and
100 outside), over 80 percent are estimated to
be involved in leather products, either directly
or indirectly. Joseph Wairiuko, an executive at
the Kenya Association of Manufacturers who
has worked in KM for five years, suspects that
the number of stores in Kariokor has increased
since he began working. It is not only a bustling
market, but also a growing one and many firmly
believe in its untapped potential for further
growth. As you walk in, you can see rows of
stores full of producers making shoes, belts,
wallets, handicrafts, etc.
Leather middlemen
There are about 10-20 leather middlemen in
KM who buy crust and finished leather directly
from tanneries or leather wholesalers and
sell it to footwear/leather good producers.
The leather middlemen buy the leather from

a few tanneries such as Alpharama, LIK, and
Sagana because of the availability of finished
leather. The biggest leather supplier to the
Jua Kali market is Alpharama. To ensure fair
supply distribution, Alpharama assigns each
middleman a designated day of the week to visit
the tannery to make purchases.
As middlemen can only visit tanneries on
designated days of the week, they can also
pre-order future purchases in case they
cannot make it the following week. The price
and the process of purchase is mostly dictated
by tanneries. As there are only a small number
of tanneries (mostly Alpharama) monopolizing
the production of finished leather, small-scale
individual middlemen have no bargaining
power over price or quality.
Leather middlemen generally buy leather in
rolls of around 160 sq. ft.. The price of a roll
varies, depending on the type and quality of
leather. Leather good producers then buy these
rolls per sheet (1 roll has many sheets), with 1 sq.
ft. of leather selling for KSh 150, or 1kg of leather
selling for KSh 800.
Leather footwear producers
Currently there are over 200 small shops/stalls
that produce and sell footwear and a range of
other hand-made leather products in KM.
The number of employees working in each
shop fluctuates depending on orders they
receive (it could range from 10 to 200 pairs
Figure 25: Structure of the Kariokor market leather cluster
2-3 Tanneries
10-15 Leather Middlemen

and Other Component
Middlemen
Over 200 Footwear/Leather

Good Producers
Leather Product
Retail Stores
Source: ETG
33
of shoes). At times, a shop could have 3040 employees working, with each employee
specializing in making different parts of
the shoe. The most labor-intensive work is
making beads for sandals; 10 employees
will be required per day to make flower
beads for 50 pairs of shoes. Thus, some
shops buy ready-made beads from factories
in Mombasa).
One leather footwear stall produces

between 40 and 50 pairs a day. One larger
store with six employees has a capacity
of making up to 300 pairs of shoes a day.
However, not many stores are operating
in full capacity unless it is peak season.
On average, one sandal-producing stall
receives an order of 1,000 to 1,200 pairs of
leather sandals per month.
Most leather good producers at KM have

never received training in any formal
institution, as it is perceived to be expensive
and impractical. They come to KM and
learn on the job. Producers learn about new
designs and technology from the Internet.
For our simplified estimation, we post the

following assumption, based upon our
interviews and inspections at the KM:
No use machinery is observed in the shops:

the products are handmade. According to
the artisans, handmade shoes are unique
and more durable than the Chinese/
Ethiopian shoes that are machine-made.
However, they acknowledge that the lack
of machinery and tools is a significant
constraint in producing products with high
quality finishing. People in KM also take
pride in providing jobs and are therefore
worried of job losses if the process is
mechanized. They believe around 10,000
people are economically dependent on this
informal leather market.
Production estimation of Kariokor Market
As a key supplier of low-cost leather shoes
in Kenya, leather products from KM are
dominated by shoes followed by sandals,
wallets, belts, and others. Other products
include leather balls, accessories, and
African ornaments.
34
o 60 percent of 300 stores are engaged

in producing leather footwear 300*60
percent = 180 stores
o each stall works for 300 days per year
o each stall produces 50 pairs of leather
shoes per day
o 50 x 180 x 300 days (excluding Sundays
and holidays) = 2.7 million pairs are
produced in one year
o Suppose the average value of a pair
of leather shoes is KSh 600, the value
created in leather shoes from KM alone
is about KSh 1.6 billion.
The leather shoe market is very seasonal.
The demand for school shoes, for example,
increases rapidly during the beginning of
the school semester that buyers wait as
shoe producers finish each pair. During
November and December, leather shoe
producers gear up for the biggest season
of the year.
Table 5: Types of leather footwear produced in Kenya
Sandals
Mostly with leather bottom, leather strings (with beads), and rubber soles
Sandals for adults sell for KSh 400-500, sandals for children sell for KSh 200
West African countries, Tanzania, and Uganda are big buyers
1 sq. ft. of leather produces around 1.5 sandals
Mens Dress Shoes
Mens dress shoes sell for KSh 800-100

Soles are mostly imported from China
School Shoes
School shoes sell for KSh 400-500

Demand tends to exceed supply just before the beginning of the school semester
Security Boots
Security boots sell for KSh 1,600

Security companies usually come and place bulk orders
Safari Boots
Safari boots are sold for KSh 500-600

Leather required for safari boots is cheaper than mens dress shoes
Soles used for safari boots are produced locally, thus cheaper than imported soles
There is more variety in terms of goods being

produced in Kariokor Market. Production
volumes of other leather products, however,
are much smaller than leather footwear.
They include:
Wallets
Few stores are specializing in making

leather wallets
Belts
Mostly sold to Tanzania
Phone Cases
Mostly sold to Tanzania
Sports Balls
Very few produced
Key buyers at Kariokor market

According to our primary research, the
majority of buyers of products made in
Kariokor are retail storeowners who visit the
market to place orders that may range from
20 to 100 pairs of shoes. The retail storeowners
then bring Kariokor Market-made shoes to their
respective stores in different parts of Kenya
and sell them directly to consumers. Many
producers in Kariokor Market are not aware of
what happens outside of their walls once the
shoes leave the market.
Most mens dress shoes, school shoes, and

security boots are sold locally while sandals are
popular in neighboring countries. Shoe sellers
estimate that 90-95 percent of leather shoes
produced are sold locally and the remaining are
sold in neighboring countries. Among the sandal
buyers that visit Kariokor, around 20 percent are
Kenyans and 80 percent come from East/Central
Africa, and also Western African countries such
as Nigeria, Sierra Leone, and Ghana.
Kenyan clientsalthough individual customers
often visit the market, the majority of Kenyan
clients are retail storeowners. Leather shoes and
other leather products are then distributed and
sold across the country.
Regional ClientsThe biggest foreign buyers,
who purchase footwear and other leather
products at Kariokor Market, come from
neighboring Uganda and Tanzania. Due to
the spread of Ebola and following the travel
restrictions, the number of buyers traveling
from Western Africa has declined significantly, if
not completely.
35
Competition with Mitumba

Footwear producers in Kariokor Market face
considerable competition from the secondhand (Mitumba) market. Our initial hypothesis
was that, People buy more leather shoes from
Mitumba market because it is cheaper. However,
this hypothesis turned out to be questionable
after speaking with producers and sellers in
Kariokor Market. Mens shoes, school shoes,
and sandals constitute the largest share of
leather shoes in Kenya. According to producers/
sellers in Kariokor Market, the price of a new
pair of mens leather dress shoes (KSh 800) and
school shoes (KSh 400-500) in Kariokor Market is
cheaper than many of the leather shoes found
in Mitumba. Although one can encounter an old
pair of mens leather shoes for KSh 400 or 500,
a pair of good quality mens dress shoes, for
example, may cost over KSh 2,000 in Mitumba
market. Also, school shoes and leather sandals
are not widely available in Mitumba market.
Even if school shoes do exist in the second
hand Mitumba market, many parents who can
afford it prefer to purchase a new pair for their
children. In light of this trend, many storeowners
in Kariokor identify Ethiopia and China, not
Mitumba, as the biggest competitors for their
low-cost leather products.
The majority of Kenyans own one or two
pairs of leather shoes for going-out or special
occasions. A significant proportion of the
unemployed or people involved in informal
sector, however, do not necessarily purchase
leather shoes on a regular basis. The majority
of people who require and buy leather shoes
on a regular basis are the ones that are formally
employed and work in offices and schools. The
middle class, in general, purchase leather shoes
in retail stores located in the town/city center
where a significant share of the shoes displayed
are supplied by Jua Kalis in Kariokor Market.
36
For those who purchase comfortable shoes

or sneakers, Mitumba appears to be the
popular marketplace. Many of the leather shoe
producers working in Kariokor Market also wear
shoes from Mitumba because: (i) they dont
need to wear leather shoes; and (ii) one can find
more fashionable/better finished shoes made of
other materials.
Challenges faced by the Jua Kali sector
1. The cost of some inputs such as shoe
lasts, soles, etc. are high as they are mostly
imported. Local soles are sourced and used
in KM, but the quality is poor.
2. Lack of recognition: None of the stalls that
operate within KM have a brand name. Also,
producers/sellers claim that the average
Kenyan is not aware of how many leather
products are being supplied by KM. Even
those who purchase leather shoes in a city
retail store, supplied by KM, are not aware of
where the shoes come from.
3. There is no distribution or marketing
channel for the producers. The products
are sold mostly through retail storeowners
that visit KM.
4. Leather good producers in KM have
no connection with end users. They are
therefore not aware of design trends.
5. Producers are aware of the growth of
the finished leather industry in Ethiopia
under the auspices of the government.
They believe it is becoming more difficult
to compete against the products imported
from Ethiopia.
As discussed, KM is an integral part of Kenyas
leather market and as such, there is a prime
opportunity for improving and expanding this
industry to promote economic growth and take
hold of emerging opportunities in the leather
industry. Global trends indicate that there is a

growing need for supply of leather goods, and
Kenya has the resources in place to capitalize on
the opportunities in the leather market, both for
internal needs such as the increasing demand
for school shoes, as well as external markets
such as those of the East African Community.
The linkages that we see in the cluster map
(Figure 23) are important for understanding
points of potential linkage strengthening. Crust
and finished leather manufacturing is one very
important element, and has shown increased
and improved levels in recent years.
Analysis of the Kenyan leather industry shows
that there are skilled, large-scale producers
in operation and skilled artisans operating in
the informal sector through KM. KM can be
expanded through targeted approaches that will
improve leather output and quality. As it stands,
KM is receiving lower quality leather inputs from
tanneries, as higher quality leather products are
reserved for formal market participants that are
larger in size and have the capital available for
these higher quality products. The benefit of
receiving lower quality imports is that the KM
can continue to provide lower cost goods to the
market, which is fitting for this informal, lowcost sector.
Thus, the opportunity for improvement lies
in improving the finished products coming
out of KM. This can be achieved through light
mechanization, standardization, training, and
improved finishing techniques. Some examples
include, machine cutting of leather sheets as
opposed to hand cutting, the use of shoe lasts,
and common facilities that would provide the
resources and standardization tools for leather
workers. The majority of Ethiopian and Chinese
shoes imported into this market are machine-
finished, which results in higher quality products.

By contrast, it is estimated that over 90 percent
of KM leather artisans finish their products by
hand, evident in minor details as visible glue
marks, uneven threading, wrinkled leather, etc.
Improvement in the quality of leather products
in KM can help to increase the percentage of
new, low-cost goods in the Kenyan leather
market. This will lead to increased penetration
of these goods into the second hand Mitumba
markets. Standardizing and improving these
low-cost leather products can also lead to a
number of other market opportunities for KM.
One example of this is customization capabilities,
where small, informal leather artisans, such
as those operating in KM, can achieve higher
output volumes and qualities that may lead to
requests for customizable orders, such as for
military boots or niche leather products.
3.4 Tanneries
The number of tanneries that operate in
Kenya has fluctuated over the last couple
of decades. Currently, there are 14 operating
tanneries of varying size and capacity. However,
only a handful of these tanneries process crust
and finished leather and the rest focus on
exporting wet blue. Some tanneries are mainly
engaged in subcontract tanning in which smallscale tanneries supply wet blue to large-scale
tanneries such as Alpharama.
Traditionally, three or four tanneries have been
major players in supplying finished leather to
the Kenyan domestic market. Currently, some
of the major players are either undergoing
financial difficulties or reducing their output.
Alpharama has grown into a dominant force in
tanning and most local leather good producers
source finished leather from them.
Kenya Industrial Research and Development Institute, Leather Division. http://www.kirdi.go.ke/kirdi-departments/rti-department/leather-division
42
37
It is important to note that most of the tanneries

are located around Nairobi. Experts point out
that this is because of the high concentration
of producers and manufacturers in that area. At
the same time, this trend may discourage other
regions from developing even a quasi-leathercluster that resembles Kariokor Market.
Alpharama: The key tannery in Kenya
Alpharama Limited has been moving up the
market since its establishment as a tannery
in 1996. With a US$15,000 investment, it began
producing wet blue leather. Since then, the
company has moved into the production of
crusted and finished leather. Recently, it has
experimented with the production of womens
slippers using its own fine leather as an input.
Alpharama is the largest and most dominant
tannery as well as a force of innovation in
the Kenyan leather industry. Its management

believes in building technology and
management capacity. They are not afraid to
experiment with new products, processes, and
business models. Alpharama has tried to find
ways around what its management refers to
as the triad of misdirected practicesdrying,
salting and flayingwhich create a ceiling
over the value of Kenyan leather and lead to its
reputation as being low quality among many
importers. Alpharama invests in alternative
business processes, which remove the value
limitations of the leathers, which it produces.
Distinctively, it also invests in skills development,
win-win partnerships with chain partners and
technology transfer. The company has invested,
for example, in the installation of hide pulling
and skin rollup equipment, which it has helped
install in partners abattoirs and it has tried
to create incentives for its supply partners to
Table 6: Details of tanneries operating in Kenya

Quantity of
wet salted
hides per
month
Goat and
sheep skin
(pieces per
month)
Capacity
utilization
(%)
Wet blue
Crust
Finished
Crust / Finished
600,000 sq. ft.
N/A
100
Alpharama Ltd. (Athi River)
650 tons
400,000
100
Leather Industries of Kenya (Thika)
300 tons
100,000
50
Aziz Tanneries Ltd. (Njiru Market)
300 tons
200,000
N/A
Sagana Tanneries Ltd. (Sagana Town)
200 tons
50,000
N/A
Tannery
Bata Shoe Limited (Limuru Town)
Level of production
Nakuru Tanneries Ltd. (Nakuru Town)
200 tons
150,000
N/A
Dogbones Ltd. (Nairobi)
300 tons
N/A
N/A
Nairobi Tanneries Ltd. (Nairobi)
50 Tons
50,000
70
N/A
250,000
85
Faaso Import and Export (Nairobi)
100 tons
50,000
N/A
Athi River Tanneries (Athi River)
250 tons
100,000
N/A
MAS Trading Company (Nairobi)
200 tons
N/A
100
Zingo Tanneries (Nairobi)
300 tons
200,000
80
Insignificant
Insignificant
East Africa Tanneries Ltd. (Njiru Market)
Ondiri Tannery (Kikuyu)

Adbulwadood Tanners Ltd.
Not in operation Not in operation
N/A
N/A
Source: Alpharama
International Trade Center, Leatherline: Kenya Country Information. http://www.intracen.org/leatherline-portal/african-platform/kenya/#footwear
Kenya Industrial Training Institute, Leatherwork and Tannery Department Background Information. http://kiti.ac.ke/node/102
43
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38
change their own business processes and move

away from flaying for instance. It allows the
abattoirs with whom it works to pay back this
investment over time and it pays a handsome
premium (20 percent) for the high quality hides
and skins, which its partners are able to produce
with this equipment.
The company has tried to distinguish itself
with respect to the environmental impact of
its operations. Alpharama is the only tannery in
Africa that is certified under the environmental
sustainability certification regime, the Leather
Working Group (LWG), advanced by the British
Leather Corporation. It operates a closed water
system, which enables it to recycle 70 percent
of its process water. Another important part
of the LWG quality process involves leather
traceability. Accordingly, the company tracks
each production batch, which it produces from
abattoir through its own in-house processing,
and maintains a tracking profile for every pallet
of product that it sells. The result of these and
related efforts has been a growing market for the
company-crested leather and the development
of an increasing number of committed buyer
accounts in China, Italy, Turkey and Malaysia.
Recently, the company began selling semifinished leather to a supplier of cell phone cases
to Samsung.
In spite of its growing success, the company
faces several severe competitive challenges.
Not only is the quality of local raw hides
and skins declining but also their sizes are
diminishing at the same time. Ten years ago
raw hides in Kenya had an average size of 30
sq. feet. Today, the average size of a cowhide
is just 25 sq. ft. Although the government has
restarted its artificial insemination (AI) program,
the company estimates that it will take five
to six years to have some impact on the size
of available raw leather pieces and perhaps

45
as many as seven generations of breeding to

reclaim the size which formerly characterized
the national herd.
Another problem which adversely affects
Alpharamas cash flow is the loss of VAT
exemption. At the insistence of the IMF, VAT was
reinstituted for the industry in September 2013.
The result is a great deal of additional working
capital requirements associated with fine
leather production. Even when it is exporting
its products the companys competitiveness is
compromised. This is because VAT refund and
duty drawback programs in Kenya are slow
and inefficient. Tanners based in Uganda, for
example, can expect to receive rebates within
four months. In Kenya a comparable payback
time is two years. This poses a real problem for
a company like Alpharama which turns over its
inventory six times per year and which has a
cash-to-cash cycle of 60 days.
3.5 Institutions Supporting the

Leather Sector
There are various institutions and associations
that underpin the Kenyan leather industry.
Unfortunately, there is little communication
and cooperation among them. Even worse, a
great number of institutions exist only in name
and their effectiveness is almost negligible.
In this section, we identified some of the key
institutions that have a critical role in supporting
various subsectors of the leather supply chain.
Kenya Leather Development Council (KLDC)
Lead Policy & Implementation Institution
KLDC is a relatively nascent institution
(established in 2010) which has been an
information hub for any party interested
in learning about or investing in Kenyas
leather industry. It was founded under the
Ministry of Livestock with a specific mandate to
support development of the leather industry.
Kenya Association of Manufacturers, About Us, http://www.kam.co.ke/index.php/about-us

39
It is a relatively young institute that has been

repositioned under the auspices of Ministry
of Industrialization to emphasize its focus on
supporting leather industry stakeholders.
activities such as consulting and business

incubation, which possibly overlap with its role
and mandate.
KLDC envisions itself as being a leading agency

in transforming Kenyas leather industry into
a globally competitive one. KLDC is in close
contact with various leather stakeholders and
occasionally coordinates workshops and invites
SMEs to participate in various fairs to harmonize
and promote activities in the leather industry.
KLDC also seeks partnerships with international
counterparts in sharing knowledge. As the only
leather institution that is uniquely and closely
linked to the market and its key players as well
as the Ministry of Industrialization, KLDC has a
critical role in supporting the industry to grow.
At the higher education level, University of

Nairobi and Dedan Kimathi University of
Technology offer degree courses in Leather
Science. The Technical University of Kenya also
offers a diploma in fashion design and textile
technology to support students interested in
product designing. However, most students of
such programs are not considered experienced
enough to make significant contributions to
the industry immediately upon graduation.
Equipment and curriculum require an overhaul.
Also, as addressed in the narrative of Sandstorm
Kenya, the majority of graduates from technical
universities require additional training when
hired to produce leather goods. There needs
to be improved communication between
Kenyan educational institutions and industry
stakeholders to better prepare students joining
the labor force.
Kenya Industrial Research and Development

Institute (KIRDI) Research Institution
KIRDI falls under the Ministry of
Industrialization and Enterprise Development
and was established in 1979. It is a
multidisciplinary research institute with a wide
range of divisions under its Research, Technology
and Innovation (RTIC) Department. Leather
is one of the key divisions in RTIC. The main
objective of the institute is to undertake research
into, and development and dissemination of the
latest technology in tanning, equipment, quality
control etc. The leather division also advocates
for establishing mini tanneries in high livestock
potential areas of Kenya to add value and boost
local employment.48 However, there is concern
in the industry that the topics KIRDI chooses
to research are impractical and fail to address
the challenges that industry players face. Even
worse, many experts assert that KIRDI has not
made any significant research contributions
to the industry in recent years. Instead, KIRDI
seems more focused on revenue generating

48
40
Educational Institutions
Training Institutions
Some of the notable training institutions in
Kenya include:
Industry (TPCSI)TPCSI was established in Thika
in 1994 under UNIDOs initiative to support
the Kenyan leather industry. The institution
has a critical role in boosting the industrys
competitiveness. Its objective is to provide
intensive training on multiple aspects of leather
goods production, ranging from designing to
costing. Since its inception, TPCSI has trained
over 250 people from other countries and over
400 trainees in Kenya. The current facility consists
of 16-18 skilled and capable staff members.
TPCSI is equipped with relatively modern
machinery that many SMEs can only dream of.
Kenya Industrial Research and Development Institute, Leather Division.http://www.kirdi.go.ke/kirdi-departments/rti-department/leather-division
Almost all machines are currently functional:

however, the very important CAD/CAM machine
which uses computer and graphics software for
designing and grading shoe patterns and for
manufacturing cutting dyes, shoe lasts and sole
moulds, requires repair.
TPCSI, the facility with great potential, is
currently being underutilized. Many staff are
left idle if they are not producing leather goods
outsourced by Kenyan SMEs. Currently, the facility
is more of a production outsourcing workshop
rather than a training institute. Group training
occurs only when there is external funding. In
previous years, multilateral organizations such as
UNDP have funded training sessions for poverty
reduction and vocational training purposes for
a group of around 30 trainees. In 2014, however,
there has not been any group training and only
a few individuals who could afford KSh 20,000
for a two week training have been able to take
advantage of the facility. Furthermore, the
majority of leather good artisans are not aware
of the existence of such training institute. If they
are, the high training fee hinders them from

enrolling. TPCSI furthermore lacks the incentive
to advertise and promote training.
Animal Health and Training Institute (AHITI)
A training institute which was established
in 1965 by the Food and Agriculture
Organization (FAO) provides training on
leather manufacture and leather craft. AHITI
offers two year certificate courses in leather
manufacture and leather craft.43
Kenya Industrial Training Institute (KITI) KITI
was established in 1965 with help from the
Japan International Cooperation Agency (JICA).
The purpose of KITI is to provide practical and
technical skills as well as entrepreneurial skills
to trainees. The leather department, headed
by Mr. Peter Kanyuru, was created under KITI in
the same year to specifically promote leather
production skills.50
Table 7 summarizes leather industry related
training courses offered by AHITI, TPCSI, and KITI.
Table 7: Training courses offered by AHITI, TPCSI, and KITI

AHITI
TPCSI
KITI
- Hides and skins inspector

- Leather technologist
Practical skills: leather product

designing, assembling, costing
cutting, etc.
Leather tanning; Footwear producing skills; Other leather work
Courses offered
- Leather technology
- Hides and skins improvement
Shoe making; Handbag making
Leather craft-skill upgrading; Shoemaking; Leather tanning;

Entrepreneurship; Leather artisan; Craft-long term course
Certification
- AHITI certificate
TPSCI certificate
Kenya National Examinations Council certificate; Grade test

certificate; KITI certificate
Entry requirements
- Kenya Certificate of Secondary

Education mean grade C, with
relevant subjects
Employees from industry; High

school graduate
Kenya Certificate of Secondary Education mean grade D and

above; Employees from leather organizations and industry; Jua
Kali artisans, etc.; High school graduate
Target group
- School leavers
Leather craftsmen; Shoe makers
Leather craftsmen; Tanners; Entrepreneurs in leather trade;

Shoe makers
Sponsorship
- Partial funding from

government
Partial funding from government
Partial funding from government
Duration of courses
- 2 years
2 weeks to 2 months
Skill upgrading: 3 months; Artisan: 1 year; Craft: 2 years
Number trained in
2014
N/A
No group training offered; Few

individual trainees
32 trainees
Training offered
Source: Alpharama
International Trade Center, Leatherline: Kenya Country Information. http://www.intracen.org/leatherline-portal/african-platform/kenya/#footwear
49
41
Associations
LAEA
(Leather
Articles
Entrepreneurs
Association) In the past many small and
medium enterprises involved in leather goods
production in Kenya felt underrepresented and
needed a platform to channel their concerns.
Their movement gained momentum as
many producers began aggregating around
international trade fairs and exhibitions to
promote their respective leather products.
Consequently, a number of SME owners came
together and formed an association called
LAEA. The association, chaired by Mr. Morris,
is a membership driven association that
brings together players in the production and
commercialization of leather articles made
in Kenya. LAEA currently consists of over 100
members from all over Kenya and is open to
any player that has a role in the leather industry,
regardless of their size or location. Through
mobilization of the leather articles subsector,
capacity building, and incubation, the mission is
to promote global competitiveness of Kenyanmade leather articles.
Kenya Association of Manufacturers (KAM)
Established in 1959 as a private entity, KAM
is a representative organization for all types
of value-added manufacturers in Kenya. Its
objective is to support the local manufacturing
industry to become more competitive and
promote trade with other African countries. To
this end, KAM plays a vital intermediary role
between manufacturers and the Ministry of
Industrialization in addressing concerns of its
800 members. KAM also provides technical
advice on trade tariffs, taxation, and business
information to facilitate its membersoperation.51
Prior to the establishment of KLDC, Kenya
did not have an institute whose mission
was specifically dedicated to the leather

51
42
industry. Associations representing footwear

manufacturers, cobblers, and tanneries existed,
as did a number of training and research
institutions such as KIRDI, TPCSI, AHITI, etc.
However, no institution possessed the capacity
or mandate to explore the wide range of
the leather supply chain from a macro-level
perspective. As evidenced by the above list, this
resulted in several institutes with overlapping
roles and functions and even with the emergence
KLDC, the roles of institutions are highly
blurred. For example, the leather department
of KIRDI, an institute designated primarily for
research and development, also engages in
capacity building and business incubation. The
distinction between its role and the role of KITI
and TPCSI is unclear at best. Too many institutes
with overlapping functions creates a significant
amount of red tape for the implementation of
initiatives and breeds inefficiency in Kenyas
leather sector.
3.6 Key Findings from Chapter 3

In this chapter we endeavored to examine
the Kenyan leather industry and map the
structure and organization of some of the
leading enterprises and associations which
drive it. We sought to map the interactive
commercial activities that determine the
cluster competitiveness of the industry, and
we discovered relatively little cooperation
and mutual alignment of strategies, business
processes or investments. The cluster
mapping presented in this chapter confirmed
that most commercial interactions within the
cluster are arms length transactions. Little
structural accommodation has been made
between enterprises in an effort to create
business synergies or to test new markets,
products, or process technologies. Other key
findings include:
Kenya Association of Manufacturers, About Us, http://www.kam.co.ke/index.php/about-us
Kenya has a complicated and intricate set

of leather firms and institutions, which
comprise the leather sector. However, due
to the limited linkages, cooperation, and
collaboration among the stakeholders,
Kenyas leather sector needs to increase
the trust, collaboration, and exchanges of
information, products, technologies, and
personnel to become a more dynamic and
competitive industrial cluster.
Employment in the leather industry is small
(estimated at 14,100) and the informal
sector is the bigger employer accounting
for up to 10,000 workers during peak times.
Most of the leather good producers are
small or medium enterprises and many
prefer to stay in the informal sector to avoid
paying taxes and to minimize interaction
with government authorities.
There is a mutually beneficial linkage
between formal and informal sectors,
based primarily on the flow of intermediate
products. However, the exchange of
management, skilled workers, and
investment capital is weak and unbalanced.
Only a few tanneries process finished leather
for sale in the domestic market. Kenyas
finished leather market is tightly controlled
and asymmetric with regard to market
information and access to working capital. It
is primarily a sellers market. Kenyas largest
and most modern tannery, Alpharama,

dominates the production and commands a
great influence over the market.
There is a vibrant and competitive informal
sector in Kariokor Market cluster that
produces low-cost leather goods for Kenya
and the region.
Many institutes and associations exist to
support the industry, but few play a significant
role due to lack of coordination, funding, and
industry acknowledged authority.
In Chapters 2 and 3, the report described
different markets, key industry players and their
scope of production, and market dynamics in
order to form a better understanding of Kenyas
leather industry.
Chapter 4 moves from a descriptive to a
normative or prescriptive mode. It applies
several analytic tools to begin to formulate
strategies for moving the sector from its
prevailing low-level equilibrium to a much
higher equilibrium. It discusses the strengths,
weaknesses, potential, and competitiveness of
the Kenyan leather industry in comparison to
other major leather producing countries. It also
assesses potential ways forward based on the
successful experience of developing countries
which have recently made progress toward this
same goal.
43
44
S E C T I O N FOUR
COMPETITIVENESS ANALYSIS
revious chapters described the key trends

and structure of Kenyas leather sector.
This chapter employs four analytical tools
to assess the competitiveness of the leather
industry in Kenya.
1. SWOT analysis of the leather industry in
Kenya
2. Benchmarking and gap analysis
3. Value chain analysis
4. Competitive positioning analysis
4.1 SWOT Analysis of Kenyas

Leather Industry
The
Strengths/Weaknesses/Opportunities/
Threats (SWOT) analysis presented below
allows us to examine the current competitive
state of the Kenyan leather industry. It
assesses the industrys competitive strengths
and weaknesses in both local and international
markets, and identifies pending opportunities
and threats, which the industry must be able
to respond to, in order to improve its current
competitive position.
Our analysis reveals that despite having
abundant livestock, a significant number
of established tanneries, and a young and
growing workforce, a long list of weaknesses
and threats is hampering the Kenyan leather
industry from fulfilling its potential. Most of the
strengths of the industry relate to its potential
to produce low-cost leather as a tradable
commodity. The markets in which Kenyan firms
complete are global commodity markets, and
commodity markets in which renewable natural
resources are traded pose several limitations
on the industrial development of nations that

depend on them.
The limitations of competing in these low-cost,
low-quality leather markets are explained
below:
a. Prices are competed down to the cost of
production for the marginal market entrant
because typically, no barriers to entry exist
in commodity markets;
b. Because no natural resource production is
strictly renewable, precisely how marginal
production costs are determined varies
from one national venue to another
depending on the policies and mechanisms
deployed to internalize external costs;
Commodity markets are prone to wide
swings in demand, supply, and price. The
factors which determine the inherent
profitability of sectors, based on natural
resource extraction, fall, for the most part,
outside the purview of individual firms
and sectors which extract and sell these
resources.
c. For the above reasons, private investments
in these sectors are risky and participants
prefer to invest in assets with short economic
lives, such as working capital and trading
capacities, rather than in more productive
assets with longer economic lives.
In spite of these weaknesses, demand for
leather products appears very likely to exceed
supply both regionally and worldwide. As
a result, the core strengths of the Kenyan
leather sector (e.g., abundant animal herds
45
IV. Competitiveness Analysis
and abundant low cost unskilled labor) will

likely continue to sustain the sector, if only at
a level of low equilibrium, as a producer for
commoditized, intermediate products, which
other more developed economies will continue
to depend on as inputs in their own value adding
manufacturing processes.
In order to transition from competing on a
low-cost basis to competing on the basis of
competitive advantages of its intermediate
product quality and market differentiating
channels, the Kenyan leather industry requires
increased entrepreneurship, greater dynamism
based on demonstrated non-traditional
undertakings, and stronger linkagesboth
backward from herdsmen, and forward to
niche markets.
The most significant constraints, which
continue to restrain the development of the
sector, relate to its structure and industrial
organization. In the Kenyan leather sector of
today, no effective incentives exist for combining
the capabilities of different participants along
supply chains in ways which create value,
increase the size of the competitive space in
which individual participants can operate,
and thus, stimulate additional commercial
experimentation. The industrys atomized
structure effectively locks current participant
into a short term or trading mode of business
operation. In order to move beyond the low-level
equilibrium that currently prevails, incentive
systems need to be created. Incentive
systems are required, for example, to affect
quality incentives in each link of the chain,
stimulating structural changes within the
industry, through joint ventures, mergers, and
new foreign direct investments, and assisting
with the development of new institutions,
46
including business incubators, structured

markets, and new modes of technology
transfer and of skills development.
With all of that said a number of favorable
opportunities are emerging both locally
and globally, which should assist efforts to
restructure the leather industry. Demand for
leather goods is currently high and it is expected
to grow globally. In the midterm, demand is
expected to be even greater in Africa than in
the rest of the world. In order to serve these
regional markets, Kenyas strategic location
affords its producers a significant distribution
cost advantage. By leveraging its rich pool of
livestock and labor, while mitigating some of
the identified challenges, the leather industry
could grow and become a competitive player,
not only in the region, but also in the world in
the long run.
Table 8 lists the strengths, weaknesses,
opportunities, and threats of the entire range
of the Kenyan leather supply chain. A myriad
of challenges is identified here. Throughout the
supply chain, Kenya currently lacks equipment,
technology, awareness, and knowledge to
produce quality hides and skins as well as
finished leather products. Efficacy of both
private and public institutions with mandates
to support and develop the industry is severely
limited due to incapacity. Although these
problems have been identified in numerous
studies, insufficient funding, investment, and
incentives have curtailed the industrys ability
to address them. As a result, many formal sector
manufacturers have terminated their operations.
Due to Kenyas unfriendly business climate and
the presence of a strong second-hand market,
there are only a few, if not any, new investments
entering Kenya.
Table 8: SWOT analysis of the leather industry in Kenya
INTERNAL
STRENGTHS
Abundant livestock
Tradition in leather industry
A number of functioning tanneries
Creative and resilient workforce
Abundant labour
Self-organized cluster in Kariokor Market
WEAKNESSES
Low quality hides & skins due to diseases, branding and scratches
Poor husbandry practices
Poor equipment and fraying in abaitoirs
Low awareness for the value of hides / skins among general population
Poor nishing due to lack of machinery
High electricity cost and tarrif on importing inputs
Lack of quality nished leather available locally
Lack of quality standard
Lack of skilled artisans and training programs
Lack of capacity to meet bulk order
Lack of funding, investment and R&D
Lack of Kenyan leather brand recognition globally
Lack of marketing channel / platform
Unfriendly business climate - Electricity / Taris / Corruption
High concentration of tanneries near Nairobi area and poor infrastructure
hindering the industry to take advantage of rich livestock pool in rural areas
Growing competition coming from Ethiopia and China

High dependency on imported components
Spread of Ebola virus hindering regional buyers from travelling to Kenya
Market share and power concentrated in one tannery promoting imbalance
and monopoly
Strong presence of second hand products
Increase in negative externality (environment)
The biggest, long standing shoe manufactures gradually decreasing leather shoe
production in Kenya
Lack of communication, collaboration, and knowledge sharing among industry
stakeholders
Lack of communication/cooperation among diferent government institutions
Lack of capacity and funding in leather industry institutions
OPPORTUNITIES
Big pool of willing young labour

Growing informal sector
Growing number of designers
Rising middle class
Increasing Government support
Enforcement of environmental standard in China requiring
more processed leather import
Expected job loss in Chinas manufacturing due to
the weakening competitiveness in manufacturing sector
Lack of vibrant leather product industry in neighboring
countries
Strengthening trade among EAC
THREATS
NEGATIVE
POSITIVE
EXTERNAL
On the contrary, some niche markets have
developed in the midst of the growing
operation cost and competition. A number
of new generation, small-scale enterprises
producing high-end leather bags have sprung
up as described in Chapter 3. Also, spearheaded
by large pool of experienced informal sector
leather good producers, the informal sector (Jua
Kali) has demonstrated a strong prospect for
growth (will be discussed in more detail below).
Furthermore,
as
described
in
the
Opportunities section of the SWOT
table, a number of favorable domestic and
international factors create a window of
opportunity for the Kenyan leather industry.
It is important to note that no country has
developed its leather industry into globally a
competitive one without dealing with multiple
constraints. The rapidly developing leather
sectors of Vietnam, India, and Ethiopia have all

shared challenges similar to the ones Kenya
is currently facing. Kenya has the significant
advantage, however, of being able to learn from
their experiences.
SWOT analysis of informal sector (Jua Kali)
A SWOT Analysis of the informal sector in
Kenya reveals additional weaknesses but also
additional strengths. The primary challenge
facing the informal sector is its limited capacity
to access markets. This burgeoning, selforganized, informal leather products cluster,
which is Jua Kali, already supplies a great
amount of leather products both locally and
regionally. However, the distribution channels
through which it markets its products are
myopic, limited in market range, and ineffective
in transferring information about the needs
47
and requirements of broader markets and

potential customers with specific needs back
to producers. Leveraging existing distribution
channels, already operating in the formal
sector, and building new distribution channels
based on internet market methods are strategic
priorities for realizing the enormous untapped
potential of the Jua Kali sector.
Kenya has a vibrant informal, leather products
sector mainly concentrated in Kariokor Market
in Nairobi, as described in detail in Chapter 3.
In spite of its internal constraints and industrywide challenges, the informal sector has
demonstrated a high degree of resilience. It
remains competitive and continues to export
a great amount of finished leather products to
regional countries.
Three priority issues must be addressed in

order to unlock its greater potential:
a. Artisans in the informal sector need access to
fundamental machinery to improve product
quality and production efficiency.
b. The informal sector is in need of
representation. A number of small groups
exist but the current arrangement lacks scale,
leadership, management, and a concerted
voice to have any bargaining power against
other players in the leather supply chain. As
a result, other leather industry players often
take advantage of them. They struggle to
procure high quality leather and are often left
with rejects that tanneries failed to export.
Having representation will thus allow them
to build a stronger and balanced linkage
with formal sector players.
Table 9: SWOT analysis of the informal (Jua Kali) leather sector in Kenya
INTERNAL
STRENGTHS
WEAKNESSES
Lack of proper training and technology

Lack of design capacity and slow in adapting to new designs
Lack of highly skilled artisans
Poor nishing due to the lack of machinery
Lack of dierentiations in products
Poor tools / equipments
Unorganized and limited space
Poor working environment
Lack of distribution channel
Lack of marketing
LAck of brand
OPPORTUNITIES
Growing pool of willing young labor
Lack of vibrant leather shoe industry in neighboring countries
Strengthening trade among EAC members
Great potential to become a strong and competitive cluster
THREATS
Growing competition from Ethiopia and China
Many shoe components imported
Spread of Ebola Virus hindering regional buyers from traveling to Kenya
Strong presence of secondhand products
Weak linkage with formal leather industry
Lack of representation & association
No bargaining power over tanneries
EXTERNAL
48
NEGATIVE
POSITIVE
Big labor pool

Experienced and creative labor force
Self-organized cluster (Kariokor Market)
One-stop leather product market
Aordable products / Cost competitive
Fluid labor sharing among informal sector artisans / stores
Kariokor Market recognized by many regional stakeholders
c. Lastly, an external push in terms of

marketing and business management skills
will allow the informal sector to expand its
reach and grow in size. Informal sector
producers lack the capacity to expand
their marketing and distribution channels.
While the finished products from the
informal sector are competitive, and the
name of the Kariokor Market is widely
known, average Kenyans are not familiar
with its products. Expanding its reach will
allow this subsector to grow drastically.
Some of its high performing producers
could even graduate from the informal
sector and move into the formal sector.
Addressing these three small challenges
could enable the already vibrant informal
sector to capture a bigger market share,
generate higher income, and create more
employment opportunities. It is critical for
the government to acknowledge and support
this competitive subsector.
4.2 Benchmarking and Gap Analysis

A benchmarking and gap analysis enables
a comparison of Kenyas competitiveness in
leather and leather products with those of
key competitors. Our benchmarking exercise
focuses on four tiers of global competitors, each
represented by one country:
a. Italyrepresenting global leaders in high
quality leather products such as Germany,
France, UK;
b. China the dominant world producer of
leather products and representing lowcost producers of leather products such as
Vietnam, India, Indonesia;
c. Ethiopiaan emerging global player in

leather and African competitor of Kenya;
d. Kenya.
This primary research employed a modified
Delphi Approach,52 which entailed surveying a
number of leather experts, policy makers, and
business leaders in the Kenyan leather industry
to rate each tier for each category on a scale of
1 to 10 (10 being the most advanced/highest).
Selected experts were asked to compare
Kenyas leather industry performance against
that of the three representative countries. Ten
competitiveness factors were chosen based on
key competitiveness indicators for the leather
industry.53 The results are depicted in the
following spider diagram.
Figure 26: Spider diagram benchmarking Kenyas leather
industry competitiveness
Availability of raw
materials
Quality of raw materials
Product perception
10
by market
8
Access to/cost raw
Unique skills within
6
materials
sector
4
2
Tradition in the
industry
Access to nance
Product
development
Sustained capital
investment
Degree of vertical
integration
R&D
Process skills
Kenya
Tech sophistication
of equipment
Ethiopia
China
Italy
Source: ETG estimations based on the modified Delphi Method
Kenyas leather industry, despite having a

history of being a major export industry in the
past few decades, not only falls behind Italy
and China, but also Ethiopia in every category,
except availability of raw materials and access
University of Illinois Extension. Modified Delphi Technique.http://www.communitydevelopment.uiuc.edu/sp/Step6/Delphi%20Technique.pdf

World Bank, (2011), Comparative Value Chain and Economic Analysis of the Leather Shoe Sector (Sheepskin Loafers) in Ethiopia, Tanzania, Zambia, China
and Vietnam,Chapter IV in Light Manufacturing in Africa: Focused Policies to Enhance Private Investment and Create Millions of Productive Jobs, Volume II.
52
53
49
to raw materials. While the availability of raw

materials is a significant competitive advantage,
this advantage is severely reduced because
of Kenyas very low quality of raw materials,
ranking two points beneath that of Ethiopia.
Moreover, Kenyas access to its raw materials
is further compromised by the high levels of
unreported smuggling of its raw hides and skins.
In comparison to more established countries,
Kenya significantly lacks sustained investment
in both human resources and technology.
A number of training facilities in Kenya are
currently underutilized due to lack of funding
and the majority of Kenyan artisans working in
the industry have never received formal training.
Access to finance is also limited and hinders the
capacity of SMEs to advance to the next level.
Furthermore, this analysis highlights the
competitive difference between Kenya
and Ethiopia. Ethiopias leather industry has
grown significantly and systematically over
the last decade, and Ethiopia has done an

excellent job in creating a platform for foreign
investment. For instance, Ethiopia recently
successfully attracted a major Chinese shoe
manufacturer, the HuaJian Group, which built
a facility that produced two million pairs of
shoes in 2013.54 Ethiopias success is rooted in
strong support and investment by the Ethiopian
government. For example, Ethiopias Leather
Industry Development Institute (LIDI) has been
supporting the industry players in areas such as
designing, production, training, marketing, and
quality control. Ethio-International Footwear
Cluster Co-operative Society, Ltd. (EIFCCOS),
which is a footwear cluster consisting of
informal sector producers and SMEs, has been
working closely with the government and banks
to secure loan opportunities for its producers.
Ethiopia has distinguished its leather industry
from that of Kenya and is now positioning itself
as a promising player in the global market.
Table 10: Competitive benchmarking of Kenyas leather industry vs. Ethiopia, China, and Italy (scale of 0-10)
Competitiveness factors
Kenya
Ethiopia
China
Italy
Availability of raw materials
Quality of raw materials
10
Access to raw materials
Access to finance
10
Sustained capital investment
10
Degree of vertical integration
10
Technological sophistication of equipment
10
Process skills
10
R&D
10
Product development
10
Long-standing tradition in the industry
10
Unique skills within sector
10
Product perception by market
10
Source: ETG estimations based on the modified Delphi Method
Bloomberg, (2014), Ethiopia Becomes Chinas China in Search for Cheap Labor, July 23. http://www.bloomberg.com/news/2014-07-22/ethiopiabecomes-china-s-china-in-search-for-cheap-labor.html
54
50
4.3 Value Chain Analysis

The value chain analysis contained
in this section compares the relative
competitiveness of Kenya and Ethiopias
leather sectors. It assesses the difference
in resource requirements and productivity
associated with the processes to transform raw
inputs into finished products for consumers
or into intermediate inputs used in the
manufacturing processes of other producers.
Average costs for different production
activities in Kenya are compared with activity
costs found in Ethiopia.55 Ethiopia was selected
for this benchmark analysis because it is currently
at a comparable level of industry development
and is likely to pose significant competition in
regional markets.
By comparing unit activity costs between
Kenya and Ethiopia, we can identify critical
functions within Kenyan supply chains whose
efficiency is either a source or a retardant of
competitive advantage. This analysis allows us
to identify specific functional constraints that
limit the ability of the Kenyan leather industry
to compete on a cost basis. The SWOT analysis
presented above identified other non-cost
constraints, which inhibit value creation within
the sector.
Information produced from value chain
analysis is critical for the sector stakeholders,
as well as the government and its institutions.
Once cost and productivity constraints are

identified, policy makers can work with
respective stakeholders to address them.
Kenyas leather industry value chain
As identified in Figure 21 in Chapter 2,
Kenyas leather industry value chain is
depicted according to its three component
functions: (i) livestock breeding; (ii) raw
hides & skins production; and (iii) leather
and leather goods production. Due to the
extensive analysis on livestock breeding and
raw hides and skins clusters in other reports,56
our analysis focuses on the leather tanning
and leather products functions.
Tanning subsector
Tanning is a critical subsector in the leather
industry. The efficiency and input cost
competitiveness of this subsector determines
the cost competitiveness of semi-finished and
finished leather. Currently 14 tanneries operate
in Kenya. However, only four or five produce
finished leather.
Table 11 illustrates the relative costs of
producing leather in Kenya and Ethiopia. While
not precisely comparable, because comparing
cattle hide tanning in Kenya is not identical to
sheepskin tanning in Ethiopia, this data provides
a useful set of metrics for comparing relative
input costs in the two countries.
By having a benchmark we can assess the competitiveness of the current Kenyan leather industry vis--vis other global competitors. We chose Ethiopia
as our reference point due to its proximity and similarities with Kenya in three areas. First, the strengths and weaknesses of the leather industries in
Ethiopia and Kenya bear similarity. Their competitiveness derives primarily from abundant livestock (raw material) and relatively cheap labor cost. Both
countries lack advanced technology or productivity. Second, both countries mostly produce low-cost leather products. Third, they are in the same
region and are competitors for markets in the region. Also, Kenya could emulate Ethiopian policies and initiatives, which led to the industrys highly
successful transformation.
56
Alfred M. Muthee, (2008), Integrated Value Chain Analysis of the Leather Sector in Kenya, MSME Competitiveness Project, Ministry of Trade and Industry,
The World Bank.
55
51
Ethiopia imported chemical for tanning are said

to come in duty-free.
Table 11: Comparative costs of tanning leather

in Kenya and Ethiopia
Kenya
(Processing 1 kg
of hide)
Ethiopia
(processing 1 sq. ft.
of sheep skin)*
Inputs
Total
cost
(US$)
Total
(%)
Total
cost
(US$)
Total
(%)
Raw materials
1.16
72
0.42
59.0
Chemicals
0.32
19
0.08
11.0
Labor
0.04
0.02
3.3
Electricity
0.03
0.03
1.5
Effluent treatment
0.04
0.01
0.9
Footwear and leather products subsector
Utilities
N/A
N/A
0.01
1.6
Depreciation
N/A
N/A
0.01
1.5
Marketing/
Distribution
N/A
N/A
0.03
4.3
Overhead
0.02
0.10
14
Total
1.60
100
0.72
100
Kenyas footwear and leather products cluster

was once dominant in East Africa. However,
Ethiopia has made tremendous productivity
gains in recent years, and now surpasses
Kenya in terms of its competitiveness as
Table 12 shows. Overall, it is more expensive
to produce a pair of low-cost, mens leather
shoes in Kenya than in Ethiopia. In Kenya, the
cost is US$9.44 vs. Ethiopias ability to make a
pair of loafers for US$7.28.
Source: ETG Primary Research for Kenya,

* Ethiopia Value Chain Analysis (2006)
Raw materials (raw hides and skins) represent

the highest cost input in the tanning process
for both countries. Yet, raw material costs are
significantly higher in Kenya at 72 percent, vs. 59
percent in Ethiopia. The second most costly input
is chemicals, which represent 19 percent of total
costs in Kenya vs. only 11 percent in Ethiopia.
Labor accounts for only 2 percent of total cost
for Kenya, and is 3.3 percent in Ethiopia. The
next most important cost is effluent treatment,
which in Kenya accounts for 3 percent of total
costs, and is three times higher than in Ethiopia.
The high cost of raw materials and chemicals
for leather tanning in Kenya relative to Ethiopia
represents the most significant competitive
challenge for Kenya. Surface treating agents are
available under EAC duty remission for tanneries
which export. However, provisions of the EAC
Customs Union Protocol erode its usefulness:
tanneries which sell to the EAC cannot fully
utilize the scheme because they are obligated
to cede the EAC market in return. Conversely, in
52
Regarding the high cost of raw materials, many

other previous reports have documented
the importance of improving incentives
for downstream providers of raw materials
(from herdsmen and abattoirs). Similar policy
recommendations are included in Chapter 5 of
this report.
Table 12: Comparative costs of producing a pair of low-cost

shoes (Kenya) vs. loafers (Ethiopia)
Kenya
Ethiopia
Cost
(US$)
Percentage
of cost
Cost
(US$)
Percentage
of cost
Leather
(Sheepskin)
4.40
47
3.72
51
Other Inputs
2.75
29
2.27
31
Labor
1.10
12
0.55
Electricity
0.17
0.03
Packaging
0.39
0.31
Maintenance
0.09
0.06
Other Costs
0.55
0.34
Total
9.44
100
7.28
100
Source: ETG Primary Research for Kenya data and Global Development
Solutions, LLC for Ethiopia data
Kenyas lack of cost competitiveness results

from several factors. Our data reveals that
three major constraints disadvantage Kenyan
producers:
Cost of leather inputs: The procurement of

finished sheepskin account for almost 50
percent of the total cost in both countries.
However, it is more expensive in Kenya than
in Ethiopia. First, industry leaders point
to smuggling as a key reason for the cost
driver. Local tanneries have to compete
against smugglers and end up paying extra
to raw hide and skin traders. Second, there
are many inputs such as chemicals and even
machinery that are imported and subject
to tariffs. Third, tanning is a subsector
that requires a great amount of water and
electricity. Kenya has a reputation for an
unfriendly business climate due to its high
electricity cost.
Cost of Labor: Although Kenya has a
relatively competitive labor cost compared
to more developed countries such as China,
it still is higher than its regional competitor.
The current state of high wages is not driven
by shortage of labor. In fact, Kenya has an
unemployment rate that goes beyond 40
percent. Neither is the higher wage driven
by higher productivity. Industry pundits
blame ceremonial wage increments
for driving up the wage cost and thus,
making light manufacturing industries
uncompetitive.57 Kenyas current average
wage cost is US$150 compared to between
US$40 and US$60 in other Sub-Saharan
African countries. Ethiopias labor costs are
one third of that of Kenya.58 Also, lack of
modern machinery and facilities severely
limits efficiency and productivity.
Productivity: Despite Kenya having an

average wage cost of US$150, compared
to US$50 in Ethiopia, Table 12's costs
comparison shows that on average, the
Kenyan labor cost is twice as high as that of
Ethiopia in making a pair of mens leather
shoes. This indicates a higher productivity
level among Kenyan leather shoemakers.
However, given the insignificant level
of formal training and knowledge
dissemination observed in the Kenyan
leather industry, Ethiopia is likely to close
the gap in the near future. Ethiopian LIDI
trains hundreds of students every year in
their facility. Foreign investors operating
in Ethiopia are also investing heavily to
boost productivity. Huajian, for example,
has been sending a number of workers
to China not only for technical trainings,
but also for managerial trainings.59 Thus,
Kenyas advantage in productivity is likely
to diminish in the near future, if it has not
declined already.
In comparison to other international and
regional players (China and Tanzania),
another report indicates that Ethiopias cost
competitiveness is primarily due to its low cost
of labor and the low cost of locally available
sheepskin. As shown in Table 13, the cost of raw
material inputs in Ethiopia for producing a pair
of loafers is only US$3.72, compared to US$4.00
in Tanzania and US$5.85 in China.60
The Kenyatta government has repeatedly raised minimum wage by 14 percent to support its constituents in times of increasing living costs in
Kenya. Manufacturing stakeholders, including the Kenya Association of Manufacturers, argue that this critically damages competitiveness of the
already constrained Kenyan manufacturing industry. http://www.kam.co.ke/index.php/opinion-pieces/439-industry-says-yes-to-productivitybased-wage-increments
58
Daily Nation, (2015), High energy, labour costs bane of industrial growth, January 19. http://www.nation.co.ke/lifestyle/smartcompany/Highenergy-labour-costs-bane-of-industrial-growth-/-/1226/2594554/-/qtaot5/-/index.html
59
China Daily, (2014), Puttin its Best Foot Forward, December 9. http://africa.chinadaily.com.cn/weekly/2014-09/12/content_18587359.htm
57
53
Table 13: Comparisons of raw material inputs for producing a pair of loafers in Ethiopia, Tanzania, and China
Ethiopia
Tanzania
China
51%
72%
36%
Raw material as a percentage of the value chain

Total cost of raw material inputs/pair
US$5.99
% of Total
Input
$7.19
% of Total
Input
US$9.22
% of Total
Input
Sheepskin (cost/pair)
US$3.72
62%
$4.00
56%
US$5.85
63%
Other inputs (cost/pair)
US$2.27
38%
$3.19
44%
US$3.36
36%
Source: Global Development Solutions, LLC (2011)
Kenya can strive to achieve key competitiveness

advantages that Ethiopia has achieved with
respect to low labor and input material
costs, and quality in relation to formidable
international players in the leather footwear
market such as China and Vietnam. Ethiopia
has relatively low labor costs (skilled: US$41
US$96/month; unskilled: US$16 US$33/
month), which is two to three times lower for
skilled labor and 14 times lower for unskilled
labor when compared to China. Ethiopias low
cost of locally available sheepskin also plays an
important role in contributing to the low unit
production cost of loafers in Ethiopia. The cost
of sheepskin is only US$3.72/pair (62 percent
of total cost of shoe), vs. US$4 in Tanzania, and
US$5.85 in China.
Cost of production for other leather footwear
products in Kenya
For Kenyas footwear and leather products
cluster, recent cost estimates for the
production of bootsmilitary, security, and
industrialby producers in the formal sector
are shown below. In boot production, leather is
the most costly input accounting for 57 percent
and 56 percent in military and security boots,
and 45 percent for industrial boots, for which
the quality of leather can be lower. Other boot
input componentssoles, insoles, laces, glue,
and metalare the next most costly inputs,
accounting for 29 percent in the case of military
and security boots, and 41 percent for industrial

60
54
Global Development Solutions LLC (2011).
boots, due to the high cost of metal toe inputs.

Labor inputs account for 8 percent of total
production costs, and electricity costs range
between 2-3 percent.
Table 14: Breakdown of costs involved in producing boots
in Kenya (Formal sector)
Military
boots
Security
boots
Industrial
boots
Cost
(KSh)
Cost
(KSh)
Cost
(KSh)
Leather
725
57
695
56
550
45
Soles
280
22
280
22
280
23
Insoles
15
15
15
Thread
10
10
Laces
10
10
Glue
48
48
48
Labor
100
100
100
Electricity
32
32
32
Metal
130
11
Other
62
62
62
TOTAL
1,282
(US$14.10)
100
1,252
(US$13.77)
100
1,233
($13.56)
100
Source: ETG Primary Research
Costs of production in the informal sector

(Jua Kali)
The cost of making a pair of mens dress shoes
that is sold for KSh 800 (US$8.80) in Nairobis
Kariokor Market is KSh 600 (US$6.60). As
shown in Table 15, leather inputs account for
47 percent, other material inputs for 37 percent,
and labor accounts for 17 percent (US$1.10).
Table 15: Breakdown of costs involved in producing mens dress

shoes in Kenya (Informal sector)
Components
Cost (KSh)
Cost (%)
Leather (2 sq. ft. required)
280
47
Buckle (imported)
10
Soles (imported)
200
Lining
Table 17: Profit margins for producing school shoes, sandals,

and belts (Informal sector)
School shoes
(KSh)
Sandals
(KSh)
Belts
(KSh)
Cost
300
275
85
33
Sale
400
450
150
10
Profit
100
175
75
Labor
100
17
Total
600
100
The costs of making a pair of Safari Boots that

sells for KSh 500-550 is shown in Table 16.
The cost of leather inputs (simple tanned and
finished split hide) is significantly less than that
for industrial boots in the formal sector, and for
mens dress shoes in the informal sector. The
cost of labor in making mens safari boots is
slightly lower than for making mens dress shoes.
Producers point out that mens safari boots are
relatively easier to make.
Table 16: Breakdown of costs involved in producing mens safari
boot in Kenya (Informal sector)
Components
Cost (KSh)
Cost (%)
Leather (0.5 kg)
100
25
Soles (Kenyan)
170
43
Lining
10
Welt
20
Strings & eyelet
15
Labor
80
20
Total
395
100
One of the reasons that KM (informal sector)

has continued to engage in such a high level
production of leather footwear (estimated to
produce more than 2 million pairs/year) is due
to the profit margins obtained in producing
school shoes, sandals, and belts. As shown in
Table 17, profit margins for school shoes are
estimated at the US dollar equivalent of US$1.10
for a pair of school shoes, US$1.93 for a pair of
sandals, and US$0.83 for a belt.
4.4 Competitive Positioning

Analysis of Kenyas Leather
Products
Kenyas relative competitiveness in leather
products has declined substantially since
it won preeminence as East Africas leading
footwear producer during the 1980s. It is
important to assess Kenyas position today
relative to other competitors and identify
opportunities to reposition the nations leather
product industry in order for it to move into
higher value-added markets and to increase its
share in those markets.
No African countries are significant players in
either the fine leather or the footwear markets.
Despite owning a fifth of the global livestock
population, African countries account for only
4 percent of world production and 3.31 percent
of value addition. Most African counties,
including Kenya, are basically exporters of raw
hides and skins and of wet blue leather. With
that said, several African countries, including
Tunisia, Morocco, Egypt, and Ethiopia, have been
positioning themselves for what observers agree
will be a significant supply shortage of leather
based footwear and other leather products by
the end of the next decade. Several strategies
have emerged among African countries vying
to capture this large footwear market. They all
involve creating incentives, investing in human
capital, and creating new value chain building
institutions and trade policies designed to push
and pull private manufacturers to add more
55
skilled labor content to their abundant livestock

resource base, thus moving up the value chain.
Mens footwear
In the global context of footwear exports,
Kenyas position is negligible with only US$2.8
million in sales in 2013 (up from US$0.5
million in 2008). Compared with the worlds
largest players, China (US$50.8 billion), Italy
(US$11.8 billion), Vietnam (US$11.6 billion),
Kenya does not even appear on the same radar
screen. Even in comparison with its African
neighbor Ethiopia (US$23.5 million), Kenyas
production base is minimal.61
Mens footwear markets are highly price
sensitive and the enormous economies of
scale realized in China, Italy and Vietnam allow
manufacturers in these countries to realize
significant production cost advantages, not
only from lower input costs, but also from
large production learning costs. One shoe
manufacturing center in China, for example,
produces more shoes for export than all
manufacturers manage to produce in all of SubSahara Africa. In addition to low production
costs, however, three additional factors are
essential for repositioning Kenyan producers in
global markets: (i) market responsive product
designs; (ii) highly skilled labor inputs; and (iii)
access to efficient distribution channels which
preserve margins for producers selling into
specific target markets.
Figure 28 depicts Kenyas starting position as
a producer of leather footwear for the current
period, 2014. The size of the bubbles in the
diagram correspond to the scale of production
among global market leading countries. Kenya
is a minor player with respect to the leading
producers and exporters of leather footwear.
China is the dominant world producer of leather

footwear, accounting for more than 60 percent
of world production and 40 percent of world
exports (US$50.8 billion). Italy and Vietnam
are the second and third largest exporters,
exporting US$11.8 billion and US$11.6 billion
respectively. In contrast, Ethiopia exported
US$23 million, and Kenya only US$1.2 million
in 2013.62 Italy by far produces the most
sophisticated, high-end shoes, and has high
levels of product differentiation, with unique
qualities, branding, etc. China occupies the
middle of the diagram and dominates in all but
the high-end where Italy and other European
producers have competitive advantage.
Vietnam is rapidly conquering the competitive
space in low-end to mid-level quality footwear,
especially as a low-cost contractor for brands.
Ethiopia is emerging as a new world player, due
to low cost labor and stable business climate. It
has also been attracting an increasing number
of foreign investors as a production site to enter
into the EU market and the US market through
the AGOA program. Kenya has been a relatively
small player since 2005. As Batas production of
low-end mens leather shoes for the domestic
market have decreased in the last few years, and
its export of leather shoes into the East African
Figure 27: Competitive position of Kenyan leather footwear (2014)
Italy
High-End
Shoes
China
Product
Scope
Vietnam
Ethiopia
Low-End
Shoes
Boots
Kenya
2005
2014
Undierentiated
Source: ETG
Worlds Richest Countries, http://www.worldsrichestcountries.com/top_footwear_exporters.html

Ibid.
61
62
56
India
Dierentiation
Unique Qualities
market has declined, Kenyas competitive

position has been driven to low-cost producer
of undifferentiated low-end shoes and boots.
Kenyas position depends on three critical
success factors: market relevant design, skilled
labor, and efficient distribution channels, as
well as representing the kinds of economies of
production that result from large volume. What
can be inferred from this diagram is that the
most successful strategy for growing Kenyas
position in the low-end shoes and boots market
is to concentrate on developing markets and
to grow corresponding distribution channels
within Eastern and Southern Africa. Prospects
are most attractive in those segments where
market responsive product designs already
exist. Work boots, African-style safari footwear,
and school-age childrens shoes, for example,
meet this description. This strategy needs to be
based on the realization of economies of scale
and economies of scope.
Economies of scale are realized when average
production costs are lowered as production
volume increases. There are two types of
economies of scale: (i) Internal economies
which result from cost savings that accrue to
individual companies. Learning curve related
cost reductions fall into this category; and (ii)
External economies which benefit individual
companies because of the way in which the
larger industry is organized around individual
companies. External economies of scale are
created, for example, when overhead costs are
shared among multiple producers. They are
realized when water treatment costs are shared
and when design and development are shared.
Mergers between leather tanneries, as well as
the outsourcing of specific functions within
integrated supply chains are viable sources of
economies of scale.
Economies of scope are realized when multiple

products are sold into the same target markets
via single multiproduct distribution channels.
Economies of scope make it cheaper to produce
a range of products together rather than to
produce each one of them on its own. For
example, if leather wallet producer X expands
the scope of his production into leather bags,
folders, and other corporate items, he can
diversify his products and reach a larger audience
by utilizing the same equipment, similar input,
and the same distribution and logistics channel.
As a result, producer X can now market himself
as a leather goods producer rather than merely
a leather wallet producer. This will likely reduce
the costs per unit.
Such economies can also be realized from
cooperative
interrelationships
created
within supply chains and from other forms of
commercial partnering, such as cross-selling one
product alongside another, or using the outputs
of one business as the inputs for another.
Economies of scope are best realized through
strategic cooperation among and between
competitors, which result in win-win outcomes.
In the context of global footwear markets,
enormous economies of scale and of scope
have already been realized in China, India and
Vietnam, and these will be difficult for Kenyan
manufacturers to match. In order to achieve
low cost parity, Kenyan production costs
need to be lowered significantlyachievable
through a combination of internal and external
improvementsat the same time that product
quality is increased measurably.
In order to serve markets in which competitive
advantage can best be secured for a resurgent
Kenyan footwear industry, Eastern and
Southern Africa footwear markets need to be
57
become the industrys primary focus. To this

end, new products need to be designed for
these markets and new distribution channels
developed into them. Currently, only one
Kenyan shoe manufacturer, Bata Shoes, has
access to a broad network of shoe distribution
outlets through its own affiliated stores located
all over East and South Africa.
Figure 29 reflects Kenyas changing
competitive position in world footwear,
projecting into 2020. Most of the dominant
world players have grown and shifted upward
and to the right, reflecting improvements in
quality, differentiation, and product scope. Italy
is further consolidating its position in the upscale
footwear market. Meanwhile, China, due to
rising labor costs, faces increasing competitive
pressures particularly from Vietnam, and is
forced to move upscale. Ethiopia continues to
grow rapidly as a strong base for FDI-driven
low-end footwear. Kenya continues to grow and
compete vigorously with Ethiopia for market
share in both its own domestic market and the
East African market.
Figure 28: Projections of future global competition

of leather footwear
Source: ETG
63
58
UN Comtrade, 2013.
Specialty leather products

The market for personal leather products,
other than shoes, encompasses an extremely
large number of product categories, includes
a wide diversity of styles and designs and is
accessible via a diverse set of distribution
channels serving an equally diverse set of
micro-niches. Kenya currently exports less than
US$2.2 million worth of these leather products.
By way of comparison, global leaders China
and Italy exported handbags and other
leather products, worth US$26.7 billion
and US$6.5 billion, respectively in 2013.63
Vietnam and India export US$2 billion and
US$1 billion, respectively.
Whereas Kenyas initial competitive position
in the handbag and other specialty leather
products market is similar to that of footwear
market (competitively disadvantaged in
cost, quality and design, because of the
enormous diversity and complexity of
this niche), the countrys strategy can be
different. And indeed, Kenyan producers
can compete better in this market once
appropriate channels are developed.
Figure 29: Projections of future global competition
in other leather products
Source: ETG
The quality reputation and name recognition

of local producers of handbags, travel ware,
and cases is low. With that said, handmade,
distinctive African designs produced by
small-scale manufacturers is growing in
the safari tourism niche. Sandstorm Kenya
and Rift Valley, for example, have carved
out places in this market niche with its
distinctive brand. The sources of competitive
advantage that Kenya possesses include a
strong tradition of craft ware design and
handcrafted manufacture production.
Analysis suggests that unlike the leather
footwear sector, where Ethiopia commands
dominant global market presence over Kenya,
in the case of leather handbags, travel ware,
and cases, Kenyan products (US$2.2 million)
were almost quadruple the export size of
that of Ethiopia (US$0.57 million) in 2013.
As discussed in Chapter 3, many new leather
bag brands have appeared, targeting a large
tourist base in Kenya over the last decade.
Despite decreases in the number of tourists
visiting Kenya due to the rising insecurity, the
reputation of its products allows Kenya to
continue to outperform Ethiopia. High numbers
of expats and tourists in previous years have
helped to establish Kenyas reputation and
enabled it to reach a sufficient scale to continue
to produce high quality handbags. Players such
as Sandstorm Kenya and Rift Valley Leather,
although small, show strong potential.
The potential exists to build on these successes
and to double or triple exports of hand bags,
travel ware, and cases by 2020 by improving
quality and building the made in Kenya
brand distinction. This strategy would entail the
following steps: (i) create a mass customization
delivery capacity; (ii) invest in advanced leather
product design skills and capacities; (iii) link up

ICT companies which can facilitate internet sales
with artisan producers of leather goods located
in the EU and USA; and (iv) facilitate crossselling between the tourism industry and the
specialized leather manufacturing sector.
4.5 Key Findings from Chapter 4

The main findings of the competitiveness
analysis presented in Chapter 4 include the
following:
Kenya, despite having a history of leather as
one of its major export industries, is currently
a minor exporter of leather and leather
products (only US$95 million in 2013).
Kenya is also significantly less competitive
than global leaders including Italy, China,
and Vietnam in all competitiveness
indicators, except availability of raw
materials and access to raw materials, but
also lags behind neighboring Ethiopia in
access to raw materials.
The
most
significant
competitive
disadvantage, which Kenya producers
have is their lack of market access and
sophisticated marketing capabilities. These
disadvantages manifest themselves in
several ways: (i) a failure to understand
the product design preferences of target
markets; (ii) the lack of proprietary brands;
iii) the lack of dedicated distribution
channels; (iv) a failure to engage internet
based modes of marketing; and most
importantly, (v) a failure to invest in quality
inputs and quality processing technology
with which to open high-end markets. Most
of these issues transcend the parameters
of traditional leather producers and
require industry restructuring, strategic
cooperation, and/or industry group action.
59
For the tanning subsector of the leather

value chain, the high cost of raw materials
and chemicals in Kenya relative to
Ethiopia, represents the most significant
competitiveness challenge for Kenya.
In the footwear subsector, Kenya has been
a relatively small player since 2005. As Batas
production of low-end, mens leather shoes
for the domestic market have decreased in
the last few years, and its export of leather
shoes into the East African market has
declined, Kenya is now characterized a lowcost producer of undifferentiated low-end
shoes and boots.
In the footwear subsector, Kenyas lack of
cost competitiveness results from three
major constraints disadvantage Kenyan
producers: (i) high cost of leather inputs;
(ii) high cost of labor; and (ii) high cost
of electricity.
Ethiopia is emerging as a new world-class
player, due to its low cost skilled labor and
its stable business climate. It is attracting
60
an increasing number of foreign investors

who are using Ethiopia as a production site
especially to enter into the EU and US markets,
the latter through the AGOA program.
In the case of leather handbags, travel ware,
and cases, Kenyas exports in 2013 (US$2.2
million) were almost quadruple the export
size of that of Ethiopia (US$0.57 million).
Kenya can build on its previous reputation
for quality hand bags, travel ware, and cases
by improving quality, building the made
in Kenya brand distinction, and creating a
mass customization delivery capacity.
Chapter 5 provides a number of strategic
responses to the obstacles and constraints
to value addition and competitiveness
enhancement identified in this chapter. It
builds on assessments and analyses presented in
the first four chapters to recommend strategies
which fall into one of three areas appropriate to
moving Kenyas leather sector from its current
low level equilibrium to a higher equilibrium.
S E C T I O N FI V E
IMPLEMENTATION RECOMMENDATIONS
AND ACTION PLAN
ased on the analysis and findings of the

state of Kenyas leather industry and the
competitiveness challenges and opportunities
it faces, this chapter provides recommendations
for strategic targeting of key products and
markets, and puts forward actions to strengthen
the competitiveness of the industry. The
chapter concludes with a reflection of the
risks and benefits of pursuing the targets and
implementing the suggested actions.
5.1 Strategic Targeting of Leather

Products and Markets
As indicated in the analysis of market
opportunities (Chapter 2) and competitiveness
positioning analysis (chapter 4), the most
promising targets for Kenyas leather industry
include the following three key products, with
corresponding market thrusts (Table 18).
To increase the competitiveness of the leather

industry and accomplish these targeted
product-market objectives, strategies and
actions are recommended. They have been
grouped according to the following framework,
which consists of three key strategies, each
including several supportive initiatives. Table 18
also matches action initiatives to the three key
product/market competitiveness strategies.
The overall strategy and each of these
recommended action initiatives address critical
binding constraints on the competitiveness
of the leather industry. Each recommended
action initiative is outlined below. The chapter
concludes with projections regarding the
number of leather sector jobs that would be
created were the recommendations to be
implemented. In the Annex a proposed action
plan includes a suggested timeline and identifies
responsible stakeholders for the implementation
and achievement of tangible results.
Table 18: Strategic targeting of Kenyan leather products and markets

Strategic Products
Strategic Markets
Low value added leather footwear
Domestic Marketincrease share of domestic leather footwear market, particularly with low-cost
mens shoes, low-cost school shoes, and boots.
Regional Marketincrease exports to EACs of low cost-mens shoes and boots.
High value added specialty products
EU and US Marketsincrease exports of specialty leather products, leather handbags, travel ware,
and cases, with a focus on EU and US markets.
Domestic and EAC Marketsincrease domestic and regional sales, especially safari-type products
sold to tourists in Kenya and EAC.
Finished leather
China and EU MarketsIncrease exports of higher value added finished leather (and crust leather),
especially to China and EU.
61
V. Implementation Recommendations and Action Plan
Table 18: Leather industry strategy & actions

Low value-added
leather footwear

products
Finished
leather
Strategy 1: Promote the dynamic restructuring of the leather industry
1.1 Establish a collaborative, stakeholder-driven leather industry strategy

1.2 Strengthen the Kenya Leather Development Council (KLDC)
1.3 Improve the regulatory framework to reduce production costs and safeguard
the environment
2.1 Develop a leather marketing entity to increase awareness, coordinate

2.2 Design a transparent public procurement policy
i. Nairobi leather accelerator (for formal sector)
ii. Kariokor market satellite leather accelerator
X
X
Strategy 2: Increase access to markets and induce greater demand for

Kenyan leather & leather products
Strategy 3: Build quality and standards

3.1 Improve the production process, technology and machinery
3.1.1 Establish leather product development accelerators (or leather wealth
creation centers)
3.1.2 Develop a leather industry park

3.2 Improve Skills
3.2.1 Restructure and upgrade the Training and Production Center for the
Shoe Industry (TPCSI)
3.2.2 Strengthen university leather design, technology, and marketing
capacities
3.2.3 Enhance human resource placement services for the leather industry
3.3 Encourage quality and enforce standards

3.3.1 Align incentives for quality and promote quality certification systems
3.3.2 Develop leather award and recognition programs
3.3.3 Initiate regional branding of the leather industry to promote

specialization
3.3.4 Increase enforcement of quality standards for imported leather products
62
5.2 Promote the Dynamic Restructuring

of the Leather Industry by Improving
Governance and Strengthening
Collaboration (Strategy 1)
Due to the highly fragmented structure of the
leather industry, the limited linkages among
stakeholders, and lack of a coherent and shared
competitiveness strategy by the private sector,
government, and other institutions, the primary
strategy is to consolidate the leather cluster
and promote its dynamic restructuring. Several
important initiatives are designed to bring this
about. These include:
Establishing a leather cluster working group
and strategy implementation process;
Strengthening
KLDC
to
orchestrate
interventions to accelerate the restructuring
of the industry; and
implementation process with a Leather Cluster

Working Group, composed of about 100
stakeholders across the industry, to participate
in the short and long-term development of
the industry. The activities of the Working
Group are to be implemented as a collaborative,
action-oriented clustering process, which while
developing a shared vision and strategy and
identifying and implementing concrete action
initiatives, also builds trust and social capital
throughout the cluster.64
This strategy implementation process is seen
as complementary to the Leather Task Force,
which can serve as a central steering group for
a much larger group of industry stakeholders. In
developing this process, the following activities
will be carried out:
Improving the regulatory framework to

reduce production costs and safeguard the
environment.
Conduct interviews and meetings with leaders

and develop a comprehensive list of industry
leaders and stakeholders to join the Leather
Cluster Working Group;
A critical cornerstone for improving of the

competitiveness of the leather industry is a
well-functioning set of institutions to support
the industry, coupled with a strong legal
framework and business climate. This strategy
recommends that it is critical to strengthen and
position KLDC as a driving institutional vehicle to
enhance the leather industrys competitiveness.
Conduct a series of meetings to develop a

shared analysis, vision, strategy, and action
plan for the leather cluster using the current
analysis and preliminary recommendations
report as a starting point for discussion;
Establish a collaborative, stakeholder-driven

leather industry strategy implementation
process
In order to foster linkages and collaboration
across the leather industry, it is recommended
that Kenya establish a collaborative,
stakeholder-driven leather industry strategy
In the cluster meetings, identify and develop

20-30 concrete action initiatives, both topdown and bottom-up, with business plan and
leadership; and
Identify priority initiatives and begin initial
implementation, with preliminary financing
support from a Leather Cluster Action
Fund (US$50,000-US$100,000) to support
initial implementation projects/tasks (e.g.,
feasibility studies, benchmarking trips, etc.).
Clustering is internationally recognized as the best way to pro-actively address sector development and stimulate economic development (e.g.,
World Bank, African Development Bank, InterAmerican Development Bank). Clustering is effective because it doesnt only deal with individual
companies; instead, it engages entire networks of entrepreneurs, companies, research and educational institutions, government, and other institutions
in a coordinated fashion to accelerate competitiveness. Competitiveness is accelerated by supporting the entire value chain to develop, based on
knowledge and value added, rather than compete on low costs. Clustering is especially important for small economies like Kenya where the critical mass
of individual companies is too small to effectively compete in domestic and international markets.
64
63
Clustering should lead to the following

important results for Kenyas leather industry:
a. It will position Kenyas leather industry
subsectors in higher value-added market
segments (shift from low-value export
of intermediate wet blue leather to
development of higher value-added finished
leather, footwear and handbags for domestic
and export markets, and shift to knowledgebased development and collaboration with
universities, international and domestic
sector specialists, etc.).
b. It will support collaboration, learning,
common
production
facilities,
joint
purchasing, and joint marketing of low-cost
footwear manufacturers.
c. Within proposed priority pilot sectors (e.g.,
footwear and handbags), industry leaders
will get acquainted with market trends
and competitiveness requirements and
get support to export higher value-added
products and services.
d. It will accelerate development of incentives for
improving linkages and optimizing synergies
along the value chain (such as opportunities
for cluster-based sector development in
sustainable animal husbandry, sustainable
tanneries, competitive footwear industry,
artisanal leather products, etc.)
For the private sector, the Government of
Kenya, and other institutions and development
agencies, the initial clustering process will
result in the following:
1. Support to accelerate both bottom-up and
top-down implementation of priority action
initiatives. Clustering will also lead to strong
buy-in and ownership of leather industry
stakeholders in implementing the strategy
and priority action initiatives.
64
2. Within pilot subclusters, the private sector

and government will get a clear picture
about which subsectors to support and
invest in because of leadership readiness,
product
attractiveness,
potential
international markets, and other company
and sector capabilities.
These processes and activities related to
clustering, along with their expected results,
are detailed further in the Annex.
Strengthen the Kenya Leather Development
Council (KLDC)
As described in Chapter 3, Kenya currently has
many institutionsKLDC, KIRDI, TPCSI, AHITI,
KITIplaying different roles in supporting the
development of the leather industry. However,
there is limited communication and cooperation
among the different institutions, and there is no
appropriate forum to address such issues. Most
of the institutions are also underfunded, and
if not, they are out of touch with the private
players that drive the industry.
In this light, the Ministry should reinforce
KLDC with sufficient funding and authority
to fulfill its potential. In particular, KLDC
should be given more responsibility and
power for coordinating all leather institutions
(TPSCI, the leather department of KIRDI, and
AHITI, among others).
The Ministry should allocate more financial
resources to enable KLDC to execute its various
mandates which include: (i) coordinating
leather sector activities and stakeholders;
(ii) supporting accelerators and common
manufacturing; (iii) coordinating policy
development and implementation; (iv) capacity
building; and (v) market development.
The Ministry must work with institutions to

streamline the delegation of responsibilities
and roles. KLDC should be able to fully
leverage its close relationship with the industry
stakeholders and it must be the medium for
the industry players to address challenges.
KLDC will then recommend practical research
topics for KIRDI to focus upon. KLDC must
also mobilize leather goods producers and
collaborate with training institutions to create
appropriate curriculum to address technical
skill gaps. In sum, KLDC must be the prime
institute overseeing all the activities, policies,
and initiatives for the leather industry.
Furthermore, KLDC needs to internally
restructure its current four-department
system, reducing it to two departments to
make the institute less top-heavy. KLDC is an
institute in charge of big responsibilities but
limited in staff size. Having fewer department
directors but more mid-level members will
allow for better management of the institution,
both financially and operationally.
Improve the regulatory framework to reduce
production costs and safeguard the environment
Kenya should improve its regulatory
framework as it relates to leather on two
important fronts. Firstly, import duties on
leather tanning and footwear production
inputs should decrease from 25 percent to the
more common 10 percent. This could apply
to chemicals, dyes, shoe making supplies and
components, shoe lasts, soles, shoe lace ringlets,
and buckles, among others.
Second,
international
leather-related
environmental standards should be adopted
and enforced, particularly at the tannery level.
At present, Kenya lacks systematic conformity to

such standards. These need to be adopted not
only at the discretionary level of individual firms
but also at the compulsory level of the entire
leather industry. If this is successfully done, green
and clean leather can become an attractive part
of the Kenyan leather value proposition.
Historically, leather producing countries have
imposed tariffs on the export of raw hides
as Kenya does todayand have gradually
imposed tariffs on the export of wet blue.
The rationale for this has been to encourage
domestic manufacturing by artificially lowering
the cost of inputs. This strategy worked
favorably for countries such as Ethiopia: At
the time when Ethiopia imposed a tax on the
export of wet blue, many foreign investors
had already entered or were about to enter
Ethiopia. In addition, domestic capacity in the
leather sector had increased due to the support
of international donors and two sectoral
institutionsLIDI and TIDIwhich had built
reasonable capacity in terms of testing, quality
standards, and training, among others. Ethiopia
had also implemented generous measures to
encourage exports of leather products, which
allowed the country to domestically absorb
much of the semi-finished or finished leather.
Additional information on the experience of
Ethiopia can be found in the Annex.
However, in some countries, this strategy
has backfired, and the World Bank does not
recommend this approach be tried in Kenya
at this time. Enforcing environmental standards
in Kenyan tanneries will already push up the
cost base of the tanning sector, and imposing a
tax on the export of wet blue could undermine
some of the tanneries.
65
5.3 Increase Access to Markets and

Induce Greater Demand for
Kenyan Leather and Leather
Products (Strategy 2)
This section offers recommendations about
how to increase demand for Kenyan footwear
and other leather products. The key problem is
that despite a significant supply of livestock and
raw material, Kenya remains a minor provider of
leather and leather products in world markets.
It is currently a very minor exporter of leather
and leather products (only US$140 million, 0.14
percent of the US$100 billion world leather
export market in 2013, and only US$2.8 million
(0.005 percent) of US$54.5 billion dollar world
leather footwear export market). Even in its own
domestic market, Kenyan-made leather shoes
account for only 3.3 million (7.9 percent) of the
42 million pair of shoes purchased annually.
The overall solutions are multi-dimensional,
involving improvements in competitiveness,
productivity, and access to markets. To increase
access to markets and grow the demand for
Kenyan leather and leather products, the
following actions are suggested:
Develop a leather marketing entity to increase
domestic and international awareness of
Kenyan leather, coordinate the branding of
Kenyan leather, and promote exports; and
Facilitate access of local producers to the

domestic market by improving opportunities
to succeed with public procurement
contracts.
Sub-strategy 2.1: Develop a leather marketing
entity to increase awareness, coordinate
Kenyan leather producers should join
forces with the government to strengthen
international and domestic awareness
about Kenyan leather, coordinate branding
organize international leather fairs, and
promote exports. The KLDC currently serves
as the central organization to promote
Kenyas leather. However, it is important to
increase the publicity around Kenyan leather,
develop branding campaigns, and organize
public awareness events domestically and
internationally (i.e. trade fairs, exhibitions, etc).
This can be done through a stand-alone leather
marketing entity that works in conjunction
with KLDC or through a specific department
under KLDC.
To develop branding strategies, for instance,
lessons can be learned from other countries
that have developed such strategies for their
high-end leather goods in specific markets.
Ethiopia has recently started a campaign to
brand its sheep leather in Japan (see Box 1).
Box 1: Branding Ethiopian sheep leather in Japan

Dubbed as a champion product approach, Ethiopia is set to brand its leather and leather products made of sheepskin
to Japanese market and beyond.
Sponsored by the Japan International Cooperation Agency (JICA), the champion product approach movement
is something which is said to seek and improve Ethiopia's image and brand the country's finest sheep leather and
finished leather products abroad.
Noriyuki Nagai, one of the four consultants hired by JICA to undertake the job of championing sheep leather to become
a brand product, told The Reporter that the short term target of the champion product approach is to introduce
Ethiopia's high-end sheep leather and leather goods to the Japanese market.
Source: http://allafrica.com/stories/201412011189.html
Similarly, Kenya can find ways to brand and distinguish its sheep and goat skins and hides to Japan and other countries.

65
66
http://sunlightfoundation.com/blog/2013/08/12/case-study-public-procurement-in-the-slovak-republic/
The leather marking entity can promote

exports by organizing international matchmaking and leveraging global business-tobusiness (B2B) e-commerce platforms. For the
former, Kenya could leverage the experience of
the Export Promotion Council and the networks
of sister leather development councils to
promote matchmaking between international
buyers of crust and finished leather and Kenyan
producers. This could significantly increase
the visibility and demand for Kenyan leather.
For the latter, Kenya can take advantage of
global B2B commercial platforms to access new
markets throughout the world. For instance,
the recent recapitalization and expansion of
Alibaba, the worlds largest and most successful
global e-commerce market platform, opens up
a uniquely valuable opportunity for Kenyanbased leather tanners to sell directly to Chinese
leather product manufacturers.
Currently China is the largest footwear and
leather goods manufacturer in the world.
However, increasingly stringent environmental
controls within China are forcing many Chinese
tanneries out of business, with the result that
Chinese buyers are becoming increasingly
active in seeking overseas supplies of raw, semifinished and finished leather.
Dealing through a global B2B e-commerce
platform like Alibaba affords several
advantages to Kenyan exporters: (i) Alibaba
provides access to tens of thousands of buyers
whom Kenyan exporters could not otherwise
access. Many of these buyers include SME leather
product manufacturers based not only in China
but in other parts of the developing world; (ii)
Alibaba provides a pre-fabricated end to end
supply chain which affords de facto structured
trade and third party (Alibaba) guaranteed
conformance with product quality standards,
shipment and delivery times, and payment; and
(iii) significantly, Alibaba affords a first move

source of competitive advantage to the African
leather production platform, which would be
able to interface with it and to mobilize its B2B
capabilities quickly and fully.
To this end, a for-profit Alibaba-like leather
trading company could be created in Kenya
using the skills and internet competences
of one or more of the many Nairobi-based
ICT companies. This leather trading company
could be selected as a preferred trading partner
by KLDC or the Ministers Leather Task force
and awarded a start-up contract to provide
specialized trade and market interface services
for Kenyan leather and leather goods exporters.
The leather marketing entity could play a role
in mentoring the company with the help of the
Leather Accelerator suggested in this chapter.
Sub-strategy 2.2: Design a transparent public
procurement policy
Public sector procurement presents an
important market development opportunity
for Kenyan footwear producers to supply
specialized boots and shoes to the public
sector.
Several
government
agencies,
including the military, the police, and the
Youth Development Corps, require rugged and
durable boots and shoes, which Kenyas largest
footwear manufacturer has long specialized in.
Currently, these government agencies
develop their own individual specifications
and put them out to competitive tender.
However, by collaborating with Kenyan based
footwear manufacturers to develop, design and
functional specifications collaboratively with
Kenyan based footwear manufacturers before
tendering large orders, and by purchasing
orders which correspond to economic lot sizes
for local companies, another niche might be
67
created in which Kenyan manufacturers would

be well positioned. In addition, the niche could
be consolidated by providing after market
support services such as maintaining stand-by
inventories of replacement boots and providing
warranties against excessive wear.
As outlined by the Buy Kenya, Build Kenya
policy, government procurement policy could
bring great benefits to the manufacturing
sector, including the leather and leather good
sector. A guaranteed marketconditioned
on quality, price, and timelinesscould help
the industry reach a certain level of scale and
efficiency in producing selected products.
Since the knowledge and skills developed
could be easily transferable to other products,
the spillovers could be greater than the
governments initial intention.
To have a successful program, the Government
of Kenya must set up and enforce strict
transparency rules with a competitive, open
bidding process. The purpose of this policy
is to incubate its nascent industry to become
competitive and potentially serve as a medium
of rewarding innovative entrepreneurs. Lessons
can be learned from a case study of Slovakias
effort to bring transparency in its public
procurement process.65
5.4

Build Quality and Standards

(Strategy 3)
As described earlier, Kenya trails behind

global and regional competitors in the
leather industry in terms of productivity,
quality, and costs of products. Strategy 3
and its sub-strategies provide mechanisms
to enhance the productivity of companies
through the following:

Establishment of industry accelerators

to support micro, small and medium
enterprise (MSME) development and
linkage, and improve production
processes, technology and machinery;
Development of critical infrastructure,

including a potential leather park to
develop economies of scale for water
treatment and agglomerate markets;
Enhancement of training
development centers; and
Development of quality and standards.
and
skill
Strategies and actions to enhance productivity

throughout the leather value chain are vital to
Kenyas ability to compete both within its own
domestic market and globally.
Box 2: Case studySlovakia

Over the years, Slovakia has acquired a reputation for rampant corruption in doing business. However, since
the enactment of a new initiative of a procurement portal called EVO, in which the public can access various public
procurement information sources, Slovakia has been making an effort to shift away from a deeply entrenched stigma.
The recent development has brought a paradigm shift in the role of civil society and media oversight. As more
information is available to the public, journalists and civil society can proactively play an analyst and intermediary roles
in shedding light on corruption during the public procurement process. Information disseminated via EVO include:

Name of the contractor who won the contract;

Number of bids received;
The monetary value of the contract;
The criteria used for selection;
The type of procedure used;
The committee members who evaluated the bids; and
Complaint adjudication authority.
InfoDev of the World Bank has undertaken a great deal of work in developing toolkits, case studies, and organizational designs for specialized incubators
that are focused on the agribusiness sector. These tools and the knowledge that accompanies them could be used as templates to launch leather
industry business accelerators/incubators. Source: The World Bank (2011) Growing food, products, and businesses: applying business incubation to
agribusiness SMEs.
61
68
Sub-strategy 3.1: Improve the production

process, skills development, technology and
machinery
This sub-strategy focuses on how to improve
and upgrade the productivity of leather
and leather products producers in both the
formal and informal sectors. To this end, the
creation of two leather product accelerators is
recommended: one for the formal sector and
a satellite accelerator for the informal sector in
Kariokor Market.66
Leather Product Development Accelerators (or
Leather Wealth Creation Centers)
An extremely effective way to populate an
emerging industry with a combination of new
entrepreneurial firms and highly innovative
existing firms involves the creation of sectorfocused business accelerators/incubators.
Business accelerators/incubators are institutions
which are designed to accelerate the growth
and success of new and existing entrepreneurial
companies through the offer of an array of
business support resources and services that
include physical space, capital, coaching,
common services, and networking connections.
Sector-focused accelerators/incubators are
particularly effective in filling gaps or weak links
in supply chains.67
Business accelerators strengthen existing
businesses by improving their quality, scale,
market focus, and by injecting new businesses
into their supply chains, as well as linking
new market entrants to other members
of the business ecosystem to whom they
plan to sell and to serve. The probability of
a successful launch of pioneering existing

companies and new start-up companies is
greatly enhanced when leading members of the
sectors into which incubatees are launched sit
on oversight and advisory panels and consider
the viability and merit of emerging companies
from the point of view of strengthening
and complementing their own established
businesses. Being able to witness firsthand
the testing of new services rewards these
sector-leading companies and introduces new
product concepts and processes, which hold
the potential for extending their own market
reach. Consultation allows more traditional and
slower moving companies to witness firsthand
the development of new business models
and the maturation of new entrepreneurs and
innovating existing pioneer companies, and
in the process make determinations regarding
which emergent companies to affiliate with,
buy out, or hire talent away from.
Companies that provide specialized business
support services to an entire sector or to several
parallel supply chains, such as quality control
certification, order fulfillment, packaging,
market research, etc., are particularly useful
in strengthening the sectors that they serve.68
For the leather industry in Kenya in particular,
several of the potential areas for pioneering
existing companies and new enterprises include:
Leather market information services;
Internet-based wholesale leather marketing
services;
Leather quality certification services; and
Specialty services required to support the
production of hand-crafted footwear.
The Shoe Cluster in Addis could be inspiring as an example. There are a couple of a successful shoe producers there small Ethiopian companies. The
cluster provides a facility with machineries to produce various components (soles for instance) but also services like marketers, designers, and trade
shows.
67
For example, see Linda Knopp (2007) State of the Business Incubation Industry, Athens, Ohio: National Business Incubation Association; and R Grimaldi
(2005) Business incubators and new venture creation: an assessment of incubating models, Technovation, February, pp. 111-121.
68
InfoDev of the World Bank has undertaken a great deal of work in developing toolkits, case studies, and organizational designs for specialized incubators
that are focused on the agribusiness sector. These tools and the knowledge that accompanies them could be used as templates to launch leather
industry business accelerators/incubators. Source: The World Bank (2011) Growing food, Products, and Businesses: Applying Business Incubation to
Agribusiness SMEs.
66
69
To this end, we recommend that the Ministry

of Industrialization and the Leather Task Force
proceed as follows:
a. Develop two proposals for funding leather
industry business accelerator/incubators
(one for the formal sector and one for the
informal sector);
b. Identify resources to financially support
the launch of a new accelerator/incubator
by providing resources for a business
plan;
c. Offer to provide matching grant support
to the deserving incubatees endorsed
jointly by independent third parties and
the Ministry of Industrialization;
d. Create two core accelerator/incubator
teams, each with affiliated relationships
with technology experts, academics,
technical development agencies; and
e. Launch the two accelerators/incubators
as pay as you go enterprises supported by
enterprise grants provided to deserving
incubatees.
Initial outlines for the development of a
Nairobi Leather Products Accelerator (NLPA,
for the formal sector) and a Kariokor Market
Satellite Accelerator (for the informal sector)
are provided below.
Nairobi Leather Products Accelerator (NLPA)
It is recommended that a pilot leather industry
accelerator be developed in Nairobi to facilitate
manufacturing and marketing collaboration,
and support competitiveness within the
leather products industry. The NLPA would
certify and entitle its graduates and supporters
to participate in other programs designed to
upgrade the industry. Non-participants would
enjoy no such entitlements. To this end, the
following actions are recommended:
70
Establish a private sector led common

prototyping and marketing platform to
enable collective generation of competitive
leather products and services.
Mobilization of space, equipment and finance;
Set up a pilot tech center in Nairobi
(subsequently replicated in the 8 regions);
Undertake joint production and marketing
projects through the NLPA; and
Through these projects, the NLPA will
demonstrate best industry practices, develop
a market for skilled designers, industrialists,
and service providers, support programs of
recognition and award (see Develop Leather
Award and Recognition Programs below)
and build capacity among leather sector
stakeholders.
The strategic importance of the proposed
NLPA is to promote technology absorption,
greater flow of information, collaboration
among firms, and remove binding constraints
on the competitiveness of leather products
firms. It will offer common machinery for
prototyping, training in production, marketing,
and business management, and a nurturing
environment for leather goods and services
start-ups. The recently established Leather
Articles Entrepreneurs Association (LAEA) has
indicated their interest to co-lead this initiative
to establish the NLPA.
Kariokor Market Satellite Leather Accelerator
(for informal sector)
The establishment of a common manufacturing
facility and business accelerator for micro and
small-sized leather businesses in the Kariokor
Market (KM) will enhance the markets
performance in serving the low-cost leather
goods market. The previously established
TPCSI, located in Thika, does not serve the needs
of leather goods producers in KM due to its

distance from the KM, its cost of services, lack of
funding, and lack of orientation to client needs.
Hence, a Kariokor Market Satellite Accelerator
(KMSA) is proposed. The proposed KMSA will
have many functions similar to the NLPA, but
the KMSA will be focused on providing support
for existing informal sector leather producers to
increase their competitiveness. It is proposed
that the KMSA be established as a satellite of the
NLPA in Kariokor Market. Establishing the KMSA
will include:
Offering sales, marketing and branding
services to increase the market for KM
leather goods;
Establishing a common manufacturing
facility with shared production machinery
for local businesses, which will enhance the
quality of their products ;
Offering more services tailored to informal
sector producers, including cutting and
stitching;
Providing technical support in the creation
of shoe designs ;
Creating linkages to auxiliary suppliers for
good quality inputs such as shoe soles,
shoelaces, and buckles; and
Providing business management training
support.
It is proposed that the KMSA should charge
a small fee for use of the processing, leather
cutting, and finishing equipment to ensure
sustainability of the accelerator. KM has been
able to remain competitive thanks to its low cost
products. Toward this end, KMSA will ensure
that the producers maintain low costs while
upgrading quality. The project also recognizes
that although each vendor in KM does not have
a specified brand, KM itself is highly recognized
not only by Kenyans but also by regional
leather stakeholders. The ultimate goal is to
develop the Kariokor brand and explore new

sales channels under the partnership. The idea
of KSMA requires the development of a two
pronged initiative, which include a common
manufacturing facility, and sales, operations and
administration functions. These are explained in
detail in the Annex.
Develop a leather industry park
Constraints that limit the competitiveness of
the leather industry include its fragmentation
and the high costs of water effluent treatment.
The development of a Leather Industry Park
can potentially address both of these. The
Leather Task Force is already considering the
development of a Leather Industry Park as
a means to co-locate tanneries and leather
products producers in an industrial zone
currently proposed in Athi River, Machakos
County. The government will provide water,
energy, and an effluent treatment plant and
encourage the movement from the export
of wet blue to finished leather and leather
products. If the Leather Industry Park initiative
is to succeed, then it must have a strong
market orientation and its development,
scale, and strategic role within the industry
must be guided by the profit and loss
consideration of a private sector developer.
Importantly, in Ethiopia the small firms in
the leather products sector are grouped in
clusters in Addis, while the tanneries are
located outside Addis, mostly around the dry
port of Modjoto reduce logistics costsbut
also for environmental reasons.
Our primary recommendation is that the idea of
a Leather Industry Park be subjected to a market
test that includes the following six steps:
a. Prepare a detailed business plan, including
alternative site assessments, analysis of
development costs for infrastructure and
71
financial feasibility analysis. It is critical that

a detailed feasibility study be developed
to determine the financial sustainability of
a Public Private Partnership (PPP) venture,
the kinds of incentives and policy supports
which would ideally be required to support
the provision of water resources on a fee
for service basis, the costs of tapping into
the Athi River basin, as well as the merits of
other alternative locations for the park;
b. Conduct pre-market testing, including
demand assessments involving prospective
customer surveys, and assessments of
demand/willingness to pay for services.
To that end, the shared and jointly used
facilities that it contains (e.g., water
treatment, power, common purchasing of
chemicals and other inputs, joint marketing
support, etc.) need to be confirmed in the
value they provide by the willingness of
tenant leather processors to pay for them;
c. Conduct
economic,
technical,
and
environmental analyses that determine
the costs and benefits of developing the
industry park. Will the costs of water supply
development and effluent treatment be
offset by benefits and revenues?
d. Develop a master plan for the leather city/
industry park. Prepare a comprehensive
master plan for development of the park;
e. Identify private developer. A PPP venture
will serve as the market test of the financial
sustainability of the park; and
f.
72
Find anchor tenants and sources of soft

financing. Identify major partners for the
leather park. Lessons can be learned from
the Dongo Kundo Special Economic Zone

(SEZ) in Mombasa, whose development has
been accelerated by Toyota as a potential
anchor tenant and JICA as a strong
supporting donor.
The development of the proposed Leather
Industry Park can and should afford an
opportunity to begin the restructuring of
the leather industry. As discussed in previous
chapters, the industry suffers from some
significant structural disabilities that limit its
productivity and its competitiveness. Both
economies of scale and economies of scope
can be fostered within a new business enclave
by lowering barriers to entry for emerging
companiesparticularly ones which support
non traditional business models, by inviting
investment from foreign companies, which
can deliver new competitiveness enhancing
methods and technologies, and by passing and
diversifying risk through the specific assignment
of functional responsibilities among tenants.
The zone tenancy agreements comporting with
an overall industry restructuring plan can be
developed in ways which foster cooperation,
cross fertilization, and the realization of
economies of scale and scope.
As a starting point, key lessons learned for
developing industry parks both in Kenya
and in other developing countries need to
be considered and applied to the design of
the Kenyan leather park. These lessons are
highlighted in Box 4 and an in-depth analysis
of their relevance to Kenya is provided in
the Annex.
Box 4: Lessons learned in developing industry parks in Kenya and other countries
1. Improvements in the business environment are the primary magnet for attracting
private investment into development zones. In particular, zones which succeed in
assisting investors overcome service, land, and infrastructure constraints are more
likely to succeed than are other zones which afford less conducive investment
environments;
2. Industrial zone development projects which are fully funded, led, and managed
within the public sector frequently fail to meet project expectations. This is most
frequently the result of misalignment of incentives, politically driven and risk adverse
decision-making, slow to react and bureaucratic processes, and weak management
skills. The Export Processing Zone Authority of Kenya is an example of a public sector
organization, which has been responsible for the development of industrial parks in
Kenya but whose track record has been mixed.69
3. Diversity in institutional and business model arrangements is good. One size never
suits all businesses, will not work in all zones, nor will it fit all supply chains.
4. In all cases, a private operating company should be engaged to market the zone,
negotiate leases and sales terms with tenants, assure the provision of essential
ancillary business services, and manage a one-stop customs, business permitting
and licensing interface with government.
5. Zone investments anchored by joint ventures between local and foreign investors are
more likely to result in technology transfer and strong linkages to the local economy
than those which are anchored by local investors or foreign investors alone.
6. Zone development projects which are fully funded by private investors frequently
attempt to price up until marginal costs and benefits are equal and thus, capture
economic rents which projects are otherwise able to provide to tenants and their
commercial dependents. As a result, privately managed development zones
frequently frustrate efforts to realize external economies because they allow less
producer surpluses to accrue for the benefit of tenants suppliers, including poor
farmers and aspiring SMEs.
7. Zone development projects, which define clear, balanced, and counter balancing roles
for public and private participants, appear to offer the most effective and ultimately,
the most successful modes of governance. Issues which frequently require mediated
resolution between public and private sector interests include: (i) effective modes for
integrating the local economy into zone operations; (ii) equitable terms negotiated
between zone tenants and employees and local suppliers; (iii) basis for expanding,
maintaining and up-keeping the zone and near zone infrastructure. Examples of
successful zones organized to balance the interests of public and private sector
stakeholders can be found in Tanzania in the sugar production zones and in Jordan
and Gabon in more conventional industrial export zones.
8. Early occupancy and tenancy commitments on the part of large anchor tenants can
significantly reduce implementation risk and shrink the time required from initial zone
development to full zone occupancy. On the other hand, large anchor tenants are
not reluctant to exercise their market dominant position in ways designed to reduce
development time and to secure favorable terms for building out infrastructure and
providing supportive services.
Are economic zones appropriate in the African context? Economic zones can be expensive and risky projects; the margin for error is small, and successful
zones take time to develop. They rely on effective state capacity, and their success is tightly intertwined with that of the wider national economy in which
they are based. Clearly, they are not for the faint-hearted. (p. 263). Kenyas EPZ program, often held up as an example of African success, looks rather
anemic. Even including the single factory units, the program, which has been operating for nearly two decades, accounted for just over US$400 million
in exports in 2008US$11 in exports per capita. (p.80). Thomas Farole. (2011). Special Economic Zones in Africa: Comparing Performance and Learning
from Global Experience, World Bank.
69
73
Sub-strategy 3.2: Improve skills in the leather

industry
All successful and competitive industries
require a continuous supply of critical skills
and new competencies. Kenyas leather
sector is no exception. There is a shortage of
skill development centers in the country that
cater for the needs of the leather sector. In
general, the majority of newly hired workers
lack experience and training in making leather
products. Even graduates from technical
universities, who have prior knowledge in
production and machinery, lack experience
working specifically with leather and generally
require additional on-the-job training. The
action initiatives developed here include:
Restructuring and upgrading the Training
and Production Center for the Shoe Industry
(TPCSI), and placing it under the direction
of KLDC;
Strengthening leather design, technology,
and marketing skills;
Creating human resource placement
services for the leather industry; and
Improving and extending professional
certification programs within the industry to
assure that critical skills and competencies
remain current and competitive through
post graduate, continuous training.
Restructure and Upgrade the Training and
Production Center for the Shoe Industry (TPCSI)
and Place it under the Direction of KLDC
The Training and Production Centre for the
Shoe Industry (TPCSI), a training institution
that was set up by UNIDO, has failed to fulfill
its objective. This well-equipped facility is
highly under-advertised and underutilized.
Only a few artisans in the industry are aware of
its existence, and as stated in Chapter 3, only a
few individual artisans have actually received
training from TPCSI. Most machines and staff
74
members are left idle and members of the

TPCSI identify underfunding as the cause of this
state. With no new enrollment, TPCSI continues
to struggle financially. However, if a training
session is offered at an affordable price with
a larger group of trainees, it could offset the
vicious cycle.
To this end, we propose restructuring TPCSI,
which is currently under KIRDI, a research
institute that deals with a wide range of
industries. KIRDI is fundamentally oriented to
research rather than industry and is out of touch
with the market. Instead of having TPCSI under
a research institute that lacks strong linkages
with leather industry players, the institute will
likely become more functional if it is positioned
under KLDC. With its extensive network with
artisans and manufacturers, KLDC can mobilize
and organize training sessions on a regular
basis. The demand for training has always been
present. However, the current structure did
not provide any incentive for either TPCSI or
KIRDI to be more proactive. A restructuring and
reorienting of TPCSI to be market-oriented will
be a key solution in addressing the current lack
of skilled labor in the Kenyan leather industry,
and in supporting the leather industry to be
more competitive.
Furthermore, in order for the TPCSI to be more
effective in accommodating trainees, we
propose the construction of boarding facilities
combined with a basic kitchen facility within
the compound. There is a building next to the
manufacturing facility that is barely being used
in the compound. With a small investment,
TPCSI could transform vacant spaces into
bedrooms. Many artisans and potential artisans
from all over Kenya will visit TPCSI to advance
their skills in leather goods production. As
training sessions range from two weeks to two
months, this will allow trainees from different
Box 5: Case study: Ethiopia Leather Industries Development Institutes (LIDI)

The Government of Ethiopia established the Leather and Leather Product Technology Institute (LLPTI) in 1998.
The facility, renamed as Leather Industries Development Institutes (LIDI), became a designated institution that would
spearhead capacity building and technology transfer. Since its foundation, LIDI has played a critical role in helping
the Ethiopian leather industry in reaching its potential. LIDI not only works on the development and dissemination of
technology for the entire range of the leather supply chain but also works closely with key industry players in training
and building capacity.
Furthermore, LIDI also supports the leather industry in the following ways:

Benchmarking: The objective is to build capacity and ultimately, to promote greater competitiveness in the
Ethiopian leather industry. The government identified globally prominent leather enterprises and sponsored the
process of aiding selected Ethiopian counterparts in a wide range of areas such as management, productivity,
input supply, marketing, product quality, and human resource development.
Twining: The objective is to establish long term knowledge sharing with globally recognized institutions and
advanced counterparts in other countries. For example, a long-term relationship was formed between LIDI and
the Indian Leather and Leather Products Technology Institute.
Market Research: LIDI recognizes market entrance as a great challenge to the industry. To facilitate new,
international market entrance, LIDI constantly conducts research on trade agreements and markets for the
industry manufacturers.
Direct Assistance: By maintaining close relationships with industry players, LIDI also directly assisted leather
good producers in production and design. Beyond their conventional role of training, LIDI provided its facilities
to leather good producers in order to facilitate their production.
More importantly, LIDI ensured its facility is highly accessible to Ethiopian tanneries and leather good producers
by offering its service at a minimal cost.
Implications for the Kenyan leather industry
Factors that allow LIDI to be effective are not only found in sufficient funding and a strong backing from the
government. The success also lies in its organizational structure. Unlike Kenya, where responsibilities and roles
are dispersed into several institutions, LIDI oversees every facet of the leather industry in Ethiopia. Its close linkage
with the market and industry stakeholders allows its training, marketing, technology dissemination, and investment
programs to be more effective. Moreover, having all the services and programs under one institution allows a higher
level of communication and knowledge sharing among different industry players in the supply chain. It allows LIDI to
design programs and services that are catered to the industrys demand.
counties to enjoy the session at a significantly

lower cost. Thus, having a boarding space
within the compound will provide more
incentives for people to access TPCSI.
TPCSI was established through UNIDO at about
the same time as Ethiopias Leather Industries
Development Institutes (LIDI). As the Box 5
case study shows, LIDI has been successful in
supporting the competitive development and
transformation of Ethiopias leather industry.
Strengthen leather design, technology, and
marketing capacities
One of the main bottlenecks in the industry
as identified in previous chapters is the
conspicuous lack of design, technology, and

marketing capacities by local institutions
including universities. In spite of having a
number of university programs dedicated to
such programs, many leather good producers
acknowledge that there is a lack of skilled
labor able to contribute to the industry upon
graduation. In fact, highly competitive local
brands such as Sandstorm and Rift Valley Leather
have designers coming from overseas. In the
informal footwear sector, one can rarely observe
an innovative design or marketing strategy.
Identical designs are recycled and handed
down to next generations. The development of
innovation in marketing is no different.
75
All successful and competitive industries

require a continuous supply of critical skills
and new competencies. Kenyas leather sector
is no exception. As mentioned, there currently
appears to be a short supply in two critical skill
areas: (i) leather product fashion design; and (ii)
leather product marketing.
Many leather good producers in Kenya have
expressed difficulty in accessing global
markets. In fact, few players can afford to
participate in renowned international leather
fairs organized outside of Kenya, while
international fairs organized in Kenya generally
attract insignificant international traffic. In rare
cases where there are opportunities to create
linkages with international clients and where
generation of product orders occur, producers
in Kenya often fail to meet the size and quality
requirements of the orders. In the Kariokor
Market, a self-organized leather cluster, there is a
high level of labor fluidity. Many artisans work in
multiple stores depending on each stores need
for labor. In the formal sector however, there
is a lack of communication and coordination.
Seldom do different brands or workshops
collaborate to amass the scale the industry lacks.
In order to address these key shortages, it
would be advisable to recruit and endow new
designing and marketing professorships at
one or more of Kenyas business schools and
technical universities to international experts
to initially fill the chairs provided under
these endowments. Not only would such an
undertaking help to generate graduates ready
for commercial engagement, but it would also,
over a number of years, transform an industry
weakness into an industry strength. Professors
could be expected to consult and advise within
the industry and to form clusters of excellence
around their practices. The Technical University
76
of Kenya, which provides a diploma in fashion

design and textile technology, could be a good
candidate institution to recruit and house a new
leather design professorship, and the University
of Nairobi and Dedan Kimathi University of
Technology, with their degrees in leather
science, could be good candidate institutions
to recruit and house one or two new leather
products marketing professorships.
Enhance human resource placement services
for the leather industry
Developing an efficient and well-organized
market for technically competent managers,
technicians, and workers in the leather
industry is extremely important for long
term industry growth. To this end, a Human
Resources (HR) placement service should be
organized either as a function of KLDC or an
adjunct function of the business school, in
order to serve as the primary platform for
learning and knowledge dissemination within
the leather industry. Having a centralized HR
placement service center dedicated to keeping
track of skilled leather artisans will improve the
industry in various ways. First, it will lower the
possibility of leather good producers missing
aforementioned opportunities to expand their
market. When a leather enterprise is in need
of extra skilled labor, they can reach out to the
services to hire per diem workers to meet big
orders. Secondly, the human resource placement
services will facilitate the process of potential
new investors moving into the industry. Instead
of scouting talent on their own, new investors
can simply advertise their need via the service
center. Lastly, the center could aid Kenya
in respect to data collection. The biggest
obstacle to this study was a lack of statistics,
which is key to meaningful analysis. Having
a database of leather industry managers,
artisans, and workers could aid companies in
accessing talent, and support the government

to keep track of the employment figure in the
sector, as well as act as a medium to gauge
the current state of leather artisans skill level.
This could be an important measuring stick for
competitiveness of the sector going forward.
We recommend that this HR placement service
be established at the KLDC, and perhaps be
supported by a business school.
Encourage quality & enforce standards
Overall, Kenyas leather industry currently
lacks an orientation to quality and standards.
Action initiatives recommended for improving
the quality and standards of Kenyas leather
industry include:
Aligning incentives for quality and promote
quality certification systems;
Developing leather quality awards and
recognition programs;
Initiating regional branding of the leather
industry to promote specialization; and
Increasing the enforcement of quality
standards for imported products.
Align incentives for quality and promote quality
certification systems
In order for Kenya to compete in global markets,
it must improve the quality of its leather and
leather products and begin to develop an
international reputation for quality. This can
be achieved by aligning the incentives of the
players throughout the value chain and by using
certifications systems as mechanisms through
which to teach and verify quality. Although
quality has traditionally referred mainly to the

technical characteristics of a productsuch
as durability, suppleness, and comforttoday
it often includes environmental and ethical
considerations as well.
Appropriately aligned incentives lead to
improved quality: hides and skins are a joint
product and they come from a joint production
process in which the complementary product
meatis nine times as valuable as the hide.
Herdsmen have less incentive to protect hides
and skins than they do the health of the animal
or the ownership of the animal because of this
disparity. Increasing the incentives herdsmen
have to care for hides would greatly increase the
quality of leather products. In Spain, for instance,
high quality hides are so well paid by the market
that some cows are kept in stalls specifically to
ensure their hides remain unblemished.
Further along the value chain at the tanning
stage, several systems exist for monitoring
business processes and certifying standard
compliant processes. One of these systems
is the Leather Working Group (LWG), under
which two Kenyan tannersone of them
Alpharamaare certified. Encouraging that
additional tanneries to be certified, would help
increase the quality of leather and decrease
the environmental ills they cause. Equally
important, ensuring environmental regulations
are adopted and enforced would provide a
strong message regarding the vision for the
leather industry (Box 6).
77
Box 6: Promoting environmental practices in the leather industry

The international Leather Working Group (LWG)a consortium of major global leather stakeholderspromotes
sustainable and appropriate environmental practices within the leather industry. It is a multi-stakeholder
organization which has developed and which applies a process management and audit protocol for assessing the
environmental compliance and performance capabilities of tanners. Its members include brands, manufacturers,
suppliers and NGOs. LWG seeks to improve the tanning industry by aligning industry practices with environmental
priorities and by providing guidance for continual improvement. The group works transparently to improve brand
value and to strengthen the environmental husbandry of all industry participants.
(http://www.leatherworkinggroup.com)
At the manufacturing stage, quality

certifications should be widely promoted.
Quality improvements, and the certifications
that go with them, will be increasingly adopted
as buyers recognize, reward, and request them,
and as companies learn about the tangible
benefits of certification in terms of productivity,
product duplicability, and prices. KLDC,
supported by the Kenya Bureau of Standards
(KEBS), can take a leadership role in developing
certification standards.
Professional certification programs can serve to
guide the training and certification of workers
and supervisors on the whole process cycle for
the production of footwear and leather goods
in which they receive training and certification.
This includes product conception and pattern
making, cutting, stitching, assembling, and
finishing, thus enhancing process efficiency
and supply capacity. The skills development
and certification process requires a mix of
classroom training, practical exercises, and onthe-job training. Independent professionals and
company employees can be trained in product
design and development and receive individual
coaching and certification, for instance, for the
creation of a collection of handbags or the
development of new footwear. In the area of
quality management, laboratory operators
can be trained and certified in product testing
and certification, and groups can be trained
for quality management systems to prepare
their companies for ISO 9001 certification.
See www.intracen.org/itc/sectors/leather/#sthash.4MZZu9FL.dpuf
70
78
Similarly, leather sector organizations can be

involved in training events so as to develop
their awareness and understanding of the
issues. This will allow them to directly interact
with the participating business actors, stay on
top on future initiatives, and participate in the
dialogue with policymakers.
We recommend that KLDC consider following
the excellent example of Bangladesh, which
in 2004 established the public-private
Bangladesh Leather Service Centre (BLSC)
to serve as a training and certification center
and central coordination point for enhancing
skills of service providers. It has subsequently
become the central support hub for the whole
sector. The BLSC covers training, quality testing
and certification, quality management, product
design and development, marketing and
promotion, and finance support schemes for
micro entrepreneurs and artisanal communities.70
Develop leather
programs
award
and
recognition
Award and recognition programs are the

most cost effective way to create incentives
and induce innovation in a sector like the
leather sector.
Programs of recognition and award afford
several benefits: (i) they foster competition
based on distinct quality and design as
contrasted with low price; (ii) they facilitate
market segmentation and produce category
diversification; (iii) they provide low-cost

information which has value both to producers
who are striving to create and capture greater
value and to businessmen who may be
interested in investing in the sector; (iv) they
also hold out the possibility of aligning leather
quality standards adopted within Kenya with
standards applicable in countries whose
high-value markets Kenyan producers are
attempting to penetrate; and (v) their successful
implementation empowers organizations and
legitimizes their industry pilotage.
Under the aegis of KLDC and other industry
groups discussed in this chapter, programs
of recognition and award can be used in a
number of different ways: for example, they
can be used to create incentives for high quality
in intermediate inputs, to encourage distinctive
design in finished products, to acknowledge
service companies which fill gaps in value chains,
and to promote innovative business models.
Awards can be significant or nominal. Joint
awards undertaken with local banks and other
financial institutions that entail the provision
of credit lines or seed equity investments are
the most effective. However, other forms of
recognition such as gold, silver and bronze
prizes for innovative leather product design
can serve as a value basis for branding and for
product differentiation.
The context in which annual competitions
are organized may be as valuable, if not
more valuable, than the results of the award
competition. Conventions which surround
and support awards programs can gradually
be augmented into leather fairs where buyers
and sellers of intermediate leather goods and
capital equipment designed to improve leather
competitiveness, and finished leather goods
producers, business brokers, and principal
investors can come together.
Initiate regional branding of leather industry to

promote specialization
Kenyas leather industry needs to think and
experiment with long term restructuring in order
to improve its competitiveness. The Ministry
is testing the viability of a number of programs
designed to decentralize value addition in the
leather industry by establishing new abattoirs
and tanners closer to the supply of cattle, sheep
and goats. These programs could be leveraged
to develop quality differentiated and branded
leather in three demonstration districts.
Issues effecting quality in the leather business
entail systemic end-to-end changes in the
entire farm-to-shelf supply chain. Undertaking
systemic changes requires the capture of
significant value within the chain through
branding or other forms of ownership right. To
this end, a system of geographic indications
(GIs) affords a particularly attractive possibility,
particularly for finished leather and high-end
leather products.
GIs are ownership rights which identify
a product as originating in the territory
of a particular locality where its quality,
reputation, or other characteristic is linked
to its geographical origin. They can create
value for local communities through products
that are deeply rooted in tradition, culture, and
geography. They support rural development and
promote new job opportunities in production,
processing, and other related services. Examples
include Cognac, Roquefort cheese, Sherry,
Parmigiano, Reggiano, Teruel and Parma hams.
Corinthian Leather is an example of a GI-like
brand created for the Chrysler Motor Company
to distinguish the upholstery in its automobiles.
79
Because of their potential to add value and

promote rural socio-economic development,
geographic indications have become a useful
intellectual property right for registration
and protection in developing countries. Most
countries have a range of local products that
correspond to the concept of geographical
indications but only a few are already known
or protected globally. With this in mind, the
concept would be to distinguish, under the
terms of registered IPs, the animal husbandry,
abattoir processing, and leather tanning chain
in three Kenyan districts.
To this end, proposals would be developed
for restructuring end-to-end supply chains
anchored in three districts, which respond
to a competitive tender for full involvement
in a branding/GI project. Individual districts
would respond with commitments of budget,
oversight, and policy realignment. One district
which specialize in cattle, sheep, and goat rearing
would be selected competitively. In return for
their involvement in the demonstration project,
grant funding would be solicited from donors
like Canada, Australia, India and New Zealand
which have deep expertise in rearing cattle,
sheep and goats and in processing their hides
and skins into fine leather. Project teams from
each of the winning donor groups would likely
be affiliated with a school of animal husbandry
or veterinary medicine. They would undertake
programs of genetic upgrading, best practice
husbandry, and abattoir operations designed to
distinguish the quality of leathers coming from
each of the three countries, which would be
promoted and sold as a distinctive high quality
brand of leather.
Increase enforcement of quality standards for
imported leather products
The two biggest obstacles to new investment
in the Kenyan leather goods industry are the
80
unconstrained flow of second-hand leather

products and the illegal imports of leather
products into the country. Regarding the
former, the World Bank recognizes that it is
unlikely that new manufactures of footwear,
bags or other leather goods will choose to enter
a market in which the marginal cost of products
for competing goods is zero. Nevertheless,
the World Bank believes that the benefits
of the second-hand goods trade in terms of
employment generation and lower cost of living
for all Kenyans outweigh the costs in terms of
a smaller domestic market for leather goods
producers. To this end, the strategies outlined
in this report suggest market segments where
second-hand leather products are less prevalent.
Illegal / sub-standard imports
The largest manufacturer of leather goods in
Kenya believes that 60 percent of its lost sales
result from leather products that are imported
illegally in the country. For the manufacturer,
this represents a larger share of lost sales than
those caused by the importation of secondhand shoes.
The challenge which comes from the import of
newly manufactured leather productsshoes
in particularis not the result of the formal
design, material, and construction standards
set by the Kenyan Bureau of Standards. These
are set, periodically updated, and approved
by experts both from within the Bureau and
from the private sector. In any case, Kenyas
leather footwear and leather goods import
standards are closely aligned with those of other
developed and developing countries and fully
reflect best international practice. The challenge
resides in the enforcement of these standards.
Ideally, arriving shipments of footwear and other
leather goods are inspected upon arrival by two
sets of officialsone from Kenya Customs and
one from the Bureau of Standards. However, this
ideal dual inspection process is frequently short

cut and even when it does occur, the application
of design and material content standards
requires special expertise which inspectors
may not possess or which they may choose not
to apply. In any case, the ex post inspection of
imported goods by industry experts and the
number of consumer complaints received by
KAM indicate that a large volume of substandard
imports are arriving into Kenya.
A related challenge is the enforcement of rules
of origin within COMESA. As KAM points out in
its most recent survey, Some FTA countries have
imported leather goods intended for their own
markets, which end up crossing the borders of
other FTA countries at 0 percent duty. In Kenya
this smuggling problem has greatly affected the
footwear industry, and Malawi has been cited as
a culprit in this respect.
The first step to reducing the flow of smuggled
leather products is to understand and raise
awareness of how widespread this problem
is. Then, a highly effective way to stem this
illegal flow is to engage the services of one of
the global companies which supply customs
pre-shipment inspection services, such as
SGS, Crown Agents, Cotecna and Intetek. Their
services can be secured through an open tender,
which specifies specific ports or countries of
origin to be covered.
Pre-shipment
inspections
prevent
substandard goods from entering the country.
They also assure that the invoiced price charged
by the exporter reflects the true value of the
goods and they mitigate attempts to avoid the
payment of customs duties. Many developing
countries require pre-shipment inspections,
and they include: Angola, Bangladesh, Benin,

Burkina Faso, Burundi, Cambodia, Cameroon,
Central African Republic, Comoros, Cote dIvoire,
Ecuador, Ethiopia, Guinea, Indonesia, Iran,
Liberia, Madagascar, Malawi, Mali, Mauritania,
Mozambique, Niger, Senegal, Sierra Leone,
Togo, and Uzbekistan, among others.
5.6 Expected Results: Employment

Projection Scenarios
In Chapter 4, the analysis indicated that
Kenyas leather industry competitiveness
lagged behind key global competitors,
including China, Vietnam, India, and
neighboring Ethiopia. The chapter identified
a number of bottlenecks that Kenya needs
to unclog in order to instill growth into the
industry. The competitive positioning analysis
for Kenyan leather footwear posited that Kenya
must: (i) improve quality and reduce costs in
order to compete in and capture a bigger share
of its own low-cost leather footwear domestic
market, and (ii) must significantly improve
competitiveness in order to attract foreign
investors and become a player in the global
marketplace. For leather bags, Kenya must focus
more on creating additional market entry points
to further position itself on the global market as
a quality leather bag producer.
It is envisaged that the recommendations
and action plan proposed will provide the
basis for Kenyas leather industry to increase
its competitiveness and grow jobs and
income. Projections of future leather industry
employment have been generated to show
the likely impact of minimal vs. substantial
implementation of recommended policy
initiatives (see Figure 30).
81
c. Action Across Value Chain Scenario:

This positive scenario implies successful
implementation of many of the
recommended initiatives, improvement
in the competitiveness of both the formal
and informal sectors, which results
in a quadrupling of leather industry
employment within 15 years. If Kenya
successfully brings transformation across
the value chain, scenario C is feasible.
Figure 30: Leather industry employment projections, 2015-2030
Number of industry employees
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2009
2010
2011
Do Nothing
2012
2013
Partial Action
2015
2020
2025
2030
High Action
Source: ETG Projections
Three scenarios have been generated to depict

the future of the Kenyan leather industry.
a. Do Nothing Scenario: If no significant
effort is observed on the policy level,
and private sector-led initiatives are not
implemented, we project a stagnant
industry where there is no notable growth;
b. Partial Action Scenario: According to this
scenario, there will be a minor improvement
in the competitiveness in both the formal
and informal sectors, resulting from the
successful implementation of only a few
recommended actions;
Based on a cross-country (China, Vietnam,

Turkey, Ethiopia) average estimate of 1,500
formal jobs per million pairs of shoes produced
(see Table 20), if Kenya was able to increase its
competitiveness, productivity, market share,
and annual production of shoes by 15 million
pairsfrom its current 3.3 million pairs of shoes
to 18.3 million, then employment in the
leather footwear industry would grow by 22,500
jobs (from 14,000 to 36,500 jobs). This estimate
is roughly consistent with Scenario B above. In
terms of value, the net exports of the leather
industry could grow from US$140 million a year
to close to US$500 million.
Table 20: Comparison of formal employment generation and productivity in the leather footwear sectors
among leading countries (2010-2013)***
Leather footwear
production* (million
pairs per annum)
Leather footwear
employment**
(1,000 workers)
Employment
generated (jobs
per 1 million pairs
produced)
Worker productivity
(pairs per worker per
annum)
Projected new
employment from
10 million additional
pairs
Vietnam
1,172
700
597
1,674
5,900
China
3,120
2,702
866
1,155
8,660
Turkey
79.7
100
1,255
797
12,500
India
200
700
3,500
286
35,000
Ethiopia
5.9
7.6
1,288
776
12,880
Average
1,503
15,030
* Production estimates taken from World Statistical Compendium for Raw Hides and Skins, Leather and Leather Footwear 1992-2011 (FAO)
** Formal employment estimates from national leather industry association reports (Vietnam Ministry of Industry and Trade; China Leather Industry Association;
Turkish Statistical Institute; India Council for Leather Exports; EthiopiaInternational Food Policy Institute.)
*** Given the numbers in the table represent only formal sector employment, Kenya has not been included in the table for the sake of comparability.
82
To achieve this target and more, Kenyas public

and private sector leaders will need to collaborate
and work intelligently to create the vision and
strategy, implement actions, and develop the
conditions for a renewal of competitive strength
and dynamism in the leather industry.
5.7 Risks and Benefits

All strategies entail risks and benefits.
Aggressively growing sales of low-value
added leather footwear in the domestic and
regional markets would result in increased
marketshare, profitability and growth of
local manufacturers. This is a low-risk strategy
because it suggests deepening an existing
market and product segment. The drawback of
it is that it does not necessarily increase the level
of sophistication of manufacturers, given the
lack of sophistication of potential customers.
Making a concerted push to sell high valueadded specialty products to customers in the
EU and US, and to international tourists in
the EAC and in Kenya is also low-risk, given
the products and markets exist today and are
growing. The upside of this strategy is that if
sales do increase, greater sophistication and
recognition necessarily follow. The risk of this
strategy is that there might not be enough highquality leather and skills in Kenya to quickly
respond to increases in market demand, and
thus growth may have to be gradual.
Selling increasing amounts of crust and
finished leather to China and EU allows more
value-addition to be done in the country. Since
finished leather requires a close relationship
with the buyer such that detailed specifications
of color and texture are met, the risk is that
current buyers prefer the flexibility wet blue
provides them and that a different set of buyers
for crust and finished leather have to be wooed.
Regarding the recommended interventions,

their overall aim is to improve competitiveness
in leather and leather products and grow the
industry in current and higher value-added
segments. Most of the recommendations will
help all producers and not just those gearing up
for a specific market segment. The risks of a few
interventions are worth highlighting:
Improving the regulatory framework (and its
enforcement) to safeguard the environment
is always costly for firms in the short-term.
It may be that some tanneries operating
today may find it hard to comply with
enforced regulations, and they may decide
to close given the investments required for
compliance. Mitigating measures for this
include a soft loan facility or provisions for
gradual compliance.
Developing a leather marketing entity, a
Nairobi Leather Products Accelerator, and a
Kariokor Market Satellite Leather Accelerator,
carries the start-up risks inherent in any new
endeavorthe need to find the right team
of people, to raise funding, and to put in
place the structure for operationseven
before marketing or acceleration begins to
take place.
The risk of developing a leather industrial
park in Kenya is high. Sector-specific
industrial parks have a spotty track record
of success in the country, and in Africa more
broadly. The effort, time, and investment
required to develop a park are significant,
and even then, there is a risk market trends
change, investors dont come, and existing
businesses prefer not to move. That said,
the benefits for tanneries (and for citizens
at large) of a water effluent treatment plant
are sizable.
83
Regional branding of leather, and the

demonstration districts proposed within that
is potentially high-risk, given the difficulties
implementing initiatives in rural areas with
poor communications and low levels of
84
education. Regional branding initiatives

have been tried in other parts of the world
many times before, often unsuccessfully, so
learning about common pitfalls and best
practices is a key mitigating measure.
ANNEXES
Annexes
Annex 1: Leather strategy implementation: Expected activities and results for clustering process (Strategy 1)
Proposed implementation process activities
Expected results
1. Project InitiationInterviews with business owners, local

sector experts, and relevant entrepreneurs willing to participate
in the leather cluster working group process. Assessment
of: (i) existing competencies, skills, talents, and products that
can be leveraged to develop higher value-added products; (ii)
supporting infrastructure of the sector. Conduct a pre-cluster
meeting with selected leaders to review process and ensure
leadership buy-in.
20-30 entrepreneurs and others interviewed from the two priority

pilot subclusters (footwear and handbags); Implementation of precluster meeting
Development of a committed leadership team
Identification of list of key stakeholders to engage in the leather
cluster working group process
Identification and development of 2-3 key action initiatives by
leaders.
2. Facilitation of a series of four fast-track cluster meetings Challenges identified, plan of priority activities developed, and initial
among entrepreneurs and related stakeholders.
implementation of cluster initiatives defined
3. Implementation of clustering training/capacity building A series of four training sessions and at least 20 people trained to
activities for entrepreneurs, government officials and
facilitate clustering such that continuity can be provided for the two
representatives of development agencies and universities.
pilot clusters and additional sectors and clusters in the future
4. Development of Overview of Best Practices in Leather Overview of Best Practices in Leather Footwear and Hand Bag
Footwear and Hand Bag Marketing and recommendations
Marketing and recommendations for study visits developed.
for study visits.
5. Workshop and recommendations for Decentralization of Recommendations for decentralization of Kenyas Leather Clustering
Kenyas Leather Clustering program based on experience with
program developed.
two pilot clusters and trainings
6. Organization of the Kenya Leather in Action Clustering Kenya Leather in Action Clustering Forum implemented with
Forum with the purpose of demonstrating progress to date,
participation of over 300 leaders from private and public sectors,
engaging new leaders, and mobilizing for export growth.
universities, NGOs, donor agencies, etc.
7. Establishment of Leather Cluster Action Fund ($100,000) Leather Cluster Action Fund established and co-financing provided for
to support initial implementation projects/tasks. On-going
at least 10 priority action initiatives.
implementation of priority action initiatives.
86
Annexes
Annex 2: Ethiopian trade and investment policy to promote value addition
inistry of Industry and Trade (MOTI) of

Ethiopia proactively implemented a top
down-pull approach strategy, which called for
increased production of value-added finished
leather products, especially footwear. The
strategy was supported by the ban on export of
raw hides and skins and the imposition of 150
percent tariff on export of wet blue in 2008.
The Figure below shows the effect of the
governments 150 percent tariff on wet blue
export in Ethiopia. The quantity of wet blue
export dropped dramatically and immediately
after the trade policy implementation in 2008 and
it continues to be marginal. The implementation
and enforcement of the regulation encouraged
tanneries to move up to producing more crust
and finished leather both for export and for
local production of finished leather goods.
Consequentially, this increased the supply of
finished leather in the local market and allowed
the Ethiopian leather good producers to enjoy
finished leather at lower prices.
Figure 31: Quantity of sheep wet blue exports
1,800,000
1,600,000
Quantity (Kg)
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
This strategy was carefully delivered under the

auspice of MOTI through a series of PublicPrivate Partnership (PPP) dialogue. In its
preparation leading up to the implementation
of high export tariffs, MOTI closely engaged the
Ethiopian Leather Industry Association (ELIA),
Ethiopian Customs & Inland Revenue Authority
(ECIRA), Ethiopia Chamber of Commerce (ECC),
and Quality & Standards Authority of Ethiopia
(QSAE). At the same time, the Ethiopian
Government proposed an attractive incentive
package to attract new foreign and local
investments into the production segment of the
supply chain. This was to ensure the domestic
markets capacity to absorb increased supply of
finished leather. New investors were given tax
exemptions on a wide range of imported goods
from raw to packaging materials for production.
Furthermore, they were also exempted from
export taxes as well as income tax for 2 to 8
years.71 Such government incentive packages,
combined with the high export tariff, low labor
cost, and abundant livestock, resulted in the
increase in Foreign Direct Investment (FDI)
to Ethiopia. All footwear manufacturing was
owned by Ethiopians until recently. Footwear
manufacturers from Germany, Italy, and China
have built manufacturing facilities in Ethiopia
and are bringing employment opportunities
as well as promoting export.72 For example,
Haujian Group has built a footwear
manufacturing plant in Ethiopia.
200,000
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: ETG
Ethiopian Investment Agency. (2008). Investment Opportunity Profile for Tanning of Hides and Skins Up to Finished Level in Ethopia. USAID. (2013).
Agricultural Growth Project Livestock Market Development.
71
72
87
Annexes
88
Figure 32: Ethiopian leather footwear export to the world

Ethiopian Leather Footwear Export to the World
20,000
18,000
16,000
14,000
12,000
US$ '000s
Despite having challenges commonly shared by

other African countries such as low productivity
and low quality of raw material, Ethiopia has
managed to move up to producing higher
value leather products under the leadership of
the government. In response to the increased
domestic finished leather supply, Ethiopia has
succeeded in increasing the production and
export of leather footwear dramatically over the
last few years as the graph below indicates. In
conclusion, the governments determined effort
has successfully attracted a number of FDIs,
generated significant employment, and made
the Ethiopian leather industry more competitive.
10,000
8,000
6,000
4,000
2,000
0
2007
Source: ETG
2008
2009
2010
2011
2012
2013
Annexes
Annex 3: Kariokor market satellite leather accelerator (for informal sector)
he idea of a Kariokor Market Satellite

Leather Accelerator (KSMA) requires the
development of a two pronged initiative, which
include a common manufacturing facility, and
sales, operations and administration functions.
1. Common Manufacturing Facility
Most of the leather product workshops in KM
already run at very high capacity. Every aisle is
bustling with stalls and artisans making leather
products to meet their respective orders. As of
now, no space is available to accommodate any
additional facilities unless some producers are
ousted from the market. In light of expanding to
facilitate new growth at KM, the idea is to build
an additional floor on an existing facility to house
KMSA as well as potential incoming producers.
KMSAs common facility will have five components:
a. Common Manufacturing MachineryKMSA
will provide a very simple set of common
manufacturing machinery such as sewing,
cutting, and skiving machines. This machinery
will primarily be focused on footwear. Idle
machines could be sourced from factories in the
EPZ, other manufacturers, or companies such as
General Machines, which import machines.
b. TrainingKMSA, in collaboration with TPCSI,
will provide training on a regular basis. A
technician will be present at the facility at all
times to support artisans in using machinery.
c. IncubatorKMSA
will
also
operate
as an incubator to support promising
entrepreneurs from KM in the development
and implementation of their business plans,
such as how to introduce new products,
grow their scale of operations, upgrade their
quality, expand into new markets, etc. The
KMSA incubator will support entrepreneurs
to graduate from the informal sector to the
formal sector.
d. Quality Control LabKMSA will also have a

quality control lab to encourage artisans to
improve finishing. Proper use of machinery
will increase both efficiency and quality of
finished products. Artisans will bring leather
and other inputs to cut, assemble, and finish
their products at the facility. The facility will
be accessed with a small fee to ensure the
facility is financially sustainable.
e. Development
of
Karikor
Market
Leather ClusterKMSA
will
oversee
the implementation of a leather cluster
development process, designed to increase
collaboration and competitiveness of leather
cluster stakeholders in KM.
2. Sales, Operations and Administration
Functions
The KMSA will be managed under the
partnership of KM leaders and the KLDC. This
will be done through implementation of a pilot
project with a select group of willing leaders
from KM that will improve product quality,
launch the Kariokor brand, and facilitate greater
market access. The initial steps will involve:
a. Roundtable meetings with key players/
stakeholders in KM;
b. Assessing and selecting leadership from KM
artisans who will volunteer to participate in a
pilot program;
c. Organizing a tour for KM leaders to TPCSI in
order to raise awareness of how machinery
could enhance efficiency and quality;
d. Organizing a team of willing leaders to
participate in the program;
e. Provide workshops on using machinery in
collaboration with TPCSI; and
f. Providing access to machinery and training
at KMSA.
89
Annexes
Simultaneously, KLDC will explore private retail

chain such as Nakumatt, Uchumi, and Tuskys,
which all have extensive distribution channels
throughout Kenya. Consumer insight reports
show that with the growth of the number of
retail chains and the size of middle-income class,
more Kenyans are flocking to big retail chains to
shop. Over 66 percent of the population shop
at retail chains due to their convenience and
price.73 This trend presents a great opportunity.
KM, together with KLDC, will develop a three
party partnership to have Kariokor branded
footwear distributed across retail stores. Initially,
a small number of retail stores will be selected
to test the market as well as to ensure a steady
supply of shoes. KLDC will be in charge of the
quality control lab within KMSA to inspect all
finished products. Only the products that meet
the quality standards prescribed by KLDC will
bear the Kariokor brand and be distributed
to the pre-selected stores. Products that fail to
meet the standards can be sold cheaper through
the usual conventional channel.
Although KM has been a competitive player
in Kenyas low-cost segment of the leather
footwear market, two key endogenous
constraints are limiting its growth. First, in the
age of highly mechanized manufacturing, the
lack of machinery in KM severely undermines
the quality of finishing. New Ethiopian and
Chinese leather footwear with better finishing
quality are gradually gaining higher ground in
Kenyan and regional markets. Second, KM still
depends solely on a conventional marketing
channel developed decades ago. The current
distribution channel is limiting KMs expansion
and access to the wider public.
Therefore, the recommended program is
designed to directly address three of the biggest
challenges. First, with increased machinery and
training, KMSA will unquestionably improve the
quality of its finished product. Second, KM will

dramatically expand its marketing channel to
reach a wider spectrum of consumers under a
partnership with a private retail chain. Finally,
organizing KM players under KMSA will allow
them to have more bargaining power in dealing
with tanneries. By having tanneries compete
against each other to meet the large collective
demand of KM, they will be able to procure
better leather quality at a cheaper price.
Figure 33: Proposed partnership structure for Kariokor Market
satellite accelerator
KMSA
Machinery and
Training to Improve
Quality of
Leather Products
Private
Enterprise
Distribute Across
Retail Channel
KLDC
Quality Control
& Market Access
Facilitation
Source: ETG
If the pilot project proves to increase production,

efficiency, and product quality, additional
producers will be willing to join KMSA, which
will increase both supply and demand for
Kariokor brand footwear. In this case, KLDCs role
will be to manage and balance both supply and
demand chains in retail stores. The potential is
immense. With higher quality, KM products will
become more competitive against Chinese and
Ethiopian products. Furthermore, the success
and scaling up of this project can give KM the
potential to close the gap which is created by
the decreasing number of leather shoes in the
second-hand Mitumba market. Gradually, KM
will become a recognized player in the region
and will be a strategic source of wealth and an
employment generator for Kenya. Furthermore,
the success of this model shows significant
potential to be implemented in other counties.
http://www.cofek.co.ke/index.php/14-news/340-kenya-s-growing-consumerism-sparks-huge-interest-among-multinationals
73
90
Annexes
Annex 4: Leather city (Leather Industry Park)
or the development of a leather industry park

in Kenya, it is extremely important to assure
that a standard set of incentives are offered to
private developers so that no opportunity exists
for corrupt practice and unfair treatment. A
zone development program quickly develops a
reputation among sophisticated investors as being
either competent and honest or incompetent and
dishonest. Only one opportunity exists to start
up a zone program. In this regard, tenants who
first move into a new zone should not be able to
gain a permanent competitive advantage over
subsequent entrants. Pro-competitive policies
based on equal opportunities to produce zone
appropriate products, open entry into new
zones, and equal access to zone infrastructure, at
least until zone are fully occupied, are all sound
principles which need to be enforced through
the even handed award of zone licenses. To this
end, standardized incentive packages across
zones and standardized definitions of public
private partnership rights within zones are
critically important.
What is most important in developing a leather

industrial park is not the bricks and mortar aspect
of the park or the low-cost access it may provide to
essential infrastructure, but rather the enhanced
business environment which the government
endeavors to create within the park boundaries to
support a vibrant emerging industryin this case
a vibrant leather industry. Recently completed
World Bank studies demonstrate that the real
economic growth advantages associated with
developing specialized processing zones come
more from the software aspects of their design
than from the hardware aspects.74 Lessons
learned from China, Korea, Malaysia, Mauritius,
and Dubai all suggest that correcting fundamental
problems within Kenyas general business

environment, problems which adversely affect
industrial development generally, and within
the demarked business environment of a leather
park, will ultimately prove more important for
attracting private investment and for activating
potential sources of competitive advantage than
investment in new industrial infrastructure per se.
Indeed, it is the instrumentality by which a
leather park development project supports
reassigning risks that makes it most useful,
particularly if the park development project is
conceived and executed in a way which assists
with the restructuring and the pro-competitive
reorganization of the leather industry. Only to the
extent that a leather park project is undertaken
with the intention of restructuring the noncompetitive, low value-adding leather industry,
will real value for investment be realized. To
this end, implementation tactics need to be
developed which involve the effective assignment
of investment and operating risks between
park developers, feed lot operators, abattoir
operators, large scale dynamic leather processors
specializing in high value leathers, smaller
scale and more specialized processors, leather
product manufactures of all kinds and sizes and,
importantly, the government.
In addition to being subjected to rigorous analysis
of financial and operational feasibility, any
leather industry park project which is ultimately
undertaken needs to be subjected to several
market tests which prove, through an open and
competitive process, that the park will actually
generate greater social benefits than it will require
in capital and operating costs. No financial or
operational feasibility study will suffice to prove
Thomas Farole. (2011). Special Economic Zones: Progress, Emerging Challenges and Future Diversions andSpecial Economic Zones in Africa: Comparing
Performance and Learning from Global Experience. Both World Bank Publications.
74
91
Annexes
this important sustainability condition. Only an

experienced private sector developer will be
able to implement a leather park concept and to
manage all of the project risks associated with
this concept by laying these risks off on various
leather park tenants and other park development
partners. Only the engagement of private capital
and of private sector know how and know who
will assure that resources committed to the park
result in significant net economic benefits for the
entire Kenyan economy. Private development
leadership affords an effective market test
through financial risk sharing. The intermediation
of a well capitalized developer in the form of a
special project corporation will be able to limit
government liability over the long term and
assure that real value is realized from public and
private capital committed to the project. One
way to assure that government receives value for
money is to tie government financial support to
jobs created, skills developed, linkages realized
between subsectors and with other supporting
technical institutions, R&D transfers, and
technology adoption impacts.
92
Private sector project leadership affords additional

benefits in the form of: (i) implementation
speed; (ii) management expertise; (iii) efficient
representation of collective private sector
interests in the process of negotiating sectorspecific, public policy reforms; and (iv) giving the
market a clear signal that an investment-ready
enclave is emerging in Kenya.
Finally, additional lessons can be learned from
Indias recent experience in the development
of specialized leather industry parks where
developers have attempted to create external
economies for the co-location of tanneries.
These external economies involve treatment
of effluents, and provision of infrastructure,
including the provision of power, water and
roadways. The conditions under which mega
leather cluster projects have been developed in
Uttar Pradesh and Tamil Nadu are instructive and
should be considered as the Kenyan leather park
is being planned.
Annexes
India Leather Industry Development

Indias rise from a small raw leather exporter in the 1960s into one of the worlds primary exporters of both raw
and finished leather today is a testament to at once liberalization and central planning. Today, raw leather makes
up only 26 percent of Indias leather exports, meaning finished leather garments, accessories, and footwear have
taken an impressive share. Clearly, a concerted effort has been made to capitalize on the value addition of finished
leather, and thus maximize export return.
In 1991, the Indian government ushered in a policy of de-licensing, targeting several manufacturing industries
including leather. The Industries Development and Regulation Act (IDRA) sought to jump start the leather industry
(and others) by liberalizing the market and allowing free entry to all firms. Moreover, de-licensing simplified FDI
regulations by affording an automatic route to foreign investors seeking entry into the Indian market.
Over time, the government has sought to develop leather clusters converging producers along various stages
of the supply chain and based throughout the country. Of particular note, the Indian Ministry of Small and
Medium Enterprises (MSME) has taken charge of organizing and funding the vast number of SMEs in the leather
sector, most of which lack a strong and centralized base. In its most recent Indian Leather Development Programme
(ILDP), the MSME laid out plans for a new series of interventionscomprising a diagnostic study, the setting up
Common Facility Centers (CFC), and infrastructure developmentin Bihar, Haryana, Tamil Nadu, Uttar Pradesh and
West Bengal, through its own support as well as that of state governments.
Mega leather cluster projects have been developed in Uttar Pradesh and Tamil Nadu. In both cases a special
purpose vehicle (SPV) was organized by private investors to bid on the mega leather cluster projects and win a
capital grant to implement the projects, involving leading development and negotiating the basis on which risks
and rewards were shared among tenants. The SPVs are corporate bodies, promoted by entrepreneurs willing to set
up the proposed leather parks. Local governments contribute undeveloped land to the SPVs and private investors
provide paid-in capital. As part of the bidding process SPV apply for Environmental Clearance from the Government
of India. Importantly, these Indian mega leather parks are being located where skilled tanners and workers already
exist and where a tradition of leather production has already taken hold.
93
Annexes
Annex 5: Action plan for implementation of the leather sector strategy
n order to develop an action plan for the implementation of the leather sector strategy, an assessment of the
expected impacts and feasibility of implementation of the proposed strategy and actions was undertaken.
Each action initiative was assessed in terms of its expected impact on: (i) jobs generated; (ii) increase in value
added; (iii) increase in investment; and in terms of (iv) implementation cost; and (v) ease of implementation.
The estimation of expected impact is shown as follows.
Figure 33: Expected impact and feasibility of recommendations
94
Annexes
Figure 33: Expected impact and feasibility of recommendations
Based on the likely impact and relative feasibility of the leather sector implementation strategy, an
action plan recommends the following priority actions for 2015. Priority actions, key steps, timeline,
and actors responsible are proposed in the table below.
95
Annexes
Table 21: Preliminary action plan for the leather sector strategy, 2015
Strategy 1: Dynamic Restructuring of the Leather Industry
Short-term actions
Key steps
Timeline
Actors responsible
Establish & implement the

collaborative, stakeholderdriven leather industry strategy
Interview key stakeholders and conduct precluster meeting.

Conduct fast-track cluster meetings
Develop 15+ action initiatives, with
champions
Establish the Leather Industry Action Fund
and co-finance early implementation of 10+
action initiatives
Scale up the process
4 weeks
Ministry of Industrialization,
KLDC & LAEA with cluster
facilitation team
8 weeks
Private sector engagement
16 weeks
18 weeks
20 weeks
Strengthen KLDC & Restructure

TPCSI under KLDC
Conduct strategy meetings with KLDC & Min.

of Industrialization for strengthening KLDC
Develop new administrative and funding
arrangements for KLDC
Develop strategy for restructuring of TPCSI
Implement TPCSI restructuring
2 weeks
Ministry of Industrialization
& KLDC
4 weeks
6 weeks
10 weeks
Improve the Regulatory
Framework to Reduce
Production Costs and Safeguard
the Environment
96
Identify imports for which a decrease in duties

would be meaningful for the industry
Develop strategy and negotiate with relevant
agencies
Enforce the environmental regulatory
framework
12 weeks
16 weeks
16 weeks
in collaboration with key
government agencies
Annexes
Strategy 2: Increase Access to Markets and Induce Greater Demand for Kenyan Leather and Leather Products
Short-term actions
Key steps
Timeline
Actors responsible
Develop a leather marketing

entity to increase domestic and
international awareness, and
coordinate branding of Kenya
leather
Develop lessons learned

Design marketing strategy
Engage in pilot events for domestic awareness
raising and branding
Scale up the campaign
6 weeks
KLDC,
Export Promotion Council
10 weeks
16 weeks
24 weeks
Medium-term actions
Key steps
Timeline
Actors responsible
Design a transparent public

procurement policy
Develop inventory of demand, select pilot

products
Design mechanism for strict transparency in
competitive open bidding
Implement & evaluate pilot bids
Scale up bidding process
12 weeks
and KLDC working with key
government agencies
16 weeks
24 weeks
36 weeks
Strategy 3: Build Quality and Standards, and Reduce Production Costs Throughout the Leather Value Chain
Short-term actions
Key steps
Timeline
Actors responsible
Establish the Nairobi Leather

Accelerator
Development of design and feasibility study

Establishment of implementation team and
access to funding
Establishment of a private-sector led,
common manufacturing and marketing
platform to enable collective generation of
competitive leather products
A pilot center will be established in Nairobi
and then replicated in the 8 regions.
8 weeks
LAEA & KLDC
12 weeks
16 weeks
24 weeks
1 year
Design & establish Kariokor

Market Satellite Accelerator
Development of design and feasibility

study
Establishment of implementation team
and access to funding
Establishment of a common facility with
shared simple production machinery for
local businesses, which will enhance the
quality of its products
8 weeks
Kariokor leaders & KLDC
12 weeks
24 weeks
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Annexes
Short-term actions
Establish leather cluster

awards, public recognition &
outreach program
Key steps
Design award programs

Launch initial events
Evaluate and scale up
Timeline
Actors responsible
8 weeks
KLDC
16 weeks
24 weeks
Medium-term actions
Establish the Leather City/
Industry Park
Key steps
Complete feasibility study
Develop private sector approach
Identify and contract private sector
developer
Determine funding structure for the park
Prepare Master Plan
Initiate construction
Timeline
8 weeks
12 weeks
Actors responsible
Ministry of
Industrialization, Leather
Task Force, private
developer
16 weeks
20 weeks
24 weeks
40 weeks
Restructure and upgrade

the Training and Production
Center for the Shoe Industry
(TPCSI)
Develop restructuring plan

Identify new administrative structure
Implement plan
Strengthen university leather

design, technology, and
marketing capacities
Develop university task force

Develop individual university plans
Identify cross-cutting capacities and
develop collaborative strategies
12 weeks
Evaluate success models and lessons

learned
Design central HR placement service
center
Pilot test new center
12 weeks
Develop framework for total quality

management
Support adoption by key agencies
Develop coordinated plan for TQM services
delivery
16 weeks
Conduct needs assessment for

professional certification
Design and establish certification
capability
24 weeks
Enhance HR placement
services for the leather
industry
Align incentives for quality

and promote quality
certification systems
98
12 weeks
16 weeks
KLDC, TPCSI, Ministry of

Industrialization, private
sector
24 weeks
24 weeks
36 weeks
20 weeks
KLDC, University of
Nairobi, Dedan Kimathi
University of Technology,
Technical University of
Kenya
KLDC, University of Nairobi
Business School, LAEA,
Cobblers Association
30 weeks
24 weeks
KLDC, KIRDI, TPCSI, LAEA,

Cobblers Association
36 weeks
36 weeks
KLDC, Kenya Bureau of

Standards, LAEA
Annexes
Initiate regional branding

of the leather industry to
promote specialization
Increase Enforcement
of quality standards for
imported leather products
Identify competitively three districts in

which to restructure end-to-end supply
chains.
Solicit grand funding from donors with
relevant country expertise.
Affiliate winning project teams with a
husbandry or veterinarian school.
16 weeks
Review quality standards

Develop strategy for stricter inspection of
imported goods
12 weeks
24 weeks
KLDC, Council of
Governors, Ministry of
Industrialization
8 weeks
4 weeks
Ministry of
Industrialization,
Kenya Bureau of Standards
99
Annexes
Annex 6: List of Interviewees

Name
Organization
Title
P.V.S. Rao
Alpharama Limited
Managing Director
Robert Njoka
Reddamac Leather Center
Managing Director
Saqib Munir
Athi River Tanneries Ltd.
Managing Director
Waqas Munir
Athi River Tanneries Ltd.
Executive Director
Ashwin Punja
Dog Bones Ltd.
Company Director
Anuj Parmar, CEO
East Africa Tanners
CEO
Mohamed Abubakar
Mas Trading Company
Managing Director
Mr. Kinyanjui
Hide and Skins Trader
Director
Peter Ndungu Kamau
Ondiri Tannery Kikuyu
Managing Director
Hides and Skins Trader
Director
Alberto Errico
Bata
Managing Director
Michael Rutto
Bata
Costing & Efficiency Manager
R. K. Shah
United Footwear Ltd.
Director
Idris Rupani
Leather Masters Ltd.
Managing Director
Robert Njoka
Reddemac Leather Industries
CEO
Beatrice Mwasi
Sanabora Design House Ltd. Leather Articles

Entrepreneurs Association (LAEA)
Managing Director
Anne Moraa
Sanabora Design House Ltd.
Director
Nalina Rupani
Aldephi
Managing Director
Gabriel O. Anzala
Gonzales Leathers
Director
Jacob M. Mwangi
Palm Prints African Artifacts
Sales & Marketing
Yonathan T.
Zeebaan Design
Director
Francis Otanga
Masero Boots
Director
Mark Stephenson
Sandstorm Kenya
Managing Director
Mohamed Baraka
Mohazo
Managing Director
Leather Shoe Producers
Kariokor Market
Sandal producers
Kariokor Market
Leather Middlemen
Kariokor Market
Other Component Middlemen
Kariokor Market
Leather Processing & Tanning
Hides & Skins

Mr. Kinyanjui
Manufacturer / Producer
100
Annexes
Institutions & Associations

Charles Mwangi Ndungu
Kenya Leather Development Council (KLDC)
CEO, Research, Standard & Policy
John Muriuki
KLDC
Ag. Secretary/Former CEO
KLDC
Marketing & Resource Mobilization

Officer
Halima Juma
KLDC
Corporate Communications Officer
Onyango G. J.
KLDC
Monitoring & Evaluation
Moses Maina

Industry (TPCSI)
Trainer
Joseph Wairiuko
Kenya Association of Manufacturers (KAM)
Executive Officer
Catherine Minayo Mukoko
KAM
Executive Officer, Manufacturing

Academy
Agnes Mwatu
Leather and Leather products
Patricia N. Kimanthi
Corp. Communications Mgr.
Simon Nganga
Kenya Footwear Manufacturers Association
Secretary
Maurice Omondi
Leather Articles Entrepreneurs Association

(LAEA)
Chairman
Hezekiah Bunde Okeyo
Director Vision 2030 / Manufacturing

Sector Delivery Secretariat
Julius K. Korir
Director of Industries
Nancy Wachuka Muya
Senior Assistant Director of Industries
Simon N. Atebe
Assistant Director of Industries
Jacquiline Caroline Siwo
Government
101
102
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KENYA LEATHER INDUSTRY

KENYA LEATHER INDUSTRY

1. GLOBAL TRENDS IN THE LEATHER INDUSTRY ..............................................................................................................................

Leather industry strategy and actions ........................................................................................................................... vi

KENYA LEATHER INDUSTRY

African Growth and Opportunity Act

orld trade in leatherone of the

0.14 percent of world export in 2013). Kenya

All dollar amounts are U.S. dollars unless otherwise indicated.

Diagnosis, Strategy and Action Plan

Footwear is the biggest leather goods

prevailing business models both fail to capture

KENYA LEATHER INDUSTRY

Meanwhile, Ethiopia is emerging as a new

Additionally, only a few tanneries process

Diagnosis, Strategy and Action Plan

Low value added leather footwear

High value added specialty products

competitiveness strategies for low-value-added

Table 1: Leather industry strategy & actions

High valueadded specialty

Strategy 1: Promote the dynamic restructuring of the leather industry

1.1 Establish a collaborative, stakeholder-driven leather industry strategy

1.2 Strengthen the Kenya Leather Development Council (KLDC)

2.1 Develop a leather marketing entity to increase awareness, coordinate

2.2 Design a transparent public procurement policy

i. Nairobi Leather Accelerator (for formal sector)

ii. Kariokor Market Satellite Leather Accelerator

Strategy 2: Increase access to markets and induce greater demand for

Strategy 3: Build quality and standards

3.1.2 Develop a leather industry park

KENYA LEATHER INDUSTRY

Recommendations to improve the competitiveness of:

High valueadded specialty

3.2 Improve skills

3.3 Encourage quality & enforce standards

3.3.2 Develop leather award and recognition programs

3.3.3 Initiate regional branding of the leather industry to promote

Due to the highly fragmented structure of the

to enhance leather industry competitiveness,

Diagnosis, Strategy and Action Plan

their opportunities to succeed with public

high-level training. Relatedly, a human resource

KENYA LEATHER INDUSTRY

It is envisaged that the recommendations

successful implementation of only a few

Number of industry employees

Source: ETG Projections

Three scenarios have been generated to depict

Based on a cross-country (China, Vietnam,

Diagnosis, Strategy and Action Plan

INTRODUCTION AND BACKGROUND TO THE STUDY

n 2014, Kenyas Ministry of Industrialization

most critical competitiveness challenges

KENYA LEATHER INDUSTRY

analysis was conducted to compare cost of

sellover the animal husbandry and abattoir