Uganda Leather Value Chain Strategy 2015

VISION
To be among the top ten subsectors in Uganda with regard to

competitiveness by 2025.
MISSION
To transform the Ugandan Leather Value Chain into a modern

and competitive subsector specializing in the production of value
added products through the application of modern and cleaner
technologies, collaboration, capacity building and resource
mobilization.
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2
CONTENT
LIST OF TABLES ................................................................................................................ 6
LIST OF FIGURES .............................................................................................................. 7
LIST OF ACRONYMS ......................................................................................................... 8
EXECUTIVE SUMMARY .................................................................................................... 9
CHAPTER I: CONTEXT SETTING ................................................................................... 11
1. Introduction ...................................................................................................................... 11
1.1. Structure of the Economy and Sector Performance ............................................ 12
1.2. The Leather Value Chain Strategy Relationship with other Policies in
Uganda ............................................................................................................................... 12
1.2.1. National Industrial Policy ............................................................................................. 12
1.2.2. Ugandan National Trade Policy .................................................................................. 13
1.3. Importance of the Leather Value Chain .................................................................. 14
1.3.1. Global Level ...................................................................................................................... 14
1.3.2. COMESA Situation ......................................................................................................... 15
1.3.3. Market Size of Footwear in the COMESA Region ................................................. 16
1.3.4. Uganda Situation ............................................................................................................ 16
1.4. Conclusion ........................................................................................................................ 17
CHAPTER II: SITUATIONAL ANALYSIS OF THE VALUE CHAIN ................................ 18
2. Introduction ...................................................................................................................... 18
2.1. Industry Structure and Value Chain Map .............................................................. 18
2.2. Income Distribution in Hides and Skins Marketing ............................................ 19
2.3. The Potential of the Uganda Leather Value Chain ............................................... 20
2.4. The Tanning Subsector ................................................................................................. 21
2.4.1. The Wet Blue Production Cost Structure and the Implication of Hides and
Skins Quality.................................................................................................................... 22
2.5. Situational Analysis of SMEs in the Footwear Industry .................................... 23
2.5.1. Overview of the Footwear Supply Chain in Uganda ............................................ 23

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2.5.2. The Structure of the Industry ..................................................................................... 24
2.5.3. Source of Capital ............................................................................................................. 26
2.5.4. Identified Constraints .................................................................................................... 26
2.5.5. Main Inputs and Products ........................................................................................... 27
2.5.6. Type and Estimated Cost of the Machines/Tools in Use and Required ....... 28
2.5.7. Gross Margin and Break-Even Analysis ................................................................. 30
2.5.8. Banking, Loan Requirements and Repayment Capacity ................................... 31
2.5.8.1. SMEs Relationships with Banks ........................................................................ 31
2.5.8.2. Loan Requirements and Repayments Capacity ............................................ 31
2.6. Trade Analysis ................................................................................................................. 32
2.6.1. Exports of Articles of Chapter 41 and the Impact of Export Tax .................... 32
2.6.2. Imports of Finished Leather and Footwear ............................................................ 33
2.6.2.1. Finished Leather ...................................................................................................... 34
2.6.2.2. Footwear ..................................................................................................................... 34
2.7. Regional Comparative analysis .................................................................................. 35
2.7.1. Competiveness Analysis ............................................................................................... 35
2.7.2. Trade Policy Comparison.............................................................................................. 36
2.7.3. Trade Policy on Hides and Skins ............................................................................... 37
2.8. Conclusion ........................................................................................................................ 37
CHAPTER III: PARTICIPATORY ANALYSIS OF THE VALUE CHAIN ........................... 38
3. Introduction ...................................................................................................................... 38
3.1. Distribution of Workshop Participants .................................................................... 38
3.2. Issue Impacting on the Performance of the Leather Value Chain .................. 38
3.3. Conclusion and Emerging Priority Intervention Areas ....................................... 42
CHAPTER IV: STRATEGY ................................................................................................ 44
4. Introduction ...................................................................................................................... 44
4.1. Vision and Mission ......................................................................................................... 44
4
4.2. Strategic Market and Growth Goals ......................................................................... 44
4.3. Strategy Objectives ......................................................................................................... 45
4.4. Sub-Objectives, Activities and Measurable Outputs........................................... 46
4.4.1. Objective 1: To facilitate the production of quality value added leather and
leather products for local and export markets ...................................................... 46
4.4.2. Objective 2: To facilitate Resource Mobilization and Policy support for the
Growth of the Value Chain .......................................................................................... 47
4.4.3. Objective 3: To promote cleaner and environmental sustainable production

techniques and systems ............................................................................................... 48
4.4.4. Objective 4: To facilitate horizontal and vertical collaboration of chain

players and other relevant stakeholders ................................................................. 49
4.5. Implementation Methodology...................................................................................... 50
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LIST OF TABLES
Table 1: The Strategy Relationship with National Industrial Policy ........................................................................ 13
Table 2: The Strategy Relationship with the Export Strategy ................................................................................... 13
Table 3: Global Dynamics in the Trade of the Leather Value Chain ......................................................................... 15
Table 4: Estimates of Pre, Peri- and Post-Slaughter Defects on Bovine Hides and Goats/Sheep Skins ........... 21
Table 5: Value Addition Potential and Estimated Losses............................................................................................ 21
Table 6: Tanning Production Function ........................................................................................................................... 22
Table 7: Summary of Uganda's Footwear Supply Chain .............................................................................................. 23
Table 8: Gender Distribution ............................................................................................................................................. 25
Table 9: Education Profile of the SMEs .......................................................................................................................... 25
Table 10: Source of Footwear Production Skills ........................................................................................................... 26
Table 11: Source of Capital Profile .................................................................................................................................. 26
Table 12: Costing of Footwear .......................................................................................................................................... 27
Table 13: Summary of Machine Combination per Enterprise .................................................................................... 29
Table 14: Summary of Machine Requirements ............................................................................................................. 30
Table 15: Gross Profit Margin per Unit ........................................................................................................................... 30
Table 16: Break-Even Analysis and Net Profit per Month ........................................................................................... 31
Table 17: SMEs Relationships with Banks ..................................................................................................................... 31
Table 18: Loan Repayments Capacity under Different Scenarios ............................................................................. 32
Table 19: Summary of Competitiveness Indicators of Uganda and other COMESA States ................................. 36
Table 20: Trade Policy Comparison ................................................................................................................................. 37
Table 21: Summary of the Policies and Impact ............................................................................................................ 37
Table 22: SWOT Analysis of the Uganda Leather Value Chain ................................................................................... 40
Table 23: Target Market ..................................................................................................................................................... 44
Table 24: Growth Strategic Targets ................................................................................................................................. 45
Table 25: The Rationale for the Selected Objectives ................................................................................................... 45
Table 26: Objective 1 Sub-objective and Activities ...................................................................................................... 47
Table 27: Objective 2 Sub-objectives and Activities .................................................................................................... 47
Table 28: Objective 3 Sub-objective and Activities ...................................................................................................... 48
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LIST OF FIGURES
Figure 1: Global Importance of the Leather Value Chain ........................................................................................... 14
Figure 2: Stages of the Value Chain ................................................................................................................................ 15
Figure 3: COMESA Imports of Footwear from COMESA Region China and the World ......................................... 16
Figure 4: Uganda Value Chain Map .................................................................................................................................. 18
Figure 5: Gross Margin Distribution ................................................................................................................................ 19
Figure 6:The Relationship between Hides/Skins Grades and Yield.......................................................................... 23
Figure 7: The Relationship between Tanning Cost and Hides and Skins Grade .................................................... 23
Figure 8: Summary by Age Group of Entrepreneurs .................................................................................................... 25
Figure 9: Summary of Constraints ................................................................................................................................... 27
Figure 10: Models Combinations by Enterprises .......................................................................................................... 28
Figure 11: Machinery Adequacy, Reliability and Shortage of Lasts ......................................................................... 29
Figure 12: SMEs profitability by Shoe Model ................................................................................................................ 31
Figure 13: Export Trends of Articles of HS 41 .............................................................................................................. 33
Figure 14: Losses Caused by the Policy Adjustment Lag ............................................................................................ 33
Figure 15: Trends in the Imports of Footwear by Uganda .......................................................................................... 34
Figure 16: Uganda Footwear Imports .............................................................................................................................. 35
Figure 17: Distribution of Footwear Exports by Source .............................................................................................. 35
Figure 18: Group Discussion of Thematic Issues Identified in Plenary ................................................................... 38
Figure 19: Presentation in Plenary after Group Discussions ..................................................................................... 38
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LIST OF ACRONYMS
COMESA: Common Market for Eastern and Southern Africa
COMESA/LLPI: Common Market for Eastern and Southern Africa – Leather and
Leather Products Institute
EAC: East African Community
EDPRS: Economic Development and Poverty Reduction Strategy
FAO: Food and Agriculture Organization
F.O.B: Free On Board
FLEMEA: Footwear and Leather Manufacturers and Exporters

Association
GDP: Gross Domestic Product
ITC: International Trade Centre
HS: Harmonized System
IS: Index of Specialization
Kg: Kilogram
LLDC: Land-Locked Least Developed Country
MFN: Most Favoured Nation
NLLP: National Leather and Leather Products Policy
PA: Per Annum
PTA: Preferential Trade Area Bank
RCA: Revealed Comparative Advantage
SMEs: Small and Medium Enterprises
SWOT: Strengths, Weaknesses, Opportunities and Threats
TCFC: Training and Common Facility Centre
ULAIA: Uganda Leather and Allied Industries Association
USD: United States Dollar
UNIDO: United Nation Industrial Development Organization
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EXECUTIVE SUMMARY
The development agenda of Uganda is summed by its Vision 2040, which reads “A
Transformed Ugandan Society from a Peasant to a Modern and Prosperous
Country within 30 years”. According to Vision 2040, the transformation process
would be driven by oil and gas, tourism, ICT, abundant labour force, geographical
location, trade, water resources, industrialization and agriculture among other sub-
sectors that are currently under-exploited.
The GDP of Uganda stood at USD 21.48 billion according to the 2013 figures,
which is an improvement from the 2012 level of USD 20.03 billion. The Ugandan
economy is one of the few African economies to have a balanced GDP composition.
The agricultural sector shows a marked disparity when the work force involved is
compared to the sector‟s contribution to the GDP. The sector employs 82% of the
labor force but contributes only 22.2% of the GDP growth. On the contrary, the
industrial sector recruits only 5% of labor but adds 25.1% to the annual GDP. The
service sector of the Ugandan economy is in a transitional phase of development.
The sector employs 13% of the working population and contributes 52.8% to the
GDP growth.
The Ugandan leather value chain has a very good resource base; the national
livestock population1 was estimated to comprise of 11.4 million cattle, 12.5 million
goats, 3.4 million sheep, 3.2 million pigs and 37.4 million poultry. With off-take
rates2 in the range of 12-15% for cattle, and 20-30% for sheep and goats, the
potential raw material available in Uganda is about 1.4 million cattle hides and
about 3.1 million goat and 0.68 million sheep skins per annum. Fish, especially
Nile Perch, also provides a good source of fish skins tanning industry. Ostrich and
crocodile farming provide valuable skins which are used as high-end source of
leather.
The key dynamics issues currently obtaining in the Ugandan leather value chain
are as follows:
 The quality of hides and skins being produced in Uganda is deteriorating

due to multiple factors;
 The market for finished products in Uganda is growing astronomically, as

reflected by a sharp increase in imports over the past ten years i.e. footwear
imports grew from USD 6 million to USD 35.5 million in the period 2001 to
2013;
 Continuous export of wet blue was costing the country in terms of forgone
revenue earnings;
 The export tax on the export of raw hides and skins has contributed to
export earnings of HS Chapter 41 from USD 25 million to USD 64 million in
the period 2001 to 2013;
1
Livestock Census (UBOS 2008)
2
Off-take rate: is defined as the proportion of livestock sold over a given period of time from defined population
9
 The imposition of an export tax was associated with an adjustment lag of
seven years, which saw Uganda losing USD 83 million in the period of seven
years;
 The rapidly expanding SMEs subsector producing finished products are

forced to depend on imported leather, which was raising its costs of
production, consequently undermining its competitiveness domestically and
externally;
 The quality of footwear and leather goods being produced in Uganda is being
undermined because of the use of poor quality leather and the shortage of
suitable tools, equipment and machinery;
 Absence of suitable finance is undermining the growth of SMEs involved in

the production of finished products;
 Lack or inadequate horizontal and vertical collaboration among Value Chain

Agents, was undermining the optimization of the available resources;
 Limited collaboration of core value chain agents with peripheral stakeholders

such as academia, quality and standards development organizations,
financial institutions and development partners among others, is
undermining growth of the sector.
The above dynamics have influenced the formulation of the following objectives,
which have a logical link to address the causes of the challenges, which are
currently impacting negatively on the performance of the Ugandan Leather Value
chain:
 To facilitate the production of quality value added leather and leather

products for local and export markets;
 To facilitate resource mobilization and policy support for the growth of the
value chain;
 To promote cleaner and environmentally sustainable production techniques

and systems; and
 To facilitate horizontal and vertical collaboration of chain players and other

relevant stakeholders.
The implementation of the above would lead to the attainment of the vision of this
strategy, which reads: To be among the top ten subsectors in Uganda with regard
to competitiveness by 2025.
It is fundamental to note that the attainment of the given vision would depend on
the implementation of the Strategy with full participation of the Ugandan
Government, Private Sector, Academia and Development Partners. It is therefore
important that an Apex Committee is formulated to coordinate the implementation
of this strategy. The committee members should be drawn from the stakeholders
listed above.
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CHAPTER I: CONTEXT SETTING
1. Introduction
The development agenda of Uganda is summed by its Vision 2040, which reads “A
Transformed Ugandan Society from a Peasant to a Modern and Prosperous
Country within 30 years”. According to Vision 2040, the transformation process
would be driven by oil and gas, tourism, ICT, abundant labour force, geographical
location, trade, water resources, industrialization and agriculture among other sub-
sectors that are currently under-exploited. The vision recognizes the following as
key constraints that are undermining the growth and development of Uganda:
 Low Competitiveness
 Weak public sector management and administration
 Ideological disorientation
 Low industrialization and value addition
 Corruption
 Slow accumulation of modern infrastructure
 Inadequate human resource
 Low level of saving and inadequate revenue collection
 Unfavorable Demographics Profile
It is imperative to note that this leather value chain strategy responds to some of
the issues listed above. For instance it seeks to enhance the competitiveness of the
leather value chain, promote industrialization and value addition, and build the
capacity on manpower involved in the leather value chain. This, therefore,
demonstrates that the leather value chain strategy is poised to contribute positively
to Uganda‟s Vision 2040. This is in line with a statement on page 12 of Vision
2040, which reads “In essence, all Ministries, Departments and autonomous and
semi-autonomous entities will realign their development priorities with the Vision”
The success indicator of Vision 2040 envisages a rapid growth in GDP and GDP per
capita, for example, the latter is projected to grow from USD 506 (2010) to USD
9,500 (2040). In the same vein the leather value chain strategy calls for value
addition, through the production of finished leather, leather goods and footwear in
Uganda, which would directly contribute to envisaged GDP growth and per capita
expansion
The dynamics of Uganda‟s leather value chain is influenced by the natural livestock
base, extension support, macroeconomics and an array of economic and
development policies, which have a direct or indirect effect to its performance.
Some of these factors are discussed in brief in this chapter, as a mechanism of
setting the context in which this strategy would operate in. In addition, the
interface of this strategy and some of the policies in Uganda are also elaborated in
this Chapter.
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1.1. Structure of the Economy and Sector Performance
Uganda‟s economic structure depends significantly on agriculture with coffee being

the most important export commodity. The country is adequately endowed with
natural resources as well, such as fertile soils, sufficient rain and adequate mineral
deposits of copper, gold and cobalt. The recently discovered oil resource will make a
significant contribution to the economy.
The GDP of Uganda stood at USD 21.48 billion according to the 2013 figures,
which is an improvement from the 20128 level of USD 20.03 billion. The Ugandan
economy is one of the few African economies to have a balanced GDP composition.
The agricultural sector shows a marked disparity when the work force involved is
compared to the sector‟s contribution to the GDP. The sector employs 82% of the
labor force but contributes only 22.2% of the GDP growth. On the contrary, the
industrial sector recruits only 5% of labor but adds 25.1% to the annual GDP. The
service sector of the Ugandan economy is in a transitional phase of development.
The sector employs 13% of the working population and contributes 52.8% to the
GDP growth
1.2. The Leather Value Chain Strategy Relationship with other Policies in
Uganda
Policies or strategies in any country should have a strategic relationship or a logical

link with the overall development vision and aspirations of a country. Disjointed
and contradictory policies normally introduce distortions and implementation
challenges. Uganda has a number of policies that are aimed at contributing to its
sustainable growth and development. Given the importance of a strategic linkage
that must exist among policies, the leather value chain strategy was evaluated to
identify areas of common interface with the National Industrial and Trade Polices of
Uganda.
The four main objectives of the Ugandan Leather Value Chain Strategy are:
 To facilitate the production of quality value added leather and leather

products for local and export markets;
 To facilitate resource mobilization and policy support for the growth of the
leather value chain;
 To promote cleaner and environmentally sustainable production techniques
and systems; and
 To facilitate horizontal and vertical collaboration of chain players and other
relevant stakeholders
1.2.1. National Industrial Policy
The Uganda National Industrial Policy (UNIP) provides long-term perspectives

needed for the country to achieve sustained transformation of the economy.
Uganda‟s economic transformation is anchored on industrialization; and the
application of Science, Technology, and Innovation, as the main driver and prime
agent. In the same breath, this leather value chain strategy aims to contribute to
the industrialization agenda of Uganda, by facilitating the production and trading
of value added products that would generate increased revenue and jobs creation.
Table 1 below illustrates the strategic links, which this strategy has with the
National Industrial Policy of Uganda.
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Table 1: The Strategy Relationship with National Industrial Policy
The Relationship between National
Industrial Policy and the Leather
Strategy
Objective Objective Objective Objective
one Two Three Four
Create a business friendly environment for private sector-led
industrialisation in which industries will develop, improve productivity
X X
and the quality of products through, inter alia, creativity and innovation
and become more competitive in the global economy.
Improve infrastructure development for effective and efficient
industrialisation program.
Encourage and foster innovation, entrepreneurship, adjustment and
adoption of best management practices in the quest for improved X
competitiveness.
Create a framework that supports joint participation of the public and
private sectors in the development of scientific and technological
X
competencies for the production of more and higher value added goods
and services for domestic consumption and export.
Facilitate improved supply chain efficiency and market responsive
X
product and brand development.
Encourage foreign direct investment in industry and industry related
X
services.
Promote environmentally sustainable industrial development to reinforce
X
national goals of long-term growth and development.
Support the growth and development of a skilled and productive labour
force and to ensure that a body of experienced entrepreneurs and X X
trained managers are particularly focused on industrial development.
Promote safe work place practices in all industry sub-sectors. X
Promote the participation of disadvantaged sections of society in
X
industrial development activities.
Create support systems for sustainable micro and small industries
X
development.
1.2.2. Ugandan National Trade Policy
The overall mission of the Ugandan National Trade Policy is to develop and nurture
Private Sector competitiveness, and to support the productive sectors of the
economy to trade at both domestic and international levels, with the ultimate
objective of creating wealth, employment, enhancing social welfare and
transforming Uganda from a poor peasant society into a modern and prosperous
society. Thus the mission of the Ugandan Trade Policy has a positive strategic fit
with the leather value chain strategy, whose vision is to boost the competitiveness
of the leather value chain. Table 2 below illustrates the specific linkages between
the leather value chain objectives and the guiding principles of the Trade Policy.
Table 2: The Strategy Relationship with the Export Strategy

The Relationship between Uganda
Trade Policy and the Leather
Vision 2020 Objectives Strategy
One Two Three Four
Development of both domestic and international trade X
Creating opportunities for equal participation in trade through
entrepreneurial development, giving priority to the socially and X
economically disadvantaged groups in society
Provision of an enabling environment with a view to developing and
X
nurturing a private sector that is capable of competing at global level
Targeted Government interventions in specific sectors, if and as
X X
deemed necessary
Pursuit of bilateral, regional and multilateral trade initiatives X
Mitigating any adverse effects of practices by the country‟s trading
partners by invoking and implementing trade defense measures as
X
and when appropriate, taking into account multilateral disciplines in
the area
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The Relationship between Uganda
Trade Policy and the Leather
Vision 2020 Objectives Strategy
One Two Three Four
Efficiency, and prudent resource mobilization and utilization X
A coordinated approach to formulation and implementation of trade
X
policy
Placing greater emphasis on policy coherence, synergies and
X
complementarities
Nurturing and using a Public-Private Partnership approach in the
formulation, implementation and monitoring of the National Trade X
Policy
Strengthen capacity to engage in, and advocate for Uganda‟s interests
in and during, trade negotiations through improved organizational X
coordination and leadership, including at preparatory stage
Be mindful of the negative social and economic effects that might
come with growth in trade, and ensure that mitigating measures and X
policies are put in place
Supporting the country‟s vision to industrialize by complementing the
X
Industrialization Policy.
1.3. Importance of the Leather Value Chain
1.3.1. Global Level
The leather value chain globally is estimated at over USD 100 billion.3 A
comparison of this value chain with other commodities reveals that its trade is
greater than the combined trade of meat, sugar, coffee and tea; see Figure 1 below.
Despite this immense importance, the sector has not received much attention
especially in many developing countries, when compared with other commodities,
whose production and marketing are championed by institutional support, for
example Meat Commission, Tea or Coffee Boards etc. The absence of an
institutional support to the leather value chain has retarded its growth, as it has
not attracted the desired policy and financial support from Central Governments
and other relevant stakeholders. See Figure 1 below.
Source: Computed within COMESA/LLPI reports and FAO 2012
Figure 1: Global Importance of the Leather Value Chain
The global trade in the leather value chain grew over the period 1993 to 2011; the
growth pattern for each product category is summarized in Table 3, below. There is
3
The USD 100 billion excludes leather blended products, e.g. sports shoes and fashionable bags.
14
a clear indication that growth in trade rose with the level of value addition, hence
Uganda must direct its attention towards the production and trade of value added
products.
Table 3: Global Dynamics in the Trade of the Leather Value Chain

Average USD billions) Growth Rate (%)
Product Category 1993 to 1995 2009 to 2011
Raw hides and skins 4.7 5.4 14.9
Semi tanned and finished leather 11.7 17.5 49.6
Footwear with leather uppers 22.7 44.9 97.8
Source: FAO (2012)
1.3.2. COMESA Situation
The COMESA region is made up of 19 African countries, which owns approximately

11% and 21% of livestock globally and in Africa respectively; however its
contribution to the global trade is estimated at a paltry 3%. This is attributed
mainly to a number of factors ranging from pre4-, peri5- and post6-slaughter
challenges and limited or no value addition to hides and skins produced in the
region. Figure 2 below illustrates the inverse relationship between the relative
significance of the COMESA region in the global value chain, as it progresses
downstream. Note that the illustration in the figure below relates only to bovine
animals and bovine light leather and footwear. The illustrated situation is a true
reflection of what leather proportion is obtained with regards to other types of hides
and skins.
Figure 2: Stages of the Value Chain
The limited importance of COMESA in producing value added products, has a

significant opportunity cost with regard to incomes and employment creation in the
region. The continuous export of raw hides and skins implies a loss of wealth and
jobs, which could have been generated in the region. It is fundamental that drastic
measures should be taken to transform this industry in the COMESA region;
4
Pre-slaughter defects – any damage caused by different factors like poor management genetic make-up,
disease and nutrition etc.
5
Peri-slaughter defects: any defect that occur by several reasons, like failure to rest animals for certain period of
times before killing, incomplete bleeding poor flaying of hides and skins.
6
Post-slaughter defects- groups of defects that take place after the hides/skins are flayed and include poor
curing, poor handling, improper storage and poor tanning process
15
already there are noticeable improvements in the past 10 years in Ethiopia.
Uganda and other countries in the region can therefore draw practical lessons from
Ethiopia.
1.3.3. Market Size of Footwear in the COMESA Region
The COMESA region‟s market of footwear is estimated at 365 million pairs of shoes
with a per capita of 0.85 pairs per annum. Assuming all these pairs of shoes are
produced in the COMESA region, approximately 365,000 direct factory level jobs
would be created, which would stimulated increased demand in the use of finished
leather, soles, glues and other accessories consequently creating more indirect
jobs. Total output of leather footwear in the COMESA region was estimated7 at 80.6
and 92.3 million pairs in 2001 and 20118 respectively. The output figures exclude
production from SMEs and other informal enterprises.
In 2012, USD 646 million worth of shoes were imported into the COMESA region
from the rest of the world and this translates9 to approximately 64 million pairs of
shoes. The total market demand is 365 million pairs against a supply of 156 million
pairs (imports plus regional production). With an estimated shortfall of 209 million
pairs, this is not satisfied per annum. This is, therefore, a market opportunity for
SMEs to capitalize without any or limited competition from locally established firms
and imports. Figure 3 below illustrates the sharp growth in footwear imports from
the rest of the world, as opposed to slow or almost stagnant growth in intra trade in
the COMESA region.
Figure 3: COMESA Imports of Footwear from COMESA Region China and the World
1.3.4. Uganda Situation
The Ugandan leather value chain has a very good resource base; the national
livestock population10 was estimated to comprise of 11.4 million cattle, 12.5 million
goats, 3.4 million sheep, 3.2 million pigs and 37.4 million poultry. With off-take
rates in the range of 12-15% for cattle, and 20-30% for sheep and goats, the
potential raw material available in Uganda is about 1.4 million cattle hides and
about 3.1 million goat and 0.68 million sheep skins per annum. Fish, especially
7
FAO Compendium of Statistics
8
FAO Compendium of Statistics
9
Assuming that the import price of USD10 per pair
10
Livestock Census (UBOS 2008)
16
Nile Perch, also provides a good source of fish skins tanning industry. Ostrich and
crocodile farming‟s provide valuable skins which are used as for the source of
leather.
Uganda has an installed tanning capacity of 1.08 and 2.0 million hides and skins
respectively, and it is estimated that tanneries are operating at 60 to 70 percent
capacity range because of financial constraints and machine breakdowns.
Approximately 95 percent of processed hides and skins are exported as partly
processed leather (wet blue). Prior to 2007, 90 percent of these hides and skins
were being exported in raw state. In order to curtail the export of raw hides and
skins, the Ugandan authorities introduced an export tax of 20% on the value of
exported hides and skins in 2002. This was done in the East African countries in
unison through their fiscal policy to pursue progressive value addition initiatives of
the leather sector in the region. In retrospect, for Uganda this was further tightened
to 40% in 2007, with minimum impact, subsequently the government reviewed the
export taxation regime further by introducing a specific export tax of USD$0.8 per
kg. Eventually this review had an impact and resulted to a dramatic reduction in
hides exports. The impact of this policy is further elaborated in the next Chapter.
1.4. Conclusion
This Chapter has laid the foundation for generating a comprehensive

understanding of the Uganda leather value chain, by looking at the structure of the
economy, the relationship of some of the policies, with objectives of the leather
value chain11, global, regional and national situation of the leather value chain. The
next Chapter adopts the value chain approach to identify and analyze the dynamics
and constraints in the value chain.
11
Presented in detail in the Chapter dealing with the Strategy
17
CHAPTER II: SITUATIONAL ANALYSIS OF THE VALUE CHAIN
2. Introduction
A situational analysis of the Uganda Leather Value Chain is presented in this

Chapter. The following fundamental issues are analyzed using both primary and
secondary data: value chain map; potential of the leather value chain;
opportunities forgone due to the exporting of raw hides and skins and, wet blue;
income distribution in the marketing of bovine hides; trade performance;
situational analysis of SMEs in the footwear manufacturing subsector and a
regional competitive comparative analysis. This analysis builds a foundation for
identifying strategic interventions that are important in enhancing the performance
of the Uganda leather value chain.
2.1. Industry Structure and Value Chain Map
According to Kaplinsky and Morris (2000), mapping the range of activities in a

value chain provides the capacity to decompose total value chain earnings into the
rewards which are achieved by different parties in the chain. The Uganda leather
value is inclusive of livestock farmers, livestock traders, butcheries, slaughter
facility owners, hides and skins traders and exporters, tanners and artisanal
footwear and leather footwear and goods manufacturers. The schematic
presentation of the leather value chain in Uganda is illustrated in the Figure 4
below.
FOOTWEAR
PERI &
PRESLAUGHTER STAGE SLAUGHTER POST HIDES AND TANNING LEATHER
SLAUGHTER SKINS GOODS
Local Wet blue

Livestock Livestock Home National
Trader Export Medium
Farming Trade Slaughter trade
(95%)
Finished
Subsistence Slaughter
Pastoral Slab/pole leather Small
(5%)
Traders
Commercial
Slaughter Imported
Farming Micro
houses Leather
Source: COMESA/LLPI after the National Stakeholders Workshop, Kampala, Uganda (2014)
Figure 4: Uganda Value Chain Map
According to stakeholders who participated in the Strategy formulation

Consultation Workshop, which was held on 10-11 April 2014 in Kampala, Uganda
indicated that the country has a significant proportion of livestock reared in the
pastoralist system. Thus, contributing to a high incidence of pre-slaughter defects,
which are associated with diseases (e.g. lumpy skin, poxes etc.), tick bites,
scratches and brand marks amongst many others.
In the Uganda leather value chain, the hides and skins become important at the
point of slaughter and are used either as slaughter fee or sold to the owner of the
18
slaughter house or facility, who in turn sells to hides and skins merchants. In
addition, they can be sold directly to hides and skins traders. Tanneries advance
money to hides and skins merchants as a mechanism of securing supplies in
advance. This has become a source of interest free loan and has made hides/skins
the most important source of liquidity, as they are bought before they are
produced, unlike meat, which is only paid for, when it is bought. During the visits
to the slaughter houses, it was reported that flayers are charged for inflicting
damage on hides, however the impact of this action, has not registered significant
results in reducing flay cuts and other related slaughter house based defects.
For instance, Tanners are still reporting flay cuts as the major defect on hides and
skins produced in Uganda irrespective of the measures mentioned. This may
indicate that slaughterhouse owners have a limited knowledge in assessing peri-
slaughter damages, that the supervision is weak or there is need to strengthen
training and awareness creation at both pre and peri slaughter phases.
2.2. Income Distribution in Hides and Skins Marketing
The relationship between income distribution and the level of contribution by each
economic agent along the value chain is very important, as it contributes
significantly on sustaining the efficiency of the value chain. Skewed distribution of
income, which fails to offer a fair return on investment or contribution by any agent
along the value chain, may undermine the effectiveness and efficiency in the
performance of the chain.
This is mainly because economic agents who feel cheated may offer a compromised
service, which they deem to be commensurate to the income they are receiving. For
instance, hides and skins collectors may economize on the use of salt, thus
downgrading the quality of hides and skins; low collection levels of hides and skins
may be recorded, as hides produced far away from the collection centre may go
uncollected, once the price paid, does not compensate for the increased transport
cost. A simulation of the amount of gross margin earned at each level of the value
chain in Uganda from the moment the hide is harvested from the carcass is
illustrated in Figure 5
Figure 5: Gross Margin Distribution

Source: COMESA/LLPI based on data generated during Stakeholders meetings and Stakeholders Workshop.
19
Livestock traders/butchery owners, command the second highest gross margin
earnings, because when they purchase livestock, the price excludes the fifth
quarter12; thus they do not pay for it. Once the animal is flayed they sell the hides
and skins in green state, before incurring any preservation cost.
Past projects have concentrated on supporting slaughterhouse owners to work on

the reduction of flay cuts. The results have been disappointing, as the intervention
focused on the wrong agent (slaughter house owner), who does not directly benefit
from the marketing of the hide in instances, when hides and skins are not used as
slaughter fees. The hides and skins are owned by the livestock trader, who in
reality only pays to the farmer 60% of the live weight, and gets the hide, blood,
bones, intestines/casings, fat and organs for free. Hence there is low economic
incentive for the livestock trader to invest in ensuring that the quality of hides and
skins is improved, as any amount he receives is a bonus.
However in the final analysis they are the major beneficiary, because their gross
margin equates to net profit; as they receive the hide/skin almost for free and they
are usually not involved in the preservation of hides and skins, as they sell them
immediately they are produced. This, therefore entails that future interventions
aimed at addressing peri-slaughter defects must target livestock traders, as these
are the economic agents who are earning the highest income that is not
commensurate with their input.
2.3. The Potential of the Uganda Leather Value Chain
The export of raw hides/skins, wet blue and crust entails forgone opportunities
with regard to value addition, which could have been attained in Uganda. Put
simply, the export of wet blue means the exportation of jobs, foreign currency
earning opportunities and other indirect benefits, which could have been generated
in Uganda had the large proportion hides and skins been transformed into finished
leather. In addition, more losses are incurred due to the resultant production of low
quality hides and skins, which fetches lower prices in the international markets. As
it was reported, the prevalence of pre, peri and post slaughter defects was very high
in Uganda this renders more than 60% of hides and skins produced to be
categorized to grade three or worse.
A partial equilibrium model was employed to compute the potential losses that
Uganda was incurring per annum due to pre, peri and post slaughter defects and
the export of 95% plus of total hides and skins in the country in wet blue state.
Based on the hides and skins production of 2012, the Uganda leather value chain
has the potential of reaching a minimum direct value of USD 270 million per
annum.
Gross losses incurred due to the prevalence of pre, peri and post slaughter defects
were computed based on equation 1, and the apportionment between pre and
peri/post slaughter defects was based on a study by Mwinyihija13 (2014), which
found out that 48% and 52% of defects are attributed to pre and peri and post
slaughter defects respectively. The losses incurred on bovine, sheep and goats
12
The dressed carcass is the four quarters of the animal, after slaughter that contains the main cuts of both prime and
processing meat. The dressed carcass makes up about 60% of the live weight of cattle and two-thirds of the live weight of pigs.
The remaining live weight is taken up by the hide, blood, bones, intestines/casings, fat and organs known as the fifth quarter.
13
Mwinyihija, M. (2014). A prognosis of the leather sector in Kenya; The upheavals and antidotes associated with value
creation. Management Vol.4 (1),pp. 21-29.
20
hides and skins are based on the same equation. See equation 1 below, which was
used in the computations of gross pre, peri and post slaughter defects.
= + ) equation 1
Where
G1 is 100% first grade
Pn prices with respect to grades 1 to 6
a to f: Ratios of grades of hides
TQ: Total output of hides by a country
Table 4: Estimates of Pre, Peri- and Post-Slaughter Defects on Bovine Hides and Goats/Sheep
Skins
Potential Earnings
Actual Pre- Peri and post
Type of Hides/Skins Assuming all Hides are Loss
Earnings slaughter slaughter losses
First Grade
Apportionment Ratio 0.48 0.42
Bovine 10,170,000 5,989,000 4,181,000 1,756,020 2,424,980
Goat and Sheep 7,680,000 5,019,600 2,660,400 1,276,992 1,383,408
Total Estimated Loss 17,850,000 11,008,600 4,181,000 3,033,012 3,808,388
Source: Computations based on FAO data.
The losses, which are incurred due to non value addition, are illustrated in the
Table 5 below. The value addition threshold that is expected per stage is shown in
the last column of the Table below. The cumulative loss is estimated at USD 228
million, with regard to the second level of loss, which is associated with non value
addition. If the loss associated with pre-, peri- and past-slaughter defects, which is
illustrated in the table above is taken into account the total loss is estimated at
USD 232 million per annum.
Table 5: Value Addition Potential and Estimated Losses

Potential Current Actual Value Addition
Stage of Processing Estimated Losses
Earnings Earnings Threshold
Raw hides and Skins Current Value 22,829,111 1
Wet Blue 4,128,137
45,658,222 41,530,085 2
Crust 67,802,460
68,487,333 684,873 3
Finished Leather 79,102,870
79,901,889 799,019 4
Finished Products 271,209,839
273,949,332 2,739,493 12
Cumulative Loss 228,195,862
2.4. The Tanning Subsector
Leather tanning is the process of converting raw hides or skins into leather. Hides
and skins have the ability to absorb tannins and other chemical substances that
prevent them from decaying, make them resistant to wetting, and maintain their
reparability, suppleness and durability. The surface of hides and skins contains the
hair and oil glands and is known as the grain side. The flesh side of the hide or
skin is much thicker and softer. The three types of hides and skins most often used
in leather manufacture are from cattle, sheep, and pigs
21
As of 2013, the country had 7 small- and medium-sized tanneries that had an
installed capacity of 1,290,000 hides and 4,150,000 skins per annum that are
operational at 50-60% capacity utilization. Only the Leather Industries of Uganda
processes hides and skins up to finished leather. There are also many cottage
tanneries distributed countrywide that mostly do vegetable tanning14.
2.4.1. The Wet Blue Production Cost Structure and the Implication of Hides
and Skins Quality
In the production of wet blue, raw hides and skins commands 85% of input cost,
with the balance shared among chemicals, water, electricity and labour. This
scenario highlights the importance of raw hides and skins in the production
equation of leather. Thus rapid hides and skins prices fluctuation and quality have
a serious bearing on the profitability and competitiveness in the production of wet
blue. A steep increase or decrease in the prices of hides and skins would impact
negatively or positively on the cost of production and consequently on the gross
margin15 of tanning operations.
According to FAO (2009)16, a Gross Margin of 25-35% and greater than 45% is
considered normal and robust respectively. The Ugandan tanning sector is earning
an average of 56% gross margin, reflecting a very high profitability potential. The
Table below illustrates the costs breakdown in the production of hides and skins
equivalent to 58,000-60,000sqft
Table 6: Tanning Production Function

Inputs into Wet blue Production % Contribution to Final product USD
Raw hides and skins 85 42,500.00
Chemicals 5 2,500.00
Water & electricity 3 1,500.00
Labour 7 3,500.00
Total Ex Factory Cost for Wet Blue 100 50,000
Container
FOB price 78,000.00
Gross Margin (56%) 28,000.00
Source: Stakeholders and Experts consultations by COMESA/LLPI
In Uganda it was reported that a large proportion of hides and skins were traded at
uniform price irrespective of grade category. This situation discourages quality
improvement among the primary producers and collectors of hides and skins. Thus
the tendency would be for hides and skins collectors to under-salt, as a measure of
preserving their profit margin, however on the other hand, this would raise the
tanning production cost upwards and thereby squeeze profit margins, as they
process poor quality hides and skins.
The Figure below illustrates two important points that the cost of tanning increases
as the quality of hides and skins deteriorates. Secondly, there is also a positive
correlation between yield and hides and skins quality; as the quality declines the
yield also decline. The cost of tanning a kilogram of hides and skins rises from
USD0.8 to USD1.6, from first to the fifth grade respectively; consequently the yield
14
Draft Policy Document, Ministry of Trade, Industry and Cooperatives
15
Gross margin is the difference between revenue and cost before accounting for certain other costs. Generally,
it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs,
essentially).
16
FAO Agribusiness Handbook (2009)
22
declines from 95% to 55% respectively. This pushes up the cost of tanning and
consequently reduces the competitiveness of the industry. Therefore, it is
imperative that appropriate measures to promote „quality-based on grades‟ pricing
system and quality improvement (extension services) programs are put in place, as
a measure of boosting the Uganda tanning industry in aspects related to
profitability and competitiveness.
Figure 6:The Relationship between Figure 7: The Relationship between Tanning Cost
Hides/Skins Grades and Yield and Hides and Skins Grade
Source: COMESA/LLPI consultations with experts in the Tanning Industry.
It was reported that more than 60% of hides and skins produced in Uganda are in
grade three and five, this implies that the yield range is 45-75%, and the cost of
production per kilogram is in the range USD 1.2 to 1.7. Lower yield implies lost
resources, processing poor quality hides and skins, whose return in terms of
quantity output and monetary return is low. This scenario needs to be reversed as
it raises the cost of production, consequently undermining the competitiveness of
the value chain. It is therefore imperative that measures should be put in place to
reverse this scenario.
2.5. Situational Analysis of SMEs in the Footwear Industry
2.5.1. Overview of the Footwear Supply Chain in Uganda
SMEs involved in footwear and leather goods manufacturing in Uganda face

challenges that are discussed in the subsequent paragraphs. Footwear supply
chain presented in the Table below, shows inputs that are required in the
manufacturing of footwear. This inadequate local production and a weak dealership
and distribution network in supplying the listed inputs in Uganda are
demonstrated. The impact of this illustration is the raised transaction costs of
SMEs involved in footwear manufacturing and leather goods domains, as they have
to transverse the City to purchase these items.
Table 7: Summary of Uganda's Footwear Supply Chain

INPUTS IMPORTANCE SITUATION IN UGANDA
Finished It contributes 50% in Production of finished leather in Uganda is limited and the
leather terms of value to available material is of poor quality. It was reported that the cut
footwear with leather value of the leather is very low, because of defects affecting the
uppers, thus this is the grain layers (e.g.holes etc.) and also the leather is very hard,
main input. brittle and it cracks during lasting. Leather is imported from
Kenya at 0% under the EAC and also from Ethiopia at Most
23
INPUTS IMPORTANCE SITUATION IN UGANDA
Favoured Nation (MFN) rate less 10%. The importation of
leather is fragmented, as it is done mainly from cross border
traders, who also purchase it from markets in Kenya.
Consequently the imported leather is also of poor quality. This
challenge can be addressed through joint procurement between
SMEs direct from tanneries from neighboring countries. This
would enhance the competitiveness of the SMEs, as the leather
cut value will improve, consequently reducing their cost of
production and improve on competitiveness.
Cutting It‟s a tool, which is There is no local production in Uganda, however, at the moment
dies used for cutting; it is most of SMEs who are operating, do not have cutting machines,
very important in and use cutting knives. Only a few medium sized enterprises
ensuring speed in have cutting machines, and they also have the capacity to
cutting and also import these cutting dies.
ensures consistency.
Lasts A last is a mechanical No local production in Uganda, SMEs depend on secondary
form/mould that has a imports from Kenya. In order to produce comfortable shoes,
shape similar to that of these lasts‟ shape and dimension should reflect the average foot
a human foot. Without shape in a country. Most lasts, which are emanating from
a last footwear China, are meant for the shape and foot size of Chinese; when
manufacturing is next used in the region, the outcome is an uncomfortable shoe. This
to impossible is an area which again requires joint action and also support
from technical institutes and engineering industry.
Heels/soles Second important There is limited local production in Uganda; however there is
component of a shoe limited variety and also low quality. This is an area requiring
after leather. technical support from the local university to support the
production of soles.
Accessories Important especially for No local production in Uganda
finishing sandals and
other types of footwear.
(rivets and buckles)
Source: Stakeholders Consultations by COMESA/LLPI
The limited supply of the materials listed in the Table above is the main weakness
in the footwear manufacturing business in Uganda. It is imperative to note that
leather is the main input in footwear or leather goods manufacturing business,
contributing 40-50% to total cost. Uganda has the potential to produce quality
finished leather to support this subsector, which has the potential of creating
employment, reduce poverty and also save foreign currency.
The shortage of leather and other inputs maybe addressed in the short-run by
facilitating SMEs to procure these inputs in bulk jointly. In the medium to long
term, there is a need for policy intervention to encourage the production of finished
leather. In the region, Ethiopia has instituted a 150% export tax on crust leather
and all tanneries are now producing finished leather; however this policy needs to
be designed in consultation with the tanning industry, to minimize the losses
associated with the policy adjustment lag. The matter on policy adjustment lag is
discussed in detail in the section dealing with export tax on hides and skins.
2.5.2. The Structure of the Industry
The Uganda Footwear Manufacturing Industry is dominated by small enterprises,

which operate in backyards, markets and homes. Of the twenty enterprises visited,
only four are owned by women; however, it is fundamental to note that in the 60
percent of the enterprises that were visited the presence of women in production is
very visible. This matter is even confirmed by the fact that the current Chairperson
of the SMEs Association of leather and leather products is female. Table 8,
summarizes the gender distribution.
24
Table 8: Gender Distribution
Gender Percentage
Female 80
Male 20
Total 100
The majority of enterprise owners are under the age of 50 years, with the 50% and
40% in the 36 to 50 years and 26 to 35 years age group respectively. This scenario
is quite encouraging as these people still have a future to look forward to. They
have young families, which requires their support and this would motivate them to
work very hard. Most of the workers employed by these SMEs are in the 20 to 35
years age group and are also looking forward to establish their own enterprises,
once they have saved enough to purchase their own tools and machinery. This is a
reflection of the growth potential of the subsector. The Figure below displays the
age distributions of the SMEs who were interviewed during the survey.
Figure 8: Summary by Age Group of Entrepreneurs
The educational level of the footwear and leather goods artisans in Uganda is very
high, all the respondents that were interviewed have attained secondary school and
40 percent of them have attained a diploma/university degree. This scenario places
this sector on a sound educational background, which makes it easier for these
enterprises to learn and adapt to new hardware and soft skills. This situation was
confirmed also by the fact that University graduates are enrolling to train in
footwear technology at the training centre in Uganda. The table below summarizes
the educational level of the enterprises.
Table 9: Education Profile of the SMEs

Educational Level Percentage
Secondary 60
Degreed/Diploma 40
Total 100
The majority of the owners of the footwear and leather products SMEs have
received vocational technical training in footwear and leather products
manufacturing from the Training and Common Facility Centre (TCFC). Out of the
twenty respondents 90 percent hold a certificate in footwear and leather products.
25
These enterprise owners were also trained in Training of Trainers course in
footwear and leather products manufacturing. This dimension has boosted the
skills level in Uganda as all new recruits are being trained on the job. The LLPI‟s
team observed youths being trained by enterprise owners in both Luzira and
Kitintale markets. Figure below displays the distribution on the sources of skills
Table 10: Source of Footwear Production Skills

Source of Skills Percentage
Self-taught 0
Learning from friends & relatives 0
From previous job 10
Vocational 90
Other 0
Total 100
2.5.3. Source of Capital
The majority of SMEs in the footwear and leather products subsector have not
received a bank loan to finance their businesses start-up. The model of financing
start up of small footwear and leather goods enterprises in Uganda was influenced
by the training and mentoring model which was championed by the TCFC. After
completing the training course it was reported that most trainees had no capital to
start their own business, as a stop gap measure, trainees were allowed to use the
college facilities to make their own goods at a small fee.
Most of these trainees raised money to buy their tools and basic machines by
selling these small products, which ranged from wallets, belts and sandals. This led
them to start their own business operations. This has built a solid base for the new
enterprises and also enabled the training centre to continue to offer training
programmes. The Training Centre‟s role was critical as trainings continued even in
times when enrolments were below economic viability levels and the donor support
had elapsed. For further details see Table 11 below.
Table 11: Source of Capital Profile
Source Percentage
Friends and Relatives 0
Own Savings 75
Bank Loan 25
Retirement package 0
Other 0
Total 100
2.5.4. Identified Constraints
All the respondents considered the shortage of finance and use of old and
rudimentary equipment as major constraints that have hampered the production of
quality products and productivity. Eighty-five percent regarded the poor state and
lack of necessary machinery as the main factor that was undermining the
manufacturing of quality products.
The absence of a common working facility impacted negatively on SMEs visibility as

some of them were operating in their back yards and in vegetable markets. Most of
the enterprises are of the view that a centralized working space would assist to
solve a lot of their challenges through collaboration and sharing of the equipment,
26
knowledge and skills. Furthermore, this would improve on the visibility of these
enterprises that would in turn boost their turnover, capacity utilization and
competiveness. The overall impact to the economy would be employment creation
and enhancement of the livelihoods of the owners and workers. For details see the
Figure 9 below.
Figure 9: Summary of Constraints
2.5.5. Main Inputs and Products
The inputs used in the production of footwear are leather, soles, glue and other
accessories as listed in the Table 12 below. The direct material cost of the shoes
produced by SMEs range from a minimum of USD 3.64 for sandals to a maximum
of USD 14.8 for boots per pair.
The main cost input is leather, which contributes 40.7 per cent, followed by soles
at 31.8 percent. The price of school shoes soles is relatively lower than the rest of
the other soles types and this is attributed to an innovation that was accomplished
by the TCFC. They designed a school shoes sole, which is very durable and
relatively light despite the fact that it is being produced using mainly recycled
materials. The Ugandan footwear SMEs are very competitive domestically in the
production of school shoes. For example, the average price in most shops in
Kampala for similar product is selling at a price of USD 20. At an ex-factory price of
USD 6.04 per pair, SMEs have the capacity to penetrate the market if they are
supported from both the supply and demand side. See details for the cost
breakdown in Table 12.
Table 12: Costing of Footwear

USD
Materials Back to School Boots Sandal Average
Leather 2.24 4.7 3.04 3.33
Soles 1.6 6.2 0 2.60
Insole 0.19 0.33 0 0.17
Shanks 0.2 0.2 0 0.13
Glue white 0.4 0.48 0.25 0.38
Glue Neoprene 0.3 0.4 0 0.23
Toe Puff front 0.19 0.2 0 0.13
Back counter 0.29 0.32 0 0.20
Shoelaces 0.25 0.32 0 0.19
Eyelets 0.05 1.28 0 0.44
Machine Thread 0.02 0.03 0 0.02
Sock Lining 0.28 0.3 0 0.19
27
USD
Materials Back to School Boots Sandal Average
Polish 0.03 0.04 0.05 0.04
Colour 0 0 0.3 0.10
Total 6.04 14.8 3.64 8.16
The detailed cost breakdown for direct material inputs are illustrated in the Figure
9 below. The two main costs centre on leather and soles as alluded to before. In
order to enhance competitiveness in the footwear industry there is a need to
increase the production of finished leather in Uganda. The shortage of finished
leather has pushed the prices from Ugx3000 (USD 1.6) to Ugx4000 (USD 1.6) per
square foot leather. Yet, Uganda has a very good raw material base to address this
challenge.
The main products being produced by the SMEs are sandals, school shoes and
security boots; however most of the enterprises are in a position to manufacture
other types of footwear such as, fashion shoes and gloves.
Eighty percent of the enterprises are currently producing a combination of school

shoes, boots, sandals and men fashion shoes. These products are mainly seasonal;
the turnover of school shoes is high in December and January and also around
school opening periods during the year.
Sandals have become a year rounder product given the fairly warm weather of
Uganda and also because this product is being exported across Africa (Sudan,
Zambia, Kenya, Rwanda and Tanzania). Sandals and other leather products such
as ladies bags and wallets have found niche markets in Europe, USA and Lebanon.
See details in the Figure 10 below.
Figure 10: Models Combinations by Enterprises
2.5.6. Type and Estimated Cost of the Machines/Tools in Use and Required
The enterprises operating in the footwear clusters are facing major challenges with
respect to machinery and tools; all the enterprises reported that they were
operating with inadequate and outdated machinery and equipment. About 80%
considered their machines and equipment to be unreliable and costly to maintain.
28
Whereas the enterprises want to purchase new machines they are constrained by
lack of funds. The unreliability of the stitching machines in particular impact
negatively on the durability of the products and also results in distorted stitching
patterns. Furthermore, it undermines the productivity of the enterprises because of
the slow speed and high frequency of breakdowns of the machines.
The quality of the shoes with regard to shape, variety and comfort is greatly
compromised in Uganda because enterprises are facing an acute shortage of shoe
lasts (moulds) as they are using one mould to produce different kinds of shoes.
According to Leng and Du (2005), a shoe last represents the approximate shape of
the human foot, and is very important in the whole shoe making process. A good
last for shoe production has the same importance as a good foundation for the
stability of a house. It is responsible for the product fitness as well as the footwear
style. A last is used in both the beginning and end process of constructing shoes.
See the details of the responses in the Figure 11 below:
Figure 11: Machinery Adequacy, Reliability and Shortage of Lasts
The situation with regard to machine combination is fairly good, with close to 70
percent of the respondents operating, with industrial sewing, roughing machines
and tools. However most of the sewing machines are very old and are prone to
frequent breakdown as they were bought as second or third hand and thus have
outlived their economic life. Hundred percent of the enterprises have roughing
machines, which are being fabricated in Uganda, through reverse engineering.
This innovation is quite evident in Uganda than in other COMESA Member States.
This is an important learning point for other countries. See details in the Table 13
below.
Table 13: Summary of Machine Combination per Enterprise

Machine Combination per Enterprise Percentage
Domestic sewing machine, roughing machine & tools 10
Industrial manual/electrical machine, roughing machine & 70
tools
Full set of Machines 20
Total 100
Given the machinery gap summarized in the Table 13 above, enterprises were
asked to list the machinery they immediately require to boost their productivity,
quality and durability of their products. Eighty percent of the enterprises pointed
out that it was imperative that they acquire industrial stitching, skiving, sole press
machines and lasts. It is worthy to note that the number required for skiving and
sole press machines maybe reduced once these enterprises are operating within the
29
same industrial complex. This is due to sharing of the machines and equipment
rather than individual ownership.
As such, it would not make economic sense for each enterprise to own skiving and
sole press machines, given their current scale of operation. Table 14 below
summarizes the machines and equipment requirements of the twenty enterprises
and the total cost involved.
Table 14: Summary of Machine Requirements
Machines Responses Total Market Value
Possible Actual Percentage Unit Price Total
Industrial Stitching machine 20 16 80 3,500 56,000
Skiving machine 20 16 80 2,000 32,000
Sole Press machine 20 16 80 10,000 160,000
Tools 20 16 80 2,000 32,000
Lasts 20 16 80 1,000 16,000
Total 296,000
The machine requirements for SMEs across Uganda in the Footwear and leather
goods segment can be extrapolated based on the Table above.
2.5.7. Gross Margin and Break-Even Analysis
The gross margin calculation is central in gauging the viability of a business,

because every business must generate enough cash to buy raw materials, pay
employees and all expenses. This margin also demonstrates a firm‟s ability to
translate sales dollars into profit. A healthy business must generate more cash
than it consumes. If it does not, it will lapse. So the stream of cash that flows into a
business is the gross profit. The higher the gross profit margin, the larger the
stream.
The lower the gross profit margin, the smaller the stream of cash available to fund
business operations and investment in future growth. Enterprises in Uganda are
generating a minimum and a maximum gross profit margin of 20.2 and 40.7 % per
pair respectively, as illustrated in the Table below. Sandals are the most profitable,
generating a gross margin of 40.7% and boots has the lowest at 20.2 percent. See
details in the Table 15 below.
Table 15: Gross Profit Margin per Unit

Production Cost Ex factory Price Gross Profit per
Shoe Type Gross Margin (%)
per Unit (USD) per Unit (USD) Unit (USD)
Back to School 8.8 10.6 1.8 20.5
Boots 20.3 24.4 4.1 20.2
Sandals 7.15 10.7 3.55 49.7
Man office 20 28 8 40
Average 14.1 18.4 4.3 32.6
In order to gauge whether these enterprises are viable it is critical to compute their
break-even point and then compare with their current output levels. The break-
even quantities and profitability of each footwear model are shown in the table
below. Men‟s office shoes have the least break-even quantity and back-to-school
has the highest. Sandals are the most profitable product at USD 4,705 per month,
and office shoes are the least at USD 957 per month at the current levels of
capacity utilization. Details of profitability per type of footwear at current and
installed capacity utilization levels are illustrated Table 16 below.
30
Table 16: Break-Even Analysis and Net Profit per Month
Average Back -to -School Men Office Military Boots Sandals
Shoes
Capacity Utilization Installed Current Installed Current Installed Current Installed Current
Fixed Costs 750 750 750 750 750 750 750 750
Variable Cost per Unit 6.04 6.04 18 18 14.8 14.8 3.64 3.64
Selling Price per Unit 10.6 10.6 28 28 24.4 24.4 10.7 10.7
Break- Even Qty per Month 164 164 75 75 78 78 106 106
Net Profit per Month 4,320 1,894 2,996 957 4,438 4,438 8,600 4,705
The net profit margin shows how much of each sale in dollar shows up as net
income after all expenses are paid. For example, if the net profit margin is 5% that
means 5 cents of every dollar is profit. The net profit ratio for the four shoes models
is positive at the current capacity utilization levels. Figure 12 below shows the net
profit comparison when firms are operating at either 100% or the current capacity
utilization level of 60 percent.
Figure 12: SMEs profitability by Shoe Model
Figure 11 illustrates that footwear artisans can easily increase their profitability by
expanding their volumes towards the installed capacity utilization levels. This could
be achieved by boosting productivity and also increased support in the
procurement of inputs, to minimize time lost in the procurement process.
2.5.8. Banking, Loan Requirements and Repayment Capacity
2.5.8.1. SMEs Relationships with Banks
The enterprises, which were interviewed in all the sites, have a strong relationship
with banks, as 100 hold bank accounts. This is in contrast with the situation
observed in other COMESA countries. This is a healthy situation, because a
relationship between SMEs and banks exist and this can further be strengthened.
For details see Table 17 below.
Table 17: SMEs Relationships with Banks

Holding a Bank Account Responses
Possible Actual Percentage
YES 20 20 100
NO 20 0 0
2.5.8.2. Loan Requirements and Repayments Capacity
The loan requirements of the SMEs are based on the machinery requirements,
which were illustrated in Table 16. The total loan requirement for the group of 16
31
enterprises is estimated at USD 249, 600. This implies an average minimum loan
per enterprise of USD 15, 600.
However this loan requirement maybe reduced by ensuring that equipment such as
skiving and sole press machines are centralized and shared by enterprises. The
centralized machines may be owned by different enterprises within the cluster that
will then extend a service for a fee to other enterprises. This will reduce the
minimum loan requirement for capital to USD 6, 500, which will cater for the
industrial sewing machine, lasts and tools. This loan requirement is subjected to
loan repayment capacity (sensitivity analysis) based on their profitability margin
estimated in the Table below. An array of interest rates is used ranging from 5 to
25 percent. See the details in Table 18 below.
Table 18: Loan Repayments Capacity under Different Scenarios

Back to Fashion
Description Boots Sandals
school Shoes
Net profit per annum 22,728 11,484 53,256 56,460
Loan repayment @ 5% per annum 6 825 6 825 6 825 6 825
Net after loan repayment 15 903 4 659 46 431 49 635
Loan repayment @ 25% per annum 22,728 11,484 53,256 56,460
Out of the four models of shoes, sandals and boots are the most profitable product
lines. Back-to-school shoes demand and prices can easily be increased to around
USD 15, as most of the established shops are selling similar products, which are
less durable at USD 20 per pair in Kampala. If SMEs raises their prices of back-to-
school shoes to USD 15, their net profitability ratio, would rise to 53 percent and
make a net profit of USD 2,085 per month, which translates to USD 25,025 per
annum. This situation would allow them to even repay commercial loans of 20 to
25 percent per annum. It is fundamental to point out that these SMEs can only be
able to pay these loans if they are operating at full or near full capacity and they
are also supported by government procurement, to ensure sales consistency.
2.6. Trade Analysis
2.6.1. Exports of Articles of Chapter 41 and the Impact of Export Tax
The export commodity of the Uganda value chain has been transformed from being
predominantly raw hides and skins to wet blue; this is attributed to an export tax
that was instituted ten years ago. The export value has grown two fold from 2001 to
2010. The period between 2001 and 2007, was associated with a drastic decline in
the export value (amounting to USD 83 million) from the leather value chain; this
was mainly because the existing tanneries could not immediately absorb the
available raw hides and skins. The introduction of the export tax saw some of the
prominent hides and skins exporters, establishing tanneries. The number of
tanneries has increased from two to seven, and this has contributed to a steep
increase in export earnings from USD 25 million in 2001, to USD 64 million in
32
2013. This development clearly demonstrates the positive impact of the export tax
policy, however, with a lag of seven years.
In 2002, when the export tax was introduced, the export earnings took a nose dive,
to as low as USD 5 million in 2003, from a peak of USD 25 million in 2001. In the
period 2002-2007, the subsector export loss was valued at USD 83 million
cumulatively. This was caused by the fact that when the policy was announced the
industry had not installed wet blue machinery and equipment. The industry took
seven years to fully recover, as it recorded export earnings of USD 25 million in
2010. The post 2010 period has witnessed a rapid growth in exports, which
reached USD 63 million in 2013. In order to minimize losses associated with the
reaction period, Policy makers should announce a road map in advance to prepare
industrialist to make the necessary investment. It is thus recommended that export
tax to encourage the production of finished leather should be designed in a manner
that minimizes the adjustment costs to the industry and the country as a whole.
For details see the Figure 13 and 14 below.
Figure 13: Export Trends of Articles of HS 41 Figure 14: Losses Caused by the Policy Adjustment
Lag
Source: COMESA/LLPI computed from ITC Trade Map
Despite the favourable raw materials base, Uganda manufacturers of footwear and
leather products are facing an acute shortage of finished leather; this is because
approximately 95 percent of the tanned hides and skins are being exported in wet
blue form. During consultations with stakeholders, there was confirmation from
the stakeholders, that there is a need for a policy direction to encourage the
production of finished leather in Uganda. Without a policy signal, tanners would
continue to produce wet blue, as this is a comfort commodity with a ready market
globally. It was therefore recommended that a gradual export tax should be
introduced on wet blue to signal the value addition goal. In order to minimize
adjustment lag costs as alluded to before, this tax could start as low as 1% and rise
in a sliding scale until it reaches punitive level in a period of five years.
2.6.2. Imports of Finished Leather and Footwear
Imports relate mainly to two commodities namely finished leather and footwear.
Other imports include soles, accessories and machinery. In this section only
leather and footwear imports are analyzed.
33
2.6.2.1. Finished Leather
As indicated earlier Uganda‟s production of finished leather is very low;

consequently the multitude of SMEs depends on leather imported from Kenya and
Ethiopia among other countries. The imports have registered a sharp increase from
2011 onwards and this period coincides with the period when COMESA/LLPI‟s
started to actively support SMEs to participate in Regional Trade Fairs. However,
most of the leather imports into Uganda are through informal channels, and is
thus not reflected in official statistics. The sharp rise in formal imports is a clear
indication of the formalization of SMEs operations in Uganda. Thus, in the short
run there is a need to come up with a mechanism to support the bulk importation
of leather and other accessories so as to improve accessibility and consequently
reduce transaction costs of SMEs. See the imports dynamics of the finished leather
in the Figure 15 below.
Figure 15:
Figure 15: Trends in the Imports of Footwear by Uganda
2.6.2.2. Footwear
Imports of footwear have grown significantly from 2002 to 2013, mainly due to
economic and population growth over the same period. The footwear import bill
rose from around USD 7 million to around USD 35.5 million. This is a growth rate
of over 500 percent in a period of five years. This is a good indication of the high
footwear demand in Uganda at the back of limited production, which is mainly
dominated with SMEs who are operating in backyards and markets. See the Figure
16 & 17 below.
34
Figure 16: Uganda Footwear Imports Figure 17: Distribution of Footwear Exports by
Source
China‟s contribution has grown significantly from as low as 15.4% in 2000 to

67.1% in 2011. This growth have seen import from other third party countries
declining from 67% to 14% in the period 2000 to 2013, however the imports from
COMESA countries have remained generally stable.
Support in the development of SMEs Clusters is imperative; as the market for

footwear is growing rapidly, this would create employment and also save foreign
currency. It was reported in the Uganda Budget Statement of 2014, that the
Current Account was weak due to the trade deficit which was projected to widen
from USD 2 billion to USD 2.46 billion by close of the year. The same Budget
Statement recognizes the importance of supporting the development of SMEs and
also the consumption of locally produced goods and services.17
2.7. Regional Comparative analysis
This section analyses the competiveness of the Uganda leather value chain through
the use of a battery of indicators, which are normally used to gauge trade
competiveness of a value chain. In addition to this, the main trade policy
instrument which is the tariff is assessed with regard to MFN, COMESA and the
East African Community (EAC). In order to present a comprehensive picture
Uganda‟s scenario is compared with the situation in Burundi, Egypt, Ethiopia,
Kenya, and, Zambia. The rationale of the comparative analysis would assist
Uganda in drawing practical lessons from countries, whose leather value chains are
growing rapidly.
2.7.1. Competiveness Analysis
Exports as a share of Total Exports (%): this index refers to the share of an
industry‟s exports in relation to a country‟s total exports; hence it shows the
importance of this industry in the national export portfolio. Uganda‟s index for
chapter 41 stood at 1.77. Uganda is an important exporter of wet blue in the
region, as its index is above the regional average of 1.5%. With regard to footwear
exports, Uganda‟s ratio is below the regional average. These ratios could be raised if
17
http://www.finance.go.ug/index.php/national-budget/budget-framework-papers.html
35
Uganda adds value to its wet blue to crust or up to finished leather and support the
production of footwear and leather-goods.
Exports as a share of World Exports (%): This index shows, for a specific
industry, the percentage share of exports of the selected country in total world
exports. The world market share indicates how important a specific national
industry is in terms of global export for the industry under review. The ratios for
Uganda are almost at par with regional averages; however it is less than those of
Egypt, Ethiopia and Kenya.
Growth of Export in Value (% PA): This index is based on the least squares
method, shows the average annual percentage growth of export values over the
most recent 5-year period. Industry with rapid export growth in value terms
suggest that the country is competitive on the world markets, while stagnant or
declining growth rates indicate the reverse. Everything else being equal, fast
growing exports, even in small absolute numbers, point at product groups for
which the country has a particular export potential. Uganda‟s chapter 41 ratio
displays rapid growth, which is above the regional average; this therefore reflects
that the value chain holds great potential for Uganda. See details in the Table 19
below.
Table 19: Summary of Competitiveness Indicators of Uganda and other COMESA States
Contr. To total Revealed
Contr. To total National Growth rate Lafay Index
Country World Export Comparative
Export (%) (%)
(%) Advantage Index
Chapters 41 64 41 64 41 64 41 64 41 64
Burundi 0.38 0.03 0 0 -41 140 2.2 0 0 0
Egypt 0.37 0.03 0.36 0.01 24 3 2.2 0 0 0
Ethiopia 3.84 0.77 0.22 0.01 -7 8 22.6 1.2 1 0
Kenya 1.88 0.37 0.25 0.01 12 -21 11.1 0.6 1 0
Rwanda 2.4 1.36 0.04 0.01 40 61 13.8 2,2 1 0
Uganda 1.77 0.19 0.14 0 36 11 10.4 0.3 1 0
Zambia 0.16 0 0.03 0 8 -62 0.9 0 0 0
Uganda 1.56 0.04 0.09 0 30 -14 9,2 0.1 1 0
Average 1.5 0.3 0.1 0.0 12.8 15.8 9.0 0.3 0.6 0.0
Source: ITC
Notes: Chapters 41 and 64, are harmonized system for raw hides, semi processed
and finished leather and footwear respectively.
Specialization (Balassa Index/RCA Index): This index, known by the description

“Revealed Comparative Advantage” (RCA), tries to identify product groups where the
targeted country has an obvious advantage in international competition. This is of
special importance in order to promote trade of products that are more likely to be
competitive. However, for trade analysis, it is more appropriate to consider RCA
simply as an Index of Specialization (IS).
If it takes a value of less than 1, this implies that the country is not specialized in
exporting the product. Similarly, if the index exceeds 1, this implies that the
country is specialized in exporting the item. Chapter 41 exports stands at 10.4,
which reflects that Uganda is specializing in the export of the given commodity, and
its performance is above the regional average, which stands at 9.
2.7.2. Trade Policy Comparison
Uganda‟s trade policy, as reflected by the main trade instruments MFA and
preferential tariffs are not significantly different from some of the selected
36
comparators listed in the table below. However this policy fails to take into
consideration the fact that Uganda is not producing finished leather whereas some
of the other countries listed in the table produce finished leather. The set import
duty raises the cost of imported leather. See details in the table 20 below.
Table 20: Trade Policy Comparison

Countries MFN (%) Ethiopia (%) COMESA/FTA (%) EAC/SADC (%)
HS 41 64 41 64 41 64 41 64
Burundi 10 25 9 22.5 0 0 0 0
Egypt 0 35 0 0 31.5
Ethiopia 0 35 0 0 31.5
Kenya 10 12 1 2.5 0 0 0 0
Rwanda 10 25 9 22.5 0 0 0 0
Uganda 10 25 9 22.5 2 5 0 0
Zambia 15 25 13.5 22.5 0 0 0 0
Source: ITC Market Access
2.7.3. Trade Policy on Hides and Skins
The trade policies on hides and skins export currently obtained in selected regional
countries, and the actual impact, which have been registered in the past years are
summarized in the Table 21 below. The export restriction policies based on export
tax has generally contributed to the growth of the tanning sector in the three
countries, as reflected by the number of new tanneries which were established and
also the export values.
Table 21: Summary of the Policies and Impact

Country Nature of Policy Recorded Impact General Comment
Ethiopia Punitive export tax on The sector has grown The implementation of
raw hides and skins significantly, with approximately such a policy should be
up to crust leather. 28 tanneries operating and a supported by competent
sizeable number of footwear institutions and
making factories and thousands complimented with other
of SMEs support measures. In
Kenya Export tax on raw The industry is showing great some of the countries,
hides and skins recovery from the effects of which have implemented
Economic Structural this kind of policy there
Adjustment, and exports from has been reports of hides
the sector has grown from and skins being exported
USD10.6 million in 2001 to through second party
USD166 million in 2012, countries (smuggling)
dominated by wet blue
Uganda Export tax on raw This has seen the number of
hides and skins tanneries rising from one to
seven, and export value from
USD25 in 2003 million to
USD63 million in 2013
2.8. Conclusion
This chapter has discussed and demonstrated quantitatively the issues pertaining
to losses being incurred because of exporting wet-blue, and also the potential
export earning if value addition is achieved in Uganda; trade dynamics,
competiveness and performance of the SMEs in the footwear subsector. The next
chapter summarizes issues, which were generated during a Stakeholders
Participatory Workshop, which was facilitated by COMESA/LLPI, in Kampala
Uganda.
37
CHAPTER III: PARTICIPATORY ANALYSIS OF THE VALUE CHAIN
3. Introduction
This strategy was designed by blending both qualitative and quantitative data that
was generated from primary and secondary sources. The primary sources included
one to one meetings with SMEs during the baseline survey of SMEs; this was
followed with meetings and site visits to slaughter houses and hides and skins
traders.
The Participatory Workshop was organized in Kampala and drew participants from
the various segments of the value chain, from city and peri-urban areas of Kampala
and, other districts of Uganda. The Workshop assisted in generating, moderating,
collating and prioritizing of important issues. See below pictures, which were taken
during the Stakeholders Participatory Workshop, which was held in Kampala,
Uganda in March 2014.
3.1. Distribution of Workshop Participants
The Workshop participants were drawn from the various segments of the leather
value chain, relevant Government Ministries, Departments and Agencies from
Uganda. The main objective of drawing from across the value chain and the
country was aimed at generating a national and balanced view of the issues
currently impacting the performance of the leather value chain.
Strategic formulation processes, which are participatory, usually address the key
issues that need to be addressed for the sector to develop. In addition, it assists in
enhancing the buy-in and commitment by stakeholders in their implementation.
See Figures 18 and 19 below:
Figure 18: Group Discussion of Thematic Figure 19: Presentation in Plenary after Group
Issues Identified in Plenary Discussions
3.2. Issues Impacting on the Performance of the Leather Value Chain
The issues, which were generated during the stakeholders meetings, and also
through one to one meetings with enterprises, are summarized in a SWOT analysis
in Table 22 below, in form of a SWOT analysis. In addition, some of the issues were
drawn from the Draft Policy Document, which was crafted by the Ministry of Trade,
Industry and Cooperatives. The Workshop participants validated these issues, and
38
agreed that strategic interventions which directly respond to these issues should be
re-crafted. Thus, the strategic intervention should seek to strengthen the
Strengths, deal with the Weaknesses, capitalize on the Opportunities and tackle the
Threats. The SWOT analysis is summarized below in Table 22.
39
Table 22: SWOT Analysis of the Uganda Leather Value Chain
STAGES STRENGTH WEAKNESSES OPPORTUNITIES THREATS
CROSS CUTTING  Government  Limited access to suitable finance;  Large scope for value  Global Economic
commitment  High cost of finance in comparison to rate of return in the  addition Slow down
 Available raw hides industry  Growing domestic, regional  Synthetic
and skins;  Limited or lack of collaboration of chain players and international materials
 Political stability  Limited support or collaboration with Academia, Private market for value added  Influx of second
and Government products hand leather products
 Land locked;  Renewed interest by
 Weak information systems Government to support the
 The Import Tariff Structure does not promote value sector
addition  Large pool of trainable work
 High inland transport cost (USD1600 per container from force
Jinja to Mombasa) Vs USD 700 from Mombasa to China
HIDES AND  Growing and  Weak or inadequate extension support  New investment in slaughter  Contagious diseases &
SKINS diversified livestock  Poor handling of live animals; facilities; parasites
PRODUCTION base  Weak animal husbandry system  Renewed interest by  Hides and skins being
 Growing demand for  Poor slaughter facilities Government to support the smuggled to neighboring
meat, increasing the  Poor flaying and conservation techniques; sector countries
slaughter rates  Poor quality of hides and skins  Renewable resource  Quality of hides and skins
 No or inadequate collaboration as there is no Association  Readily available markets continues to deteriorate
for Livestock Traders, Butcheries and Hides and Skins
Collectors;
 Absence of a structured system to support the production
of quality hides and skins;
 Uniform price on hides and skins irrespective of grade
TANNERIES  Available Production  Inadequate technology, technical and production  Growing domestic and  Environmental hazards,
Capacity to produce management skills; regional demand for finished given the proximity to lake
up to wet blue  Dependent on the importation of the bulk of the leather Victoria, may disrupt
 Available work force chemicals;  Policy and legal support production
 Availability of raw  Most of the tanneries are located in an unsuitable  Room for improvement;  Increased competition
materials; environment  Niche markets for rabbit and from synthetic and
 Export tax helping  Poor environmental control; fish leather; imported products;
to improve the  Narrow product distribution channels  High value addition  International markets view
availability of raw  Limited or no interest to produce finished leather; opportunities from wet blue Uganda as a raw material
hides and skins  Absence of Government policy support to promote to finished leather supplier rather than
 Adequate installed production of finished leather;  Growing international finished leather;
capacity for the  Small market size for finished leather in Uganda; demand of leather products;  Poor working standards,
production of wet  Renewed regional and which are contra
blue international interest to international labour
support the industry standards in some of the
 Government interest to tanneries
develop a sector specific  Growing market demand
policy for footwear
40
STAGES STRENGTH WEAKNESSES OPPORTUNITIES THREATS
 Production of by- products
MANUFACTRING  Large pool of  Inadequate machinery and equipment  Growing domestic and  Intense competition from
trainable human  Limited availability of quality finished leather and regional demand for cheaper imports from Far
resources; accessories; finished leather East;
 Good collaboration  High cost of finance  A big and growing market
among footwear  Inadequate technical training facilities; deficit for footwear;
and leather goods  Limited collaboration with upstream and downstream  The industry is still in
manufactures chain players infancy hence there is great
 Absence of a specific policy support potential for expansion;
 Absence or lack of qualified footwear and leather goods  Renewed interest to support
designers; the development of leather
cluster regionally and
internationally;
 Government interest to
develop a sector specific
policy;
 Potential Government
procurement for military,
policies and other
Government institutions
SUPPORT  Under equipped Technical Training Centres  Renewed interest by
INSTITUTIONS  Limited interaction with National Standards Bureau; Academic institutions to
 Limited support and interaction with Academia; work with the sector
 No advanced specialized courses to support the leather
value chain
41
3.3. Conclusion and Emerging Priority Intervention Areas
The quantitative and qualitative analyses in Chapter II and in this Chapter reveal
the key issues that must be addressed by this strategy to ensure the optimization
towards value addition of raw hides and skins being produced in Uganda. The
following are the main issues, which were identified during the Stakeholders
Workshop and through the quantitative analysis of data:
 The quality of hides and skins being produced in Uganda is deteriorating;
 The market for finished products in Uganda is growing astronomically, as

reflected by a sharp increase in imports over the past ten years i.e. footwear
imports grew from USD 6 million to USD 35.5 million in the period 2001 to
2013;
 Continuous export of wet blue was costing the country in terms of forgone
revenue earnings;
 The export tax on the export of raw hides and skins has contributed to
export earnings of HS Chapter 41 from USD 25 million to USD 64 million in
the period 2001 to 2013;
 The imposition of an export tax was associated with an adjustment lag of

seven years, which saw Uganda losing USD 83 million in the period of seven
years;
 The rapidly expanding SMEs subsector producing finished products are

forced to depend on imported leather, which was raising its costs of
production, consequently undermining its competitiveness domestically and
externally;
 The quality of footwear and leather goods being produced in Uganda is being
undermined because of the use of poor quality leather and the shortage of
suitable tools, equipment and machinery;
 Absence of affordable finance is undermining the growth of SMEs involved in

the production of finished products;
 Lack or inadequate horizontal and vertical collaboration among Value Chain

Agents, was undermining the optimization of the available resources;
 Limited collaboration of core value chain agents with peripheral stakeholders

such as academia, quality and standards development organizations,
financial institutions and development partners among others, is
undermining growth of the sector.
The above issues or trends and the objectives outlined in the Draft National Leather
and Leather Products Policy (NLLP) anchor the formulation of strategic objectives,
which are presented in the next Chapter. For the record, the objectives in the NLLP
reads as follows:
42
 To promote the production of quality semi-finished/finished leather and
leather products for local and export markets;
 To promote more efficient, environmentally friendly production techniques

along the value chain;
 To create an enabling business environment
The attainment of the given strategic objectives would generate outcomes that
would transform the Uganda leather value chain to be globally competitive, as
measured by growth in the production and exports of value added products, such
as footwear, leather garments and other leather products. Consequently; this would
improve the leather value chain‟s contribution to GDP, employment creation,
foreign currency earnings, and would have a multiplier effect, generated by its
linkages with other subsectors such as transport and logistics, chemical, textile
and other service providers.
43
CHAPTER IV: STRATEGY
4. Introduction
This Chapter presents the Strategy‟s response issues, which were identified in the
previous Chapters. The overall objective of the Strategy is to transform the
Uganda‟s leather value chain from the production and export of raw materials and
partly processed products to the production and export of value added products
such as finished leather, footwear and leather garments.
4.1. Vision and Mission
Vision
To be among the top ten subsectors in Uganda with regard to competitiveness by

2025.
Mission
To transform the Ugandan Leather Value Chain into a modern and competitive
subsector specializing in the production of value added products through the
application of modern and cleaner technologies, collaboration, capacity building,
policy guidance and resource mobilization.
4.2. Strategic Market and Growth Goals
In accordance with the Vision and Mission of the Strategy, the Stakeholders
identified specific target markets for selected products. The overall market direction
shifts the focus of the Leather Subsector towards the production of value-added
leather products, such as crust, finished leather, footwear and leather goods, for
the domestic and export markets. The ultimate objective is to foster the production
and export of value added products so as to promote job creation, income and
foreign exchange generation and economic growth. See the products and market
targets illustrated in the Table 23 below:
Table 23: Target Market

Wet Crust Finished Leather Goods
blue leather leather
Domesti After 2 years  Expand production in yr 1 and 2 based
c on imported leather
 Year 3 depend on locally produced
leather
Export ongoing After1.5 In year 3 In year 4 onwards
years
In order to improve accountability, it is important to introduce quantifiable

indicators, which would be used as benchmarks in assessing the impact of
implementing the Strategy. The growth targets, which were discussed during the
Stakeholders Consultation Workshop, are summarized below and the growth
targets for each product category are set.
44
Table 24: Growth Strategic Targets
Product Growth Targets

Description
2015-2018 2019-2022 2023-2025
Raw Hides and No export of raw hides No export of raw hides No export of raw hides
Skins and skins, except rejects and skins, except rejects and skins, except
for gelatin for gelatin rejects for gelatin
Wet blue 100% of hides and skins 100% of hides and skins 100% of hides and
produced in Uganda are produced in Uganda are skins produced in
converted into wet blue converted into wet blue Uganda are converted
into wet blue
Crust leather 50% of the total hides 100% of the total hides
and skins exported as and skins exported as
crust crust on cumulative basis
Finished leather 25% of total converted 50% of total converted 100% of total converted
into finished leather for into finished leather for into finished leather for
domestic production domestic production domestic and export
markets
Footwear Increase output by Increase by 25% based Increase by 25% based
500,000 pairs per on the 2014-17 on 2018-21 figures.
annum
Leather goods Increase output value by Increase output value by Increase output value
25% 50% by 75%
4.3. Strategy Objectives
The specific objectives and interventions listed in the Table below elaborate the
proposed mechanisms of addressing the issues identified by stakeholders and also
drawn from the quantitative analysis. Sub-objectives are listed under each specific
objective. The implementation of such interventions would contribute towards the
attainment of the main thrust of this Strategy, which is to promote the production
and trade of value added products, such as finished leather, footwear and leather
goods.
The strategy‟s objectives and the rationale of selecting the given objectives are
summarized in the Table below. See the Table 25 below listing the four objectives
and the rationale for their adoption.
Table 25: The Rationale for the Selected Objectives

Objectives Rationale based on Emerging Issues Summarized in Chapter III
1. To facilitate the production This objective is based on the fact that value addition would enhance
of quality value added income earnings, employment creation and poverty alleviation. In
leather and leather addition, it responds to the following issues summarized in Chapter
products for local and III:
export markets
 The quality of hides and skins being produced in Uganda is
deteriorating;
 The market for finished products in Uganda is growing
astronomically, as reflected by a sharp increase in imports
over the past ten years i.e. footwear imports grew from USD6
million to USD35.5 million in the period 2001 to 2013;
 Continuous export of wet blue is costing the country in terms
of forgone revenue earnings
 The rapidly expanding SMEs subsector producing finished
products are forced to depend on imported leather, which is
raising its costs of production, consequently undermining
competitiveness domestically and externally;
 The quality of footwear and leather goods being produced in
45
Objectives Rationale based on Emerging Issues Summarized in Chapter III
Uganda is being undermined because of the use of poor
quality leather and the shortage of suitable tools, equipment
and machinery.
2. To facilitate resource  The growth in the production of value added products
mobilization and policy requires capitalization with regard to tools, equipment and
support for the growth of machinery, it is therefore imperative that the enterprises are
the value chain facilities with suitable financial packages.
 Absence of suitable finance is undermining the growth of
SMEs involved in the production of finished products;
 Policy signal/guidance to influence the Private Sector to
invest in the production of finished leather products
3. To promote cleaner and The leather value chain has been known to produce hazardous
environmentally waste, thus it is fundamental that efficient and environmentally
sustainable production sustainable production techniques are promoted, as this is necessary
techniques and systems to boost competitiveness, open new market opportunities and save
the environment.
4. To facilitate horizontal and A number of cross cutting issues are listed in the SWOT analysis,
vertical collaboration of which has a bearing on the creation of an enabling business
chain players and other environment. Collaboration is essential in enabling optimization in
relevant stakeholders resource use and dealing with emerging challenges systematically
and coherently. In addition it response to the following specific
issues:
 Lack or inadequate horizontal and vertical collaboration

among Value Chain Agents, is undermining the optimization
of the available resources;
 Limited collaboration of value chain agents with external
stakeholders such as academia, quality and standards
development organizations, financial institutions and
development partners among others, is undermining growth
of the sector
4.4. Sub-Objectives, Activities and Measurable Outputs
In this section specific sub-objectives, activities and expected output indicators

under each of the prioritized objectives are presented. The assumption is that the
implementation of these activities would generate outputs that would create
outcomes and contribute to the attainment of this Strategy‟s Vision and be
manifested through measurable indicators specified under strategic market and
growth goals. The specific activities would be crafted as part of the annual work
plan by the Ministry of Trade Industry and Co-operatives in consultation with the
relevant Stakeholders
4.4.1. Objective 1: To facilitate the production of quality value added leather

and leather products for local and export markets
Under objective 1, issues pertaining to hides and skins improvements are also
addressed; this is mainly because quality raw materials are essential for the
production of quality value added products. This objective focuses on enhancing
capacity at all the levels of the leather value chain in order to improve quality,
value and volume of value added products. The specific sub-objectives and
expected outcomes, which would contribute to the attainment of the above
objective, are listed in Table 26 below.
46
Table 26: Objective 1 Sub-objective and Activities
Objective 1: To Facilitate the Production of Quality Value Added Leather and Leather Products for Local and
Export Markets
Budget
Sub-objectives Expected Output/Outcome Stakeholders Estimate
(USD)
Facilitate the  Pre, peri and post slaughter defects Line Ministries, 500,000.00
development of an incidence reduced by 75%; COMESA/LLPI, ITC, UNIDO,
efficient Hides and  75% of hides and skins produced classified FAO, Uganda National
Skins production, as grades (1 and 2) 1 - 3; Bureau of Standards, NARO,
preservation and  100% of hides and skins produced priced ULAIA FLEMEA, UMA
marketing system according to grade; Academia
 75% of hides and skins produced enters
the leather value chain
Facilitate the  100% of hides and skins produced in Line Ministries, 200,000.00
production of semi Uganda are converted into wet blue by COMESA/LLPI, ITC, Line
and finished 2018; Ministries, COMESA/LLPI,
leather, which  100% of the total hides and skins exported UNIDO, FAO, Uganda
meet international as crust leather by 2022 National Bureau of
quality and  100% of total converted into finished Standards, NARO, ULAIA
environmental leather for domestic and export markets by ,FLEMEA, UMA Academia
standards 2025
 100% tanneries are ISO certified for
meeting international quality and
environmental standards by 2025
Facilitate the  20 Clusters of 100SMEs each established Line Ministries, 500,000.00
production of by 2015; COMESA/LLPI, ITC, UNIDO,
quality footwear  20 Clusters of 100 SMEs facilitated to FAO, Uganda Bureau of
and leather goods procure joint by or have access to joint Standards, Scientific Council
machinery under one roof by 2018; of Uganda, ULAIA ,FLEMIA,
 Strategic linkages between Clusters and Uganda Confederation of
Support Institutions established; Industry, Secondary and
 50% of the Cluster are ISO certified for Primary Schools, Ministry of
meeting international quality and Education and Sports,
environmental standards by 2025 Ministry of Defense and
 80% of back -to -school shoes are Ministry of Internal Affairs.
produced in Uganda by 2025;
 100% of Police and Military footwear
requirements are produced in Uganda;
 Export of footwear increased by 25% into
the regional and international markets by
2025
 Increased export of leather goods by 25%
Work out  Increased production of finished leather; Line Ministries, 30,000.00
modalities of  Employment creation COMESA/LLPI, ITC, UNIDO,
implementing FAO, Uganda National
export tax on wet Bureau of Standards, NARO,
blue and crust ULAIA FLEMEA, UMA
over a defined time Academia
horizon
Sub Total  1,230,000
4.4.2. Objective 2: To facilitate Resource Mobilization and Policy support for

the Growth of the Value Chain
Financial resources play a significant role in supporting the capitalization of the

sector and also to support full capacity utilization, which is critical in boosting
productivity and lowering of unit production costs through economies of scale. The
sub-objectives for attaining this objective are summarized in the Table 27 below.
Table 27: Objective 2 Sub-objectives and Activities

Objective 2: To Facilitate Resource Mobilization and Policy Support for the Growth of the Value Chain
Expected Budget
Sub-objectives Stakeholders
Output/Outcome Estimate
Conduct sector financial needs Report completed Line Ministries, FAO, UNIDO, 20,000.00
47
Objective 2: To Facilitate Resource Mobilization and Policy Support for the Growth of the Value Chain
Expected Budget
Sub-objectives Stakeholders
Output/Outcome Estimate
assessment for the leather sector, and disseminated COMESA/LLPI, ITC, Uganda
support industries and regulatory by mid 2015 National Bureau of
institutions in the region Standards, ULAIA FLEMIA,
Design suitable financial instruments in Instruments Academia, Uganda 10,000.00
consultation with national, regional and designed and Confederation of Industry,
international (development banks) implemented by Finance houses and other
financial institutions 2015 stakeholders, PTA
Mobilise funding from national, regional Amount raised 20,000.00
and international finance corporations
and also from Government
Build the capacity of value chain actors 1,000 enterprises 100,000.00
including support industries and trained by end of
regulatory authorities on modalities of 2025
accessing finance
Design a system for monitoring and System developed 100,000.00
usage of the mobilized resources, to and implemented
ensure resource optimization by 2015
Establish a business information system Improved business 50,000.00
to assist enterprises to market access technical know
and industry best practices how and business
intelligence
Sub Total
300,000
4.4.3. Objective 3: To promote cleaner and environmental sustainable

production techniques and systems
The leather value chain has gained negative publicity across the globe because of
the utilization of technologies, which are associated with environmental pollution
and damage. This is mainly because of the use of salt and chemicals in the
preservation and leather production respectively. However, It is imperative to note
that technological advancement has led to the generation of the development of
cleaner technologies and also a significant improvement in waste management.
Despite progress in this vein, it should be noted that most production systems in
developing countries, including Uganda, have not fully internalized these
technologies. The usage of cleaner and environmentally friendly technologies,
besides protecting the environment, are also an important marketing tool e.g. eco-
labelling etc.. This objective thus focuses in ensuring that all enterprises involved
in the leather value chain embraces cleaner and environmentally friendly
production technologies. The specific sub-objectives, which would contribute to the
attainment of the above objective, are summarized in the Table 28 below:
Table 28: Objective 3 Sub-objective and Activities

Objective 3: To Promote Cleaner and Environmental Sustainable Production Techniques and
Systems
Budget
Sub-objectives Expected Output Stakeholders
Estimate
Undertake an audit or gap  Audit completed by end of Line Ministries, FAO, 50,000.00
analysis in the technologies 2015 UNIDO,
being used in Uganda vs.  Audit report disseminated COMESA/LLLPI,
those being used in modern by end of 2015 Uganda Bureau of
production facilities globally;  Audit recommendation Standards, ULAIA
implemented by end of FLEMA, Academia,
2022 Uganda Confederation
Work in collaboration with the Program designed and of Industry, Finance 30,000.00
value chain players to design implemented by 2022 houses high learning
a programme for closing the institution (academia)
48
Objective 3: To Promote Cleaner and Environmental Sustainable Production Techniques and
Systems
Budget
Estimate
identified gaps; and other stakeholders
Mobilize resources to facilitate Resource mobilization 50,000.00
the deployment of cleaner and program designed and
environmentally friendly implemented by 2022
production techniques;
Design a monitoring system System designed and 100,000.00
for the implementation of the implemented by 2015
cleaner production
programme
Develop, review and enforce Improved business and 70,000.00
the relevant laws, regulations, policy environment
guidelines, standards and
codes of practice
pertaining to leather and
leather products quality
SubTotal 300,000
A total sum of USD 1,680,000 is required to implement this Action Plan.
4.4.4. Objective 4: To facilitate horizontal and vertical collaboration of chain

players and other relevant stakeholders
The Cluster theory recognizes that the cause of underperformance among

enterprises may be attributed to the isolation phenomenon, which is common in
most developing countries, Uganda included. Thus, horizontal and vertical
collaboration is essential in addressing common problems optimally, by sharing the
costs associated with it. Collaboration can be used to deal with both supply and
demand constraints, which are usually difficult to deal with in isolation.
Engagement with stakeholders such as Academia, development partners, financial
institutions, technical and service providers in a systematic manner is critical in
enabling the sector to reap from economies of scale of collective action. The sub
objectives, which would contribute to the attainment, are articulated in the Table
29 below.
Table29: Objective 4 Sub-objectives and Activities

Objective 4: To facilitate horizontal and vertical collaboration of chain players and other
Budget
Estimate
Activities
Identify and develop and inventory  The inventory is disseminated Line Ministries, 50,000.00
of agents at every segment of the by mid 2015; Uganda Bureau
leather value chain;  Inventory continuously of Standards,
update with time ULAIA,
Facilitate the formation of Associations established and FLEMEA, 100,000.00
associations at every stage of the legally registered by end of 2015 Academia,
value chain; Uganda
Facilitate & coordinate vertical Apex Council established and Confederation 50,000.00
collaboration by forming an Apex officially registered by June of Industry,
Council of the leather value chain; 2015 Finance
Identify external stakeholders and  Stakeholders inventory Houses and 20,000.00
formulate mechanism of working designed and methodologies other
with them. for working with them stakeholders,
developed and implemented
49
Objective 4: To facilitate horizontal and vertical collaboration of chain players and other
Budget
Estimate
by 2015
 Inventory continuously
updated with time
Facilitate the formation of Clusters 20 Cluster of 100 SMEs each 50,000.00
among the value chain players established across Uganda
(i)Develop, review and enforce the relevant laws, regulations, guidelines, standards
and codes of practice pertaining to leather and leather products quality
(i) Establish a business information system to assist enterprises to
Improve market access and industry best practices
4.5. Implementation Methodology
The Strategy implementation would be coordinated by the Ministry of Trade,

Industry and Cooperatives in collaboration with the Apex Body of the Leather
Industry. It is important to note that that the Public Private Sector collaboration is
important in delivering this Strategy. Thus, an Apex Council of Private Sector,
Government and Academia should be established first to drive the implementation
of this Strategy. This Committee should come up with a detailed annual work
programme drawn from the key activities highlighted in the Strategy. The
monitoring and evaluation process, should be supported for continuous data
collection and segment association levels and submitted to the Apex Council for
reviewing quarterly. Details of would be guided by the strategy unpacking process,
which will be facilitated by COMESA/LLPI after the launch of the strategy.
50

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VISION

To be among the top ten subsectors in Uganda with regard to

To transform the Ugandan Leather Value Chain into a modern

LIST OF FIGURES .............................................................................................................. 7

LIST OF ACRONYMS ......................................................................................................... 8

EXECUTIVE SUMMARY .................................................................................................... 9

CHAPTER I: CONTEXT SETTING ................................................................................... 11

1.1. Structure of the Economy and Sector Performance ............................................ 12

1.2.1. National Industrial Policy ............................................................................................. 12

1.2.2. Ugandan National Trade Policy .................................................................................. 13

1.3. Importance of the Leather Value Chain .................................................................. 14

1.3.1. Global Level ...................................................................................................................... 14

1.3.2. COMESA Situation ......................................................................................................... 15

1.3.3. Market Size of Footwear in the COMESA Region ................................................. 16

1.3.4. Uganda Situation ............................................................................................................ 16

1.4. Conclusion ........................................................................................................................ 17

CHAPTER II: SITUATIONAL ANALYSIS OF THE VALUE CHAIN ................................ 18

2.1. Industry Structure and Value Chain Map .............................................................. 18

2.2. Income Distribution in Hides and Skins Marketing ............................................ 19

2.3. The Potential of the Uganda Leather Value Chain ............................................... 20

2.4. The Tanning Subsector ................................................................................................. 21

2.5. Situational Analysis of SMEs in the Footwear Industry .................................... 23

2.5.1. Overview of the Footwear Supply Chain in Uganda ............................................ 23

2.5.3. Source of Capital ............................................................................................................. 26

2.5.4. Identified Constraints .................................................................................................... 26

2.5.5. Main Inputs and Products ........................................................................................... 27

2.5.7. Gross Margin and Break-Even Analysis ................................................................. 30

2.5.8. Banking, Loan Requirements and Repayment Capacity ................................... 31

2.5.8.1. SMEs Relationships with Banks ........................................................................ 31

2.5.8.2. Loan Requirements and Repayments Capacity ............................................ 31

2.6. Trade Analysis ................................................................................................................. 32

2.6.2. Imports of Finished Leather and Footwear ............................................................ 33

2.6.2.1. Finished Leather ...................................................................................................... 34

2.6.2.2. Footwear ..................................................................................................................... 34

2.7. Regional Comparative analysis .................................................................................. 35

2.7.1. Competiveness Analysis ............................................................................................... 35

2.7.2. Trade Policy Comparison.............................................................................................. 36

2.7.3. Trade Policy on Hides and Skins ............................................................................... 37

2.8. Conclusion ........................................................................................................................ 37

CHAPTER III: PARTICIPATORY ANALYSIS OF THE VALUE CHAIN ........................... 38

3.1. Distribution of Workshop Participants .................................................................... 38

3.3. Conclusion and Emerging Priority Intervention Areas ....................................... 42

CHAPTER IV: STRATEGY ................................................................................................ 44

4.1. Vision and Mission ......................................................................................................... 44

4.3. Strategy Objectives ......................................................................................................... 45

4.4. Sub-Objectives, Activities and Measurable Outputs........................................... 46

4.4.3. Objective 3: To promote cleaner and environmental sustainable production

4.4.4. Objective 4: To facilitate horizontal and vertical collaboration of chain

4.5. Implementation Methodology...................................................................................... 50

Table 1: The Strategy Relationship with National Industrial Policy ........................................................................ 13

Table 2: The Strategy Relationship with the Export Strategy ................................................................................... 13

Table 5: Value Addition Potential and Estimated Losses............................................................................................ 21

Table 6: Tanning Production Function ........................................................................................................................... 22

Table 7: Summary of Uganda's Footwear Supply Chain .............................................................................................. 23

Table 8: Gender Distribution ............................................................................................................................................. 25

Table 9: Education Profile of the SMEs .......................................................................................................................... 25

Table 10: Source of Footwear Production Skills ........................................................................................................... 26

Table 11: Source of Capital Profile .................................................................................................................................. 26

Table 12: Costing of Footwear .......................................................................................................................................... 27