The Ethiopian Leather and Leather Products Sector: An Assessment of Export Potentials to Europe and Austria

Structural transformation and export diversification into higher value-added products and away from primary commodities remain major development objectives for low-income countries (LICs). Sectors such as apparel or leather products have traditionally been gateways to export diversification for LICs and are generally regarded as first steps for developing countries embarking on an export-oriented industrialization process. Given their rather low entry barriers (low fixed costs and relatively simple technology) and labor-intensive nature, the sectors can absorb large numbers of unskilled workers and provide upgrading opportunities into higher value added activities within and across sectors. However, the defining characteristics of these sectors also mean that they are very competitive, leaving many suppliers with limited leverage and challenges in ensuring social and environmental compliance and longer term development benefits. In Ethiopia, the objective to transform from the still dominant agricultural sector to the industrial sector is paramount in policies. Agricultural development led industrialization (ADLI) was developed as the main guiding principle of Ethiopia's development process. The underlying idea was that Ethiopia's manufacturing sector should complement the growth of the country's dominant agricultural economy, focusing on labor intensive and low-tech industries with linkages to the agricultural sector. One of the main priority sectors is the leather and leather product (LLP) sector given its direct links to agriculture through the livestock sector as well as its labor intensity, relatively simple technology and large export potential. Ethiopia has adopted an active, state driven industrial policy aimed at incentivizing exports, linking to global value chains (GVCs), attracting lead firms and foreign direct investment (FDI), supporting local firms, and creating local linkages to promote priority sectors. As a result, the Ethiopian LLP sector has experienced significant growth dynamics in production, employment and exports as well as upgrading processes in recent years. Despite many remaining constraints throughout the value chain that hamper growth in exports and the positioning of Ethiopia as a sustainable sourcing destination. Given the high potential of the sector, this report assesses the prospects for increased sourcing of leather and manufactured leather products from Ethiopia to the EU. The report provides a value chain analysis and presents the opportunities and challenges of the Ethiopian LLP sector in order to better assess the potentials for increased sourcing from Ethiopia as well as the interventions EU development cooperation agencies could promote in support of increased export competitiveness. The structure of the report is as follows: Chapter 2 gives a brief overview of the LLP GVC dynamics and recent developments. In chapter 3, we analyze the EU's LLP value chains by discussing different products, market segments and value chain dynamics as well as buyers' requirements. Chapter 4 gives an overview of the Austrian LLP sector and discusses its sourcing potentials for Ethiopian LLP. In chapter 5, the Ethiopian LLP sector's recent development and structure is analyzed. In chapter 6, the opportunities and challenges of Ethiopia's LLP sector are presented. Chapter 7 discusses possible areas of interventions and the potential contributions of European development cooperation agencies in promoting LLP exports. Given the high potential of the sector, this report assesses the prospects for increased sourcing of leather and manufactured leather products from Ethiopia to the EU. The report provides a value chain analysis and presents the opportunities and challenges of the Ethiopian LLP sector in order to better assess the potentials for increased sourcing from Ethiopia as well as the interventions EU development cooperation agencies could promote in support of increased export competitiveness. The structure of the report is as follows: Chapter 2 gives a brief overview of the LLP GVC dynamics and recent developments. In chapter 3, we analyze the EU's LLP value chains by discussing different products, market segments and value chain dynamics as well as buyers' requirements. Chapter 4 gives an overview of the Austrian LLP sector and discusses its sourcing potentials for Ethiopian LLP. In chapter 5, the Ethiopian LLP sector's recent development and structure is analyzed. In chapter 6, the opportunities and challenges of Ethiopia's LLP sector are presented. Chapter 7 discusses possible areas of interventions and the potential contributions of European development cooperation agencies in promoting LLP exports.This report has greatly profited from work undertaken by Rachel Alexander, Shamel Azmeh and Tewodros Yilma in the context of a related research project commissioned by CBI Netherlands. Our sincere thanks go to Ms Henrique Postma-Hazelaar, Ms Melanie van der Baaren-Haga and Ms Vera Geling (all CBI Netherlands) for providing generous organizational and financial support (the final report of that project can be found here). Ms Susanne Thiard Laforet and Ms Dina Sautter (both at Austrian Development Agency) provided valuable insights into the work of Austrian Development Cooperation in Ethiopia. Additional information on the Austrian leather industry was generously shared with us by Ms Barbara Withalm and Ms Eva Maria Strasser (Fachverband Textil-, Bekleidungs-, Schuh- und Lederindustrie, WKO). All remaining errors and omissions are the sole responsibility of the authors