Ethiopian Business Review

Sole Scarcity Makes Locally Made Shoes Unaffordable

Starting around ten years ago, Ethiopian-made leather footwear has become increasingly more popular. From children to youths, many people are now increasingly seen wearing locally made footwear. In spite of its popularity, footwear has recently became very costly for users, primarily because the price of soles for shoes has increased. Most soles are imported from abroad. Although there are four local companies that manufacture soles, they are still unable to produce soles in bulk to satisfy the demand, as EBR’s Tiruneh Assefa reports.

Endale Muleta, a freelancer engaged in software maintenance, has always been a fan of locally made leather shoes. But recently Endale, whose monthly earnings are between ETB5,000 and ETB7,000, is losing interest in his favourite accessory, not because of a decline in the footwear quality, but because of a dramatic price increase on almost all locally manufactured shoes. 

Endale, who spoke to EBR while shopping for shoes at one of Addis’ renowned markets - Shola Gebeya located in Yeka District, was asked to pay ETB700 to buy a pair of locally made shoes, an increase of 40Pct in the last six months. “I’d rather buy a synthetic material shoe for half the price,” Endale told EBR. “The increase is repelling.” 

Tigist Berhanu, 30, a mother of two who earns around EBT4,000 a month, shares Endale’s sentiments. “I used to prefer locally shoes because they were reasonably priced. Now that is a history,” she says.

Once shunned in favour of prestigious foreign brands thought to offer higher quality, Ethiopia-made footwear products were best known for being affordable to customers. In fact, the leather-shoe industry managed to recover its share of the domestic market which had once been swept by cheaper, and more attractive imported Chinese shoes. But now, customers who are becoming price conscious as the headline inflation shoot above single digits, are shying away from purchasing locally made shoes. 

Ever since a shoe factory was established by two Armenians in the late 1930s in Ethiopia, the local leather footwear manufacturing industry has made significant strides. Especially over the past 25 years, the number of large scale manufacturers grew from two to 25, employing over 15,000 people. On top of that, the growing popularity of locally made shoes among the younger population has helped the industry flourish, pushing annual production as high as 15 million pairs a year. 

Although the supply has consistently grown, especially over the last decade, the prices of the locally made footwear were relatively stable until a year ago. The shopping experiences of many consumers reveal that the rise in prices of local leather shoes has been even more drastic than the imported ones.

According to EBR’s assessment, the Chinese-made shoes that have flooded the Ethiopian market are available in Shola for between ETB300 and ETB550, while locally made leather shoes are sold for between ETB450 and ETB700. 

Such price increases are observed despite the fact that 80Pct of domestic footwear is made from locally-sourced raw materials such as leather. However, a significant portion of inputs such as glue, shoelaces and soles, are imported from abroad. 

Those involved in the sector, like Alemneh Admasu, who has been retailing locally made shoes for the past two years, reveal that price increases apply across the whole value and supply chain. However, Alemneh, who owns two shops around Megenagna in Yeka District doesn’t deny that price increases are more dramatic in products that have unique models and have soles are manufactured using the hot pressing process.

“The type of sole is a crucial determinant for the prices of local leather shoes,” explains Alemneh, whose daily sales fell by a third over the last six months to only five shoes a day currently. 

This is also an argument echoed by manufacturers like Henok Tariku, manager of TT Shoe Factory, established seven years ago.  “Although all raw materials, such as glue, tannery and shoelaces, got more expensive over the past six months, the cost of soles showed a significant rise,” Henock told EBR.  “Soles used to account for 20Pct of the total production cost. Now, it has increased to almost 50Pct.”  

In Ethiopia, there are three types of soles produced by various small and large scale manufacturers; rubber, Thermoplastic Rubber (TR) and PVC outsole. Soles made from rubber, which are known for being flexible and scarce, are mostly used to manufacture shoes with contemporary designs.

On the other hand, the TR and PVC soles, which are solid and unbending, are easy to find on the market. While PVC and TR are sold for below 100ETB a pair, it is difficult to find rubber soles, whose price reaches as high as 150ETB a pair. In some cases, importers and wholesalers sell only to their loyal clients, while refusing to sell to others. “I don’t sell rubber soles to passerby customers,” said a supplier who owns an outlet in Merkato. 

While there are only four local manufacturers which produce rubber soles, such as Mohan Industries and MK Plastic Factory, more than 90Pct of the nation’s demand for rubber soles is satisfied by imports. “There is a big raw material gap in the footwear market. That is why prices are swelling,” argues Berhanu Serjebo, director of Corporate Communication Directorate at Leather Industries Development Institute. 

Ethiopian footwear manufacturers mostly import rubber soles. According to information obtained from the Ethiopia Revenues and Customs Authority, the country’s import bill for the purchase of outer soles and heels of rubber or plastics rose almost 12 times since 2011, from USD178,447 to USD2.3 million in 2017. Close to 50Pct of the soles come from China while Italy and Turkey follows as the largest sources of imports. This has a negative impact for the country, whose foreign currency reserves are not even adequate to cover one month’s worth of imports. 

Substituting imported soles by manufacturing locally has been a daunting task.  Ashenafi Melakamu, who has been a manufacturer of PVC soles for over a decade, is amongst those striving to produce rubber soles for a long time, but to no avail. “The cost of the molding machine to produce rubber soles is very expensive,” he stresses. “A molding machine that designs only one type of sole costs between ETB40,000 and ETB80,000. As the designs of rubber soles change swiftly, more investment is needed to import such machines. Bearing this in mind, I, at least, would need to invest five million birr to open a light rubber sole manufacturing plant.” The capital of Ashenafi’s company is ETB200,000.

Even existing manufacturers are feeling the burn of the challenges in the industry. Founded 25 years ago, MK Plastic Factory, which produces more than half a million pairs of soles, is one of them. “We produce way below our production capacity as there is a shortage of raw material, such as inks, needed to produce rubber soles,” explain Eshetu Gebremeskel, Head of Business and Development department at MK. “Plus, as there is no local entity that can supply raw materials to our company, the price of locally made rubber and imported soles are almost the same. Sometimes, it is even cheaper to import soles from China, instead of buying from local companies.” 

On top of that, the lack of incentive and regulation is another barrier to new entrants in the market. “There is no guarantee that prevents the sole being copied without the authorization of the patent right holder and distributed by another manufacturer,” says Ashenafi.  “Furthermore, there is no government entity that has identified the challenges and proposed a solution.”

Berhanu begs to differ. “We know that only 10Pct of the raw material to produce a sole is supplied by local producers,” he says. “We are making an effort to persuade renowned chemical producers open plants in Ethiopia.” 

On the other hand, Henok, suggests a reduction in tax as a short term solution for the problem. “Considering the chemicals needed to produce soles as a luxury is a wrong presumption. It is not fair to levy surtax and excise taxes as high as 50Pct of the original price of the product. Tax must be exempted to encourage local producers”

Ephrem Eyasu, manufacturing engineer at the Addis Ababa Science and Technology Institute, also believes it is possible to produce all the inputs required to produce rubbers sole. “There are many private companies in the footwear industry that have the potential to produce the inputs locally,” Ephrem argues. “Since they will be exposed to more taxes and expenses if they produce locally, most footwear and sole manufacturers choose to import the inputs.”


6th Year . July 16 - Aug 15 2018 . No.64


 

 

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