Leather industry requests for ease of foreign currency retention rate

The Leather and Leather Products Industry and Research Development Centre propose for the government to ease the foreign currency retention rate in order to alleviate input shortage on the leather industry. It can be recalled that the financial sector regulatory body introduced a new retention ration for hard currency earnings that only allow exporters to access only a fifth of their hard currency generated from export which resulted in erosion of the rate they secured in the past.

According to Mohammed Hussein, head of Leather and Leather Products Industry and Research Development Center that was formerly known as Leather Industry Development Institute, the manufacturing industry particularly the sector he leads is foreign currency dependant to import inputs. “We understand the hard currency crunch the country faces, but the sector is challenging to operate since almost 99 percent of inputs like chemical, accessories and others are imported for factories,” he told Capital. “So we proposed to the relevant government body, Ministry of Industry, for factories to access more foreign currencies they earned from their export earnings to import inputs,” he added.

“If it was a trade it could be understandable, but our industry entails manufacturers and even exporters so they need adequate foreign currency to import the proportion they need for their operations,” the Center head explained.

According to the proposal, the Center expressed that the leather industry aught at least access 40 percent of the foreign currency they earned for the purpose of import inputs.

The retention and utilization of export earnings and inward remittances directives no. FXD/79/2022 that was amended and became effective on January 6 on its article 4.1 stated that banks are required to surrender 70 percent of the foreign currency earnings from export of goods and services, private transfer and NGO’S transfer to the NBE.

Article 4.2 stated that exporter of goods and services and recipients of inward remittance shall have the right to retain 20 percent of their export earnings in foreign currency indeterminately in a retention account after the deduction of 70 percent surrender requirement from the total earnings. It added that the remaining 10 percent shall be surrendered to the respective bank. Mohammed said that the Centre is working with the Ministry of Industry, which is the upper body for the Leather Industry Center, and others for factories who are in critical condition to get special solution to their problems and accelerate the production. Besides foreign currency, regarding access to finance, factories particularly local industries have some sort of working capital problems to which the Center is approaching banks to solve their problems.

“Access to finance policy generally includes all sectors at the same range, while manufacturing industry needs a separate attention since it is totally different from other businesses,” he said, adding, “the recently ratified industry policy has considered access to finance for the sector to be treated separately unlike other businesses.”

In the budget year, the leather and leather goods export generated USD 40 million, which is almost the same compared with the preceding year.

In the past three years, the export earnings from the sector have declined in related with internal and external factors like COVID 19.

In the 2017/18 and 2018/19 budget year the sector contributed USD 130 million and USD 120 million respectively that reduced to USD 75 million in the 2019/20 budget year.

Meanwhile the export earnings eroded compared with the preceding year however the local market has been boosted in the budget year as per the explanation of Mohammed. He said that the import substation was very fruitful in the budget year that ended on July 7, “the local sales helps factories at least to operate smoothly and keep their employees.” The sector at least manages 30,000 jobs.

He reminded that the global market particularly the shoe business is significantly downgraded “the export of Huajian shoe export, which individually contributed up to USD 30 million, and other major exporters have eroded in the past few years. On the other hand factories that used to exported goat fur leather have now totally halted their export due to the market reduction.” Alternative products that substitute the leather goods with lesser price have also affected the global leather industry.