Used goods: Regional efforts are the way out

OnWednesday November 25, 2015 The New Times carried a brain-pricking headline about used leather products. It quotes Trade and Industry Minister, Francois Kanimba announcing hefty tax increment as a means of curbing the dumping of used leather products into the Rwanda. This commendable initiative by Rwanda needs to be scaled to regional level, to reap the benefits of a larger common effort, as well as larger investment opportunity for prospective investors in the leather industry. The East African Community (EAC) is affected by the dumping and damping of used goods and counterfeits as a region. Consequently, we have become net exporters of jobs, since we provide a market for the countries that produce these used and counterfeit products. Once the initiative is taken by the EAC, it should be approached at two levels, namely taxation and policy/regulation. Actually, policy and regulation will be more effective than taxation. Taxation alone cannot eliminate dumped and damped products into the Rwandan and East African market. This is because the landed cost of these products is so small that even a 1,000 per cent import duty would still leave their selling price affordable. The landed cost is what international trade calls CIF (cost, insurance and freight) and is usually the basis for calculating import duty and other applicable levies. The case of our experience with used tyres in Uganda is very instructive: a few years back, while developing our annual market penetration strategy, we undertook an industry survey of the tyre Ugandan market, both brand new and used brands. We discovered that a set of five used tyres for a cars and light vans (we call them passenger class in the tyre industry language), imported from Japan or another Asian source, cost less than one brand new tyre made in Kenya and imported into Uganda. The Kenyan tyre enters Uganda duty-free. The Asian used tyres carry high freight and handling costs, pay duty, but cost less. This and other cases documented and undocumented point to the inadequacy of taxation alone in curbing used goods. Policy and regulation, therefore comes in as being more effective. Even within the free trade and liberalised economy regime, we can leverage such provisions as quality, human health, environmental protection, bio-diversity safety, to have regulatory measures against used goods, including leather, the case under discussion here. Leveraging the numbers for investment We all recall the story of the two shoe salesmen on two islands. East Africa belongs half-way between the island of people who wore shoes and the island of people who did not wear shoes. A huge market, if you take the positive man’s attitude and conclusion. A conservative estimation of 140 million people translates into 280 million feet. This is 280 million pieces of shoes, assuming an average of one pair per East African per year, at the bare minimum. A market of this magnitude is a boon any investor would die to have. We, therefore, leverage on this and agree mutually favourable conditions with investors, at the regional level. Ethiopia is advancing well in the leather industry, telling us it is possible. At the policy and strategic levels, the entry point should be public-private partnership, with the EAC governments establishing a holding company that will direct planned, zoned, evenly spread investments across the region. This is essential to ensure guided investment in the interest of the region, since we have cases of investors licensed as manufacturers and instead turning into importers. Garnish this with a protracted three-year plan for the total elimination of used and counterfeit leather products from the region, and we will have investors literally running here. What we need from these investors is principally the technology and a degree of skills. The local skills development in specialised technical institutes and universities such as Tanzania’s Mzumbe, is a strong foundation to build on and have a skilled manpower across the entire value chain of the industry. The multiplier effect of this will eventually translate into related and supportive industries and services: polish from bee wax, design, branding et al. There is this talk that we are too poor to afford new clothes, footwear and accessories, thus we need used and discarded ones. New goods become expensive because their market is eaten into by used ones. A trader, who sells one pair of new shoes in a month, will overcharge it: she needs to cover her running costs. If she sold 50 pairs a day, the unit price (for new shoes) would be affordable. The time, therefore, is now to make EAC integration a living reality to the citizens. The gurus in charge of implementing the EAC industrialisation strategy, you owe it to us. Industrialisation is the only way to our transformation, and resource-based industrialisation is our entry level in East Africa. The author is a partner at Peers Consult Kampala and CET Consulting, Kigali. bukanga@yahoo.com

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Used goods: Regional efforts are the way out