On the Verge of Dyeing

A shortage in leather production is threatening an ancient industry in Egypt. By Lamia Hassan

(Business Today Egypt, February 2011)

As you pass the Kasr El-Aini bridge and head toward the Magra El-Oyoun wall, you can get a glimpse of the complex world of leather tanning hidden behind the ancient structure. The Mante’et El- Madabegh (the leather tanning district) is bustling with activity as sellers hawk products from atop bicycles. Every block is filled with workers in boots and overalls carrying leather or stretching dyed fabric on benches to dry.

The area is home to a tight-knit community of 450 factories that has produced quality leather for over 50 years. But now that same community could face extinction in the wake of increasing material costs and the inability to expand.

For many, these two factors could mean businesses will be forced to close down.

In search of supplies

The factories here used to buy animal hides from a slaughter house in Old Cairo, which they would tan and sell to manufacturers that made leather accessories and apparel.

Today, fewer and fewer are able to afford hides since the price of meat began to rise a year ago due to a shortage of livestock.

The price of calf hides has increased from LE 90 to LE 350 in only a year, explains Hamdi Shawki, owner of a butchershop in an upscale neighborhood of Dokki.

According to statistics from the Central Agency for Public Mobilization and Statistics, the amount of livestock decreased by 5% between 2008 and 2009, dropping from 19.2 million cows to 18.2 million. Hamdy Harb, chairman of the Chamber of Leather Industry and a leather tanning factory owner, says that the effect of this has created a black market among leather suppliers, who only sell to the factories offering the highest bids. In addition, some butchers have started slaughtering outside of the legal venues in order to charge more for the hides and raw leather.

Harb explains that this gives the butchers the chance to “play with prices.” There is no official record of how many animals they’ve slaughtered illegally.

“I personally slaughter my calves at the slaughterhouse and get it stamped by the Ministry of Health, but when the crisis happened a large number of butchers resorted to slaughtering some extra calves [in other] areas, and they also started slaughtering female calves, which is illegal, just for the sake to get some extra money,” says Shawki.”The butchers do not have anything to do, so they just create their own underground market for meat and leather, they do it secretly,” he adds. The price of animal fodder has also increased, driving up costs for leather tanners and traders.

Harb says before the global financial meltdown, the cost of animal hides and raw leather were already high, but that was nothing compared to where they stand now.

“During the crisis we lost huge amounts of money because all the export orders we had back then were cancelled,” he adds.

The industry has had little time to recover before materials prices jumped again at the beginning of 2010. And it’s not restricted to Mante’et El-Madabegh — leather tanning factories around the country are suffering.

Mahmoud Abdel Hameed, owner of Al- Tabarak leather tanning factory in the El- Max district of Alexandria, complains that they have been enduring one difficulty after another since the global economic crisis. He adds that the current situation is tougher because in Alexandria raw leather prices have doubled.

“This last Eid al-Adha, the prices were exactly more than double and the leather products manufacturers don’t understand the fact that we have to increase our prices because of this huge increase in the prices of raw leather,” he says.

Domino effect

The high prices have led to a shortage in raw leather supplies across Egypt.

“While the prices of leather are highly affected by the sudden increase in the prices of meat, there are also other factors [impacting] this,” says Shawki. “[Raw] leather suppliers set prices as they see fit and sell to whoever pays more,” he adds. Inflation has also taken its toll, pushing up the cost of living for these families, which has strained their ability to run viable businesses and put food on the table.

The tanning factories are struggling to cope with their current circumstances by trying their hand at exporting to Europe, the US and Asia, while leather products producers have begun importing imitation leather from China.

“The manufacturers are pressuring [tanning factories] badly,” says Harb. “They are blaming the sudden increase on the fact that we are exporting. In reality, we are exporting because they stopped buying leather from us. [They instead] depend on importing artificial leather from China,” says Harb.

The leather products’ manufacturers have been voicing their anger by calling on the Ministry of Trade and Industry to limit the export of leather.

“[Tanning factories] export almost $1 billion (LE 5.9 billion), which brings in a lot of foreign currency,” says Harb. “The leather products’ manufacturers used to depend mainly on our leather for their business, but now almost 90% of their products depend heavily on [imported] artificial leather because it is cheaper for them to get it, and they are able to market it better.”

Standing still

Experts say the only way to remedy the deteriorating situation is to increase the availability of local livestock.

Amirah El-Haddad, professor of economics at Cairo University, explains that when prices of a certain commodity go up, this serves as a cue for potential businessmen and traders to invest. But the dynamics of the leather industry function differently, because there’s a supply constraint to begin with — manifested in higher prices of both meat and animal foodstuffs. Until the situation stabilizes, nobody will want to invest, she says.

“To overcome the increase in prices, [people will] have to resort to owning their own farms and bringing calves in, and when this happen the prices will drop again,” she says.

But to breed livestock, the manufacturers have to have viable space to do so. The lack of space for infrastructure and business development in Cairo’s leather tanning district is being compounded by the area’s overpopulation problems.

Though there has been talk of moving the leather tanning factories to El-Robeiky, a new area outside the Cairo near Tenth of Ramadan City, to allow for expansion, little has been done to turn those plans into a reality so far.

According to a report released by the Ministry of Environmental Affairs in 2006, the decision to move the factories out of the city was passed more than a decade ago in 1999. The decision also aimed to move hazardous substances and dyes used by the industry away from residential areas.

Harb says the city is now ready to host the factories, which makes him confident a move could happen as soon as the end of the year.

But even if the move were to be approved sooner rather than later, many industry members say they would be hard pressed to work so far away from their homes. According to Harb, the move is essential to ensure the community prospers in the future.

“The area was designed when Egypt’s entire population was only 10 million, but today with over 80 million people there is no room for any expansion or accepting more work in the current factories,” he says. “Why wouldn’t people want to move when this means more room for everyone?”

But with the chronic shortage of resources and the residents’ resistance to relocation, it is unclear if a possible move could make the crisis worse.bt