NIGERIA TANNERS COUNCIL PROJECT
Background
The Nigeria Tanners Council is a formal association of the top 6 tanneries in Nigeria. Specifically, these are the tanneries benefiting from an export expansion grant (EEG) from the Federal Government of Nigeria, which gives from 5% to 30% of the value of exports back to the exporter (depending on certain rules) in grants to promote further investment in developing exports. A certain member of the Tanners Council – Mario Jose Ltd. (according to a source at the Nigerian Export Promotion Council - NEPC) got as much as N9bn (£37m back from the government in Negotiable Duty Certificates in the current fiscal year) and together they account for exports of the order of £200m per annum. Export of crumb and finished leather from Nigeria are the single largest non-oil export item out of Nigeria. It is not a well known fact that Nigeria exports leather as its most famous skin product from Sokoto, Northern Nigeria came to be known as Moroccan Red Leather (because historically the Arab caravans sold it to Europeans at their trans-Sahara transit point in Morocco).
Problem Statement
The EEG has created severe distortions in the market, as all other stakeholders not directly involved with exports do not qualify for the grant regardless of volumes done and their contribution to the success of the tanneries. The tanneries have become dominant and generally abuse their market power rendering the sector very inefficient in the allocation of resources. The EEG has become an end in itself and the big players export every hide and skin they can lay their hands on regardless of quality. This is damaging the reputation of leather from Nigeria, crippling the hides and skins sellers who feel they cant get a fair price (since they do not have the means to properly preserve, grade and price their products) and rather than promote job creation and investment, all other players are in decline. The tanneries themselves run at less than 50% capacity utilization. Members of the Tanners Council are very powerful: their secretary is a member of the board of the NEPC, they are also members of the council and with the resources at their disposal have bought for themselves tremendous political clout.
Proposed Intervention
The Hides and Skins Dealers Associations and the Skin Dryers Associations propose to come together to create a shared services facility in the form of a warehouse where they would have their hides and skins sorted and graded and insist on a fair price for a given quality grade however they lack the funds to pull this off on their own. Even if they had the funds, they are, regardless of their numbers, unable to stand up to the powerful Tanners Council. They have thus decided to create an umbrella association and invite some powerful patrons to represent their interests though they fear they may end up creating new ‘masters’ rather than getting rid of the old ones. Ironically, the solution may lie within the Tanners Council itself. What if the Business Innovation Facility were to prepare a business case that could demonstrate that both revenues and profits of the tanners could be increased significantly if they were to invest in creating a more efficient, better-organized value chain?
Inclusion
This would be a more inclusive solution in that it would not set up the powerful Tanners Council on a collision course with aspects of their supply chain. It would align the profit incentive with the drive to uphold standards and sustain good quality. It would release funds into the starved parts of the value chain and stimulate job creation. Perhaps just as important, it would enable the sector to speak with ‘one voice’ with attendant advantages in policy advocacy and in the setting up of a portal for the industry to position them better to win larger shares of the global market.
Innovation
Innovation is needed to keep costs low, profits high and revenues increasing. The shared services facility cannot be allowed to mount heavy on-costs. This intervention is first and foremost about achieving increased efficiencies and effectiveness and it will therefore involve an examination of the entire value chain to see how technology, bottom of the pyramid and other related strategies could be deployed to achieve this.
Additionality
The Tanners Council is unlikely to lift a finger to do anything without this intervention. There is a DFID programme in Nigeria called Growth Employment and Markets in States (GEMS) focused on the Meat & Leather Cluster. They have plans to improve nutrition, hygiene and quality of meat products and by-products in Nigeria. A natural partner for BIF would be GEMS as they already have good relationships with all the key stakeholders. GEMS is not about inclusive business and would not think of this without the intervention and guidance of BIF.
Scalability & Sustainability
As the project works through achieving a re-alignment of incentives, BIF need only demonstrate that these suggestions are feasible; the stakeholders can take it from there. BIF is to act as a catalyst. GEMS has funding potentially to pay for technical assistance inputs where BIF funds are inadequate to create the first product which would be a business case created in collaboration with the Tanners Council. After the business case has been successfully sold to the Tanners Council, a scoping of the solution and development of a proof of concept would need to follow in a cost share arrangement with members of the council. During implementation, the Tanners Council and other stakeholders ought to be able to run with the rest of the project with BIF acting only in an advisory capacity. Ownership of the intervention upfront by stakeholders is key to its sustainability. The Film Industry, Cocoa Industry and various other industries in Nigeria have similar problems and BIF Nigeria will scale up the solutions and lessons learnt by extending it, through other strands of the DFID funded GEMS programme.