The country’s oldest leather firm, Rwanda leather industries, has been out of operation for close to three years and has hitherto never filed for insolvency.
And it is not that the Rwanda Development Board (RDB) or the line ministry, Ministry of Trade and Industry, are unaware of this protracted issue. This makes one wonder when RDB’s spirited drive to resolve the fiery issue of insolvency would come to be.
At the outset, it is quite ambiguous why the company folded. However, sources tell Business Times that the firm was closed due to three factors including its failure to abide by the Kigali Master Plan in its expansion plans, competition especially for raw materials after lifting of a ban to export unprocessed hides and skins, and the firm’s ownership.
Last year, the Ministry of Trade and Industry cited stiff competition from the regional leather firms as the factor behind the closure of the company, which together with New Rucep were the only processors of semi finished hides and skins in the country.
Government in 2005 introduced a ban on exportation of raw hides and skins.
The company, which was established in 1989 as joint venture by the government and the Libyan government, was also facing cash flow difficulties besides servicing a bank loan provided by Rwanda Development Bank (BRD).
The factory that once had a workforce of 150 now has only six staff, including four security guards, a technician and an overseer.
Surprisingly, when Business Times visited the factory premises, our reporter was neither told why the company was closed nor if the management considered re-opening and why such a big number of staff was laid off.
While it is a private company, the government should intervene to ensure that it resumes operations. I am talking of a labour intensive factory with a state of the art machinery that now lies idle.
I am sure that the country has enough experts who can study the problem and appropriately advise on the way forward by way of pursuing various alternatives. This could include selling the firm’s property, stopping operations in toto, liquidating assets or seeking the strategic partnerships that offer a potential path to renewed profitability.
MINICOM officals told Business Times that they have already held an informal meeting with the company management and informed them that environmental issues were at the core of its closure.
However, when we contacted the Rwanda Environmental Management Authority to verify the claims, they vehemently denied the allegation saying “the company had fully complied with environmental standards.”
Experts, however, say that it is not possible to expand the business from its current location as it would violate the Kigali Master Plan.
The Kigali Master Plan indicates that the current location of the firm’s premises is not viable and that the hazardous waste and water treatment facilities do not meet minimum international or REMA standards, with increased production likely to lead to environmental degradation.
Reports indicate that residents who live around the factory premises had in the past complained to city authorities about the environmental hazards associated with leather production citing air pollution.
Government is said to have expressed its commitment to help the company to resume operations but its management has declined to reveal what’s bedeviling it.
The company was cited in a survey by Karisimbi Business Partners as one of seven companies said to be struggling financially and needed bailout.
The report says the country exported $5 million of leather goods with exports projected to rise to $12.6 million this year courtesy of sole leather products firm New Recep.
The research further indicates that a firm in Europe and another in the region had expressed interest in Rwandan hides and skins.
However, the report makes some recommendations in order to improve the sector. These include skin collection methods that are undeveloped and shifting the focus on finished products instead of semi finished ones by targeting the high end global market that is presently worth $100 billion per year.
Fifty perc ent of the global hides and skins supply of raw materials for the leather industry come from the developing world, the report continues.
Depending on how the various government organs work together to resolve this particular issue and the other six cases cited in the Karisimbi report, it would definitely have a lasting impact on the level of local investment, growth of local industry and probably need to review incentives/regulations.