LEATHER FOOTWEAR

BACKGROUND Leather is a by-product of the meat sector when hides and skins are stripped off a slaughtered carcass to get to the other parts of the animal.

Following acceptance at the tannery gate, the skin passes through the warehouse system of the tanneries and later through various machine tanning processes, after which it is called leather.

There are three main stages during the tanning process: wet blue, crust and finished leather. The Leather Industry in northern Nigeria (mainly centred in Kano) has two subsectors – formal tanning and traditional/artisanal tanning. The formal tanning sub-sector accounts for 90% of all exports (around 40 million tanned hides worth over $3 billion representing just under 3% of the global market) to international re-tanners mostly in Europe but increasingly the Far East.

The leather cluster comprises micro, small and medium enterprises. The members of the cluster are united by common socio-economic interests and have developed a high degree of specialisation in their business. There are several producers of Finished Leather Goods (FLGs) such as shoes, bags and belts in different parts of the country and these goods are sold all over Nigeria, most especially in the larger populated cities like Lagos, Onitsha, Kano and the other parts of the country.

 

An improvement in the ability of local producers to compete against imported products will result in income and employment growth.

LEATHER VALUE CHAIN The Nigerian Finished Leather Goods (FLGs) value chain includes the producer group of actors – industrial and artisanal producers. The industrial producer group has two main production groups – large and small industrial producers – which accounts for over 60% of all the actors in the sector. The large industrial production group is characterized by complete and fully integrated automated production systems with less labour involvement. The small industrial producers import and locally assemble component parts of various FLGs. The artisanal producers have two distinct operational groups based on the nature and scope of the operation: these are ‘artisan complete’ and ‘artisan specialist’.

The three main inputs for FLGs are leather (the primary input), components and accessories. The two main types of leather used by producers are natural and synthetic leather. Synthetic leather is used mostly for footwear and some fashion accessories such as upholstery, ladies’ bags and purses, shoes and slippers, and so forth. Skins are generally used more in footwear production and hides for footwear and other leather goods. Accessories and components consist of leather, sole, glue, thread, metal accessories and foam. The most popular FLG products are footwear (around 85% of all FLGs), house-ware, and fashion accessories and ornaments.

The Finished Leather Goods production can either be run as an integrated process comprising the whole value chain or each/a combination of the various components can be handled as a separate specialist business that will supply parts to finished goods producers.

LEATHER MANUFACTURING The manufacture of the main categories of leather goods continue to follow the traditional sequence of operations: cutting; splitting; skiving; assembling; sewing; fixing accessories; finishing.
 

RATIONALE

·        There is a need to revitalise the Nigerian leather industry as the nation looks inwards to generate additional revenue from the non-oil sector.

 

·        To increase the ability of local finished leather goods producers to compete globally and with imported products. Imports from China currently account for 90% of the Nigerian FLGs domestic market leaving Nigerian producers with just a 10% share.

 

·        To target the consolidation and expansion of market share in neighbouring West African countries which is under threat due to poor quality products.

 

·        To modernize the leather goods production process by providing local producers with access to finance for purchase of modern equipment and working capital.

 

·        Substantial increase in the industry’s employment level.

 

·        To take advantage of the “Markets for Development (MADE)” project being promoted by the DFID to assist Aba’s finished leather goods’ cluster with access to appropriate technology as well as access to the international market, increase their economic activity and trade, create jobs and raise incomes of the artisans.

SOURCES OF SHOE MAKING EQUIPMENT The basic machinery types remain the following: hydraulic cutting press; splitting machine; skiving machine; sewing machines of three main types: flat-bed, post-bed, cylinder/arm-bed. Some of the suppliers of leather shoe making equipment include the following:

·   Kinson Shoes Industry Nig. Ltd., No1 Okwukwudi, off Faulks Road, Aba, Abia State.

 

·   Polymac Machinery Co. Ltd. 26,Kong Yeh 15th  Road, Tai-Pin Taicung, Taiwan.

 

·   Klockner Desma Shoe Machinery, Schuhmaschinen GmbH Desmastra 3-5/28832 Achim, Germany.

 

·   Comelz 55, vl, Indipendenza 27029, Vigevano (PV) Italy.

 

·   SIRMAC Italy FOSSO. 5 v. III Strada 30030 Fosso Zona Industriale (VE) Italy

 

·   Sahan Makine, Fevzicakmak mah. 10701 sok No: 45 42050 Konya, Turkey.

 

·   Ruian Credit Limited Company, Zhejiang China (Mainland)

 

·   Yancheng Haide Machinery Manufacturing Co. Ltd. Jiangsu China (Mainland).

TARGET MARKET/ CRITERIA The fund will be accessed by limited liability companies and enterprises across the country that use leather for the production of finished or semi-finished shoe, bag and belt products for the local industry as well as for export to foreign markets.
PROJECTED IMPACT  

  Direct Employment Indirect Employment
Small Scale 5-8 25-40
Medium Scale 15-24 75-120
PROGRAM LIMIT N1.0 Billion for the first phase of the program.
SINGLE OBLIGOR LIMIT For the various components of the leather goods value chain, the following loan limits are recommended:

 

SHOE UPPER PRODUCTION

Term Loan:                 N10.0 ~ N40.0 Million

Working Capital:      N 2.5 ~ N10.0 Million

Total:                      N12.50 ~ N50.0 Million

 

SHOE SOLE PRODUCTION

Term Loan:                 N10.0 ~ N40.0 Million

Working Capital:      N 2.5   ~ N10.0 Million

Total:                      N12.5 ~ N50.0 Million

 

FINISHED SHOE PRODUCTION

Term Loan:                 N10.0 ~ N40.0 Million

Working Capital:      N 2.5 ~ N10.0 Million

Total:                      N12.5 ~ N50.0 Million

 

BAG PRODUCTION

Term Loan:                 N10.0 ~ N40.0 Million

Working Capital:      N2.5   ~ N10.0 Million

Total:                      N12.5 ~ N50.0 Million

 

BELT PRODUCTION 

Term Loan:                 N10.0 ~ N40.0 Million

Working Capital:      N2.5   ~ N10.0 Million

Total:                      N12.5 ~ N50.0 Million

PRICING Term Loan

Interest Rate: 9% per annum.

Fees: 1% Processing fee

TENOR 31/2 to 5 years inclusive of moratorium

 

MORATORIUM ·        6 – 12 months (from date of loan disbursement)

 

SECURITY

 

 

Loan Amount (N’m) Security Arrangement
5.0 – 10.0 1.    Specific charge over the equipment financed.

2.    Irrevocable Personal Guarantee of the Chief Promoter of the company.

3.    Two (2) external guarantors acceptable to BOI who must belong to any of the following categories:

a)   Senior Civil Servant (Level 12 and above).

b)   Bankers (not below the level of Assistant Manager) and must have been confirmed by current employer.

c)   Professionals i.e. Medical Doctors, Lawyers, Accountants, Engineers, etc.

d)   Senior Staff (not less than a manager) of reputable quoted Companies, International Oil Companies, Telecommunications Companies (GSM providers)

e)   The guarantees must be supported with a Notarized Statement of Net worth acceptable to BOI.

>10.0 ≤ 20.0 1.    All assets debenture.

2.    Irrevocable Personal Guarantee of the Chief Promoter of the company.

3.    One (1) external guarantor acceptable to BOI who must belong to any of the following categories:

  1. Senior Civil Servant (Level 12 and above).
  2. Bankers (not below the level of Assistant Manager) and must have been confirmed by current employer.
  3. Professionals i.e. Medical Doctors, Lawyers, Accountants, Engineers, etc.
  4. Senior Staff (not less than a manager) of reputable quoted Companies, International Oil Companies, Telecommunications Companies (GSM providers)

The guarantees must be supported with a Notarized Statement of Net worth acceptable to BOI.

Or

4.    Bank Guarantee from Commercial Banks acceptable to BOI.

> 20.0

 

1.    Legal mortgage on pledged property.

2.    Irrevocable Personal Guarantee of the Chief Promoter of the company.

Or

3.    Bank Guarantee from Commercial Banks acceptable to BOI.

FUNDING

STRUCTURE

 

 

 

Loan  –           90% maximum for equipment and working capital.

Working Capital     could also be provided by the SME-friendly banks and in that case, BOI’s loan shall be limited to equipment procurement).

Equity – 10% (minimum) by the promoter(s)

For an existing project, the estimated value of the factory building and/or relevant processing equipment, may be applied against the borrower’s 10% contribution. The factory building and/or equipment must be valued professionally by any of BOI’s accredited valuers.

DISBURSEMENT Term Loan:

In phases in accordance with agreed milestones and shall be backed by provision of performance bond by the accredited equipment suppliers (where the suppliers demand for advance payment before delivery of the equipment).

Working Capital:

After successful installation and testing of the equipment and payment shall be made directly to raw materials suppliers.

REPAYMENT SOURCE From the cash flows generated by the operations of the project
LOAN REPAYMENT MODE ·         Monthly by direct debit of customer’s account domiciled with the participating SME-friendly bank on the basis of a Tripartite Agreement signed between BOI, the SME-friendly Bank and the Customer. Such direct debit collections must be remitted to BOI within 24 hours. In the event of default, the SME-friendly bank must notify BOI within 24 hours to trigger prompt remedial action by the Bank.

·         In the alternative, the borrower should also submit post-dated cheques in line with the loan amortization schedule.

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