How govt loses billions of shillings in export revenue


JF-Expert Member
Jul 30, 2008

Tanzania Revenue Authority (TRA)

When government officials go to sleep at night, rogue exporters seriously embark on business ventures to escape export levy, The Guardian can report.

Most of the dealings also happen during the weekend when there is little or no surveillance at all at the Dar es Salaam port and other places of inspections.

Goods ranging from animal products, agricultural produce and carvings are stuffed into containers ready for exportation without verification by relevant government officials. Nevertheless, upon reaching the port, customs officers simply allow them to proceed.

The Guardian can authoritative reveal that there are several clearing and forwarding companies that enjoy close connections with senior custom and excise officials, thus offer such illegal services.

To escape any government traps, they use different names to clear goods and only disown them when caught by the authority.

On a visit to Kurasini and nearby areas in the city, one gets surprised by the numerous unauthorized yards used by the clearing companies.

“We do stuffing at a reasonable price, that is why we get many customers, and as you also know this is Bongo we provide exclusive services too” said a manager of one of the clearing and forwarding companies (name withheld) who requested anonymity due to the sensitivity of the matter.

He said his company clears at least 100 containers of different goods every week. After stuffing goods, he said they put a seal and containers go directly to the port after getting clearance from customs department.

Upon reaching the port, he said customs officials only inspect the export documents without verification whether goods contained in the containers match description on the exportation documents and just put the second seal.

For the past three weeks, this reporter witnessed how busy the premises are on Friday to Sunday evening with some containers being transported to the port as late as midnight.

Between 8th and 10th November this year, at least 43 containers, eight containing hides and others agricultural produce were stuffed in the yard and transported directly to the port for exportation.

Surprisingly, the goods, according to our investigations belonged to groups of foreign traders and Tanzanians of foreign origin.

While the containers of hides, which were later seized at the port, belonged to a group of Pakistanis, the agricultural cereals belonged to Tanzanians of Asian origin.
On November 20, the customs department announced to have seized three containers of under-declared raw hides that were about to be exported by the foreign trader.

The containers which weighed some 80 tonnes of wet salted hides were then valued at $150,000, according to our sources, but the traders indicated they were worth $84,000.

Our investigations reveal that the exporters always export at least five containers of raw hides every week. Stuffing of hides in the containers is always done during the week-end and mostly at night.

Players in the sector now link the secret stuffing of goods to the rampant ilegal trading in elephant ivory.

But the Tanzania Revenue Authority (TRA) is in the darkness as far as the secret dealings.

Deputy commissionner for customs, Mr. Patrick Kisaka said they were not aware of the operations, adding that customs department only get involved when such goods have reached the port.

“Our mandate is quite restricted to when goods are already here in the port, we cannot easily deal with goods in peoples yards” he said, adding that the authority would follow the matter keenly.

According to our source, some of the traders stuff elephant ivory in the containers before covering with other goods in the same containers. ‘ At least four people said to belong to this groups are in police custody as they are linked to exportation of ivory’ said the source.

The foreigners while operating under skin and hides trade are also involved in ilegal business too.

He alleged that they have been able to control the local hides and skin market, paying higher prices on purchase on raw materials than what local tanneries pay.

Efforts to get the exporterters for comment were futile as they did not pick the phone when called by this reporter and neither did they resport to text message sent on the same number.

How they control the market
The Pakistanis have monopolised the local market and now dictate terms of trade to producers and suppliers of raw materials as they have formed a network aimed at ensuring that the local tanneries are starved of raw materials.

Investigations done by this paper reveal that they have created their own middlemen who purchase the raw materials at a price that satisfies their interests. Suppliers who do not toe the line are left stranded with their stock.

By so doing, they let the raw skins pile at the abattoirs, creating the impression that the local tannery cannot absorb all the raw materials.

This comes at a time when all the tanneries in the country are almost closing because they no longer get enough skins and hides to run their plants, it is understood.
Skin suppliers at Ukonga and Vinginguti who talked to The Guardian on Sunday last week expressed dissatisfaction on how they are treated in the market, with the middlemen not allowing them to sell to other purchasers, including local tanneries.

“We have been at loggerheads with this group of people who claim to be the producers of skins and hides, because they are being used by some exporters to control the market,” said Michael Tarimo, the chairperson of the group.

He said it was sad that a group of people who have connections with foreign exporters were out to ruin the whole sub-sector, which has the potential to offer more job opportunities to the youth.

Mr Tarimo noted that the so-called middlemen always claim that the exporters who purchase skins from them have lowered the prices due to increases in taxes, something that is not true.

He added that a lot of problems normally begin when it is approaching budget session as the exporters know that the government may come up with a decision to slap a total ban on the exportation of raw skins and hides.

“The main problem with the middlemen who call themselves producers is that they destabilize the market the way they want by setting their own prices, and sometimes they reject the raw materials as a way to deal with us” reads part of the letter.

It further states that whenever the suppliers try to reach the buyers themselves, the middle men block them, claiming they have their own people who buy from them, the foreign exporters.

The situation of local leather sector

The leather industry in Tanzania has faced severe difficulties for a long time. More recently, however, there have been signs that the sub-sector is headed for serious downfall.

While local craftsmen decry lack of enough government commitment to revamp the sub-sector, and faced with lack of enough processed leather in the country, local tanneries are on the brink of closure due to lack of raw skins and hides.

With an estimated population of 21.3 million cattle, 15 million goats and 6.4 million sheep, as well as being Africa’s third largest leather exporter, it is surprising that Tanzania’s leather industry is still in a shambles - counting little in terms of job creation and poverty alleviation.

A recent visit by The Guardian on Sunday to the three major tanneries in the country reveals that unless serious actions are taken, the tanneries may cease operations, due to lack of raw materials.

The Morogoro, Moshi and Himo tanneries that can employ up to 1,200 people when working at full capacity, currently have a combined workforce of 140 people, due to lack of enough raw materials that force management to lay off some workers.

Management of each of these factories had not at any time forecast that the situation would turn out to be like this, but competitions with illegal traders who export raw skins and hides have made it agrim reality.

The potential annual hides and skins production, according to government records, with off-take rates of 15 per cent for cattle and 20 per cent for goat and sheep, amount to about 3.8 million bovine hides, 2.4 million goatskins and 2.2 million sheepskins.

Hides and skins collections average only 50 per cent of potential slaughter; that is: 2.4 million cattle hides, 900,000 goat skins and 400,000 sheepskins.

The tanners say they invariably haggle for the lowest possible price and seldom agree as illegal Pakistan traders pay local suppliers higher prices, only to cheat on duty payment to the government, allowing them better prices in their countries.

Hundreds of thousands of tonnes of the skins and hides of thousands of animals in Tanzania every year are exported in raw form to China, Italy, Spain, Mexico and elsewhere.

The managing director of Morogoro Tannery, Onorato Garavagli, told The Guardian on Sunday that the company is almost going without dry skins for a week, contrary to the past when it used to receive at least two trucks every day.

The Morogoro tannery is fully equipped with eleven Pajusco drums and other Italian technology, including an effluent treatment plant from Italprojetti. The management had planned to install ten more drums, at the cost $90,000 each to increase production.

Refurbished in the late 90s, it is a very large and well-equipped tannery built to handle raw hides and skins from raw to finish.

“We cannot operate at full capacity due to lack of raw materials, and if the trend continues, we will be forced to close completely,” said the MD.

The tannery has the capacity to process 4,000 pieces of hides and 15,000 sheep and goat skins per day with a requirement of between 400 and 500 workers. It has now resorted to hiring at least 60 casual workers every day in addition.

Mariam Joseph, one of the casual workers at the tannery who talked to this reporter, expressed fear that there may not be any more work at the tannery unless the situation changes.

The mother of three children has worked at the tannery for at least two years.

“The situation has worsened, and very soon we may be forced to look for work elsewhere as the management stated that if the trend continues, they will be forced out of business,” she said.

Only about 30 per cent of hides produced in Tanzania currently reach the market and the remaining is exported as raw stock for processing abroad.

This leaves very little raw material for delivery to local tanneries. The end result is that fixed overheads have to be met from production levels far less than break-even. This generally translates into tannery closure and bankruptcy.

The situation is not different at Moshi Leather Industry where management has stalled the earlier expansion plans due to shortage of materials.

With only 40 permanent staff and 20 casual workers, the tannery is currently working up to only 20 per cent of its capacity. Positioned close to Kenya at Namanga, Rombo-Tarakea and Taveta borders, it loses raw materials to Kenya.

“Lack of raw materials causes a big confusion for the investors, and it is obvious that we may not remain in the market up to June this year,” said company operations manager, Sultan Basha.

He said global players in the leather industry are searching for where to put up industries but are scared of coming to Tanzania simply because the government has allowed exportation of raw materials which in turn kills local tanneries.

While the tannery needs at least 500 pieces of goat and sheep skins to operate at full capacity, it receives below 100 pieces, adding, “We even recently spent $60,000 to make finished products, but no materials.”

At Himo tannery, at least two of three threshing machines for goat and sheep skins are currently not working due to lack of raw materials. With the capacity to process 500 pieces per machine in a day, it operates at 150 pieces per day.

Onesphory Paulo, the company’s operations manager regretfully said sometimes they close machines due to the problems. “It is becoming common to switch off all the machines until we get stock and resume. So it may reach a time when the materials will not be available at all,” he said.

Now instead of retaining the required staff of about 100 people, the management has remained with only 30 workers, and may be forced to reduce them.

At Himo tannery, they also produce a number of leather products, including pistol covers, sandals, caps, wallets, knife holsters, key holders, safari chairs, office bags, belts, briefcases, hats, ladies’ handbags and many others.

Mr Onesphory noted that they resorted to making finished products too, to supply the local market given that they process goat and sheep skins up to finished level. He said the biggest challenge remains the cheap Chinese products.

“These cheap products are killing our market as they are substandard and cheap plastic imitations of leather products,” he said, adding that many unsuspecting customers buy the products thinking they are pure of leather.

Tanzania is uniquely positioned in that it has eight bordering countries (Rwanda, Burundi, DRC, Kenya, Uganda, Malawi, Zambia, Mozambique) giving a total regional market size of more than 150 million people.

Despite one of the highest cattle populations in Africa, and millions of dollars in existing investments, the leather sector in Tanzania has never been able to reach its potential.

The main constraint has been ensuring adequate hides and skins are sold to local manufacturers rather than exported.

Many industry stakeholders want an immediate ban on the export of raw hides and skins, which are normally processed for making shoes and other leather products imported into the country at extremely high prices.

Export of raw skins and hides has not only denied Tanzania the benefits of value addition, but has also for many years stifled efforts by the local entrepreneurs to prosper.

Tanzania Tanneries Association (TTA) chairman, Mr Onorato Garavagli, blames continued lack of political will to rescue the sector despite frequent promises by the authorities.

“We have had several meetings with government officials where they consistently made promises, but nothing happens in terms of action… this comes at a time when local tanneries are running short of raw materials,” he lamented in an interview with The Guardian on Sunday recently.

He was dismayed that despite a joint meeting with various stakeholders, where they agreed to find a new way forward, the authorities had reiterated the current export arrangements would remain in place.



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