Do Export Levies on Hides and Skins Actually Help Kenya's Leather Industry?

A policy tool used for two decades

Since 2003, Kenya has taxed exports of raw hides and skins to discourage shipping the raw material abroad and encourage local tanning and manufacturing instead. The levy has moved four times: 20 per cent from 2003 to 2006, 40 per cent from 2007 to 2011, 80 per cent from 2012 to 2022, and 50 per cent from 2023 onward. That is more than two decades of policy variation, which is exactly the kind of natural experiment a trade economist wants.

A KIPPRA Discussion Paper by Mohamed Ramadhan, Kenneth Malot, Kevin Wanjala (now a co-founder of Herufi) and John Karanja uses that variation to test whether the levy actually achieved its goal, using three separate measures of export competitiveness across three product categories: raw hides and skins, articles of leather such as bags and saddlery, and footwear.

Why this matters beyond one commodity

Kenya was once a leather footwear hub for East Africa. By 2013 its leather exports had fallen to about US$140 million, just 0.14 per cent of world leather exports, and by 2019 the sector contributed barely 0.9 per cent of manufacturing GDP, against 8.5 per cent in Ethiopia. Most of what Kenya does export is semi processed "wet blue" leather rather than finished goods, which captures only a fraction of the value a finished handbag or shoe would earn.

What the study measures

The paper builds three indices for each product category and each levy regime: Revealed Comparative Advantage, which shows whether Kenya's exports of a product are outperforming its overall export basket; a market diversification index, which shows how spread out Kenya's export destinations are; and an export market penetration index, which combines both into a single competitiveness signal. It then runs regressions and an interrupted time series analysis to see whether shifts in the levy line up with shifts in these indices.

What it finds

The results resist a simple story:

• Raw hides and skins swing with the levy rate, showing moderate comparative advantage under the 20 per cent and 50 per cent regimes but strong comparative advantage under the 40 per cent and 80 per cent regimes, a pattern that does not move in one direction as the rate rises.
• Footwear held its ground. Kenyan footwear kept its market position even through periods of weaker comparative advantage scores, and gained noticeably in diversification and market presence within the East African Community as levies rose.
• Articles of leather stayed uncompetitive throughout, with consistently low comparative advantage regardless of the levy regime in place, though products like bags and travel goods did diversify into markets such as Italy, the United States and Germany.
• Market reach broadened as levies rose. Higher export levies correlated with increased export market penetration overall, meaning Kenyan leather products reached more markets even where headline comparative advantage was mixed.

The conclusion the authors draw

The paper is careful not to credit the levy alone. It argues that while higher export levies on raw hides and skins are associated with more market diversification and broader reach, the government's underlying goal, real value addition across the leather sector, will not come from export restriction by itself. Tanneries, manufacturers and exporters all need investment in processing capacity, and the weakest performing product lines, things like saddle cloths, briefcases and school satchels, need targeted support rather than just a tax on the raw input upstream.

Summary of Effect of Export Levies on Hides and Skins on Competitiveness of Kenya's Leather Products, KIPPRA Discussion Paper No. 360 (2024), by Mohamed Ramadhan, Kenneth Malot, Kevin Wanjala and John Karanja, Kenya Institute for Public Policy Research and Analysis. Read the full paper, including the regression tables and product level indices, at the link above.