Discussion Paper No 360 of 2024 on Effect of Export Levies on Hides and Skins on Competitiveness of Kenya’s Leather Products
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Abstract
Kenya’s leather industry is a strategic sub-sector as outlined in Vision 2030 and the Bottom-up Economic Transformation Agenda 2022-2027. Targeted interventions in the industry are aimed at boosting manufacturing and export competitiveness. Through the Miscellaneous Fees and Levies Act No. 29 of 2016, the government introduced an export levy on raw hides and skins to support value addition, local manufacturing, and export competitiveness of leather and leather products. This study assesses the export competitiveness of various categories of leather products and the impact of export levies on their competitiveness. Using data from the World Integrated Trade Solution and International Trade Centre databases, the study focused on raw hides, skins, leather articles, and footwear products falling under HS codes 41, 42, and 64, across distinct export levy regimes of 20 per cent, 40 per cent, 80 per cent, 50 per cent and before the implementation of export levies. The findings show that the Revealed Comparative Advantage (RCAs) for raw hides and skins became strong with the imposition of higher export levies, indicating a strong comparative advantage. RCA for articles of leather remained very low, showing no comparative advantage whereas RCA for footwear products had a weak comparative advantage. Market diversification had fluctuating results where raw hides and skins could not be diversify into more markets except with the imposition of 20 per cent export levy. In addition, articles of leather and footwear products benefited from increased diversification with higher export levies. The Export Market Penetration Index indicated that higher export levies led to a significant increase in market penetration and competitiveness in the international markets. Higher export levies of 50 per cent and 80 per cent contributed to a broader market reach and enhanced competitiveness for Kenya's leather products compared to the period before the implementation of the export levies.

