Thousands of people may get support to establish businesses under the government's small and medium enterprises scheme. Evolving to the next phase is a daunting task, as the founders of YZS Leather Handcraft & Machine-Made Products Plc found out. Graduating from a small manufacturing enterprise five years ago brought a sense of pride to one of its founders, Yishak Mengistu. His enthusiasm was understandable. His company is among four percent of the 34,000 small manufacturing enterprises that had achieved the feat.

Yishak and his shareholders were determined to make their company, incorporated in 2002 with 6,000 Br in capital and two pieces of machinery, produce leather goods for export. YZS had surpassed the 1.5 million Br capital threshold for a medium-sized manufacturer. It would have been unattainable if not for the support in workspace, loans, training and market linkage facilitation courtesy of the Addis Abeba City Administration.

The company's capital grew to 10 million Br; it continued to make shoes, bags, wallets, mats and bedding, processing around 8,000 square feet of leather each year. It supplied products to the Ethiopian Tourist Trading Enterprise and souvenir shops across the city. At its peak, YSZ was generating over five million Birr in annual revenues while managing a workforce of close to 100.

Nonetheless, the long list of accomplishments is a thing of the past.

The COVID-19 pandemic, which had an unprecedented impact on global tourism, forced souvenir shops cut back on orders. The icky development pushed YZS to cut productivity to less than half of the 80pc it had been operating before the pandemic.

"As orders dropped, we cut our production," said Yishak.

Two years into the pandemic, YZS has yet to recover.

A few dozen workers were at the company's factory in the industrial sheds in the Saris area last week. They wore aprons at their workstations, cutting leather strips, fashioning zippers and stitching bags. Yishak was on his feet, coordinating the activities or what was left of them. Despite the setbacks, he still has hope for a turnaround.

“We won't stop," he told Fortune.

Yishak loves his job; he has fought to get it all back over the past two years. Retaining buyers has been an uphill battle for the determined co-founder as only 13 of the more than 50 buyers have stuck around.

YZS is a small company representing the tribulations of a bigger industry where industry leaders such as the Ethio-Leather Industry Plc (ELICO) suffer as much.

Privately owned for over 27 years, ELICO has been shipping the bulk of its products to markets in Italy, India, and China. It exports nearly two-thirds of its products, averaging 10 million dollars in annual revenues before the pandemic. Its managers have seen production and earnings decline sharply. They have already come to terms with earnings of no more than five million dollars this year. ELICO has made three million dollars in revenues over the past eight months.

“Demand has been falling for the last three years,” said Abebe Teklu, managing director at ELICO.

Leather manufacturers used no more than 39pc of capacity last year, while the figure stood closer to 25pc for several, a survey conducted by the Leather Industry Development Institute (LIDI) discovered.

Manufacturers like ELICO, a subsidiary of MIDROC Group, may have stayed by a thread. Many others have opted to leave the industry, unable to deal with challenges from the unavailability of quality hides and skins to the loss of export markets due to the global pandemic.

The reality is no less grim for one of the country's oldest manufacturing industries. No other company illustrates the leather industry's trials over the century as vividly as Tikur Abay Shoe Factory. Commercial leather production got its start nearly a century ago when the then Asko Tannery first opened its doors. An Italian businessman established the company in 1935 he named Darmar. Its ownership was transferred to different owners through the decades, first sold to an Armenian in 1942. It was nationalised in 1975 when the military-Marxist regime - the Dergue - restructured it into two enterprises, Anbessa Shoe Factory and Awash Tannery.

Following the downfall of the military regime, the company was re-established under the National Leather & Shoe Corporation. It was transferred back to private ownership in 2011 for 4.5 million dollars. Anbessa produces kids' shoes, bags and belts for the local and export markets, helping generate the 36 million dollars the country earned from the exports of leather products last year.

Four years before Anbessa Shoe Factory was privatised, government bigwigs labelled the leather industry as a priority sector for their industrial-led development policy.

In contrast to other labour-intensive manufacturing industries, leather processing is capital and scale intensive. The value chain comprises five segments from pastoralists and ranchers to slaughterhouses, manufacturers and retailers. In between are intermediaries like those who collect and trade raw skins and hides to tanneries, which process the inputs into semi-finished and finished leather and leather products.

Anbessa Shoe and ELICO are a few of the 29 tanneries, 21 footwear manufacturers, and 19 leather production firms that hired over 10,000 workers. The micro and small enterprises like YZS, around 400, run small workshops that mushroomed across the country.

However, the largest chunk of exports, followed by shoes, are shoe uppers, garments, upholstery, bags, industrial gloves and finished leather.

Despite the promise and the potential policymakers pinned their hopes, the past two years have been particularly disappointing. No less than 15 leather manufacturers have closed shops. The list is long but includes Hafede, Walya, Debre Birhan, Mersa, Sheba and Kombolcha tanneries. Their woeful absence from the market in supplying finished leather to international markets and local manufacturers directly bears the dismal export figures in the official statistics.

Exports from finished leather goods plunged 72pc last year from three years ago. Only eight finished leather manufacturers, including ELICO, accounted for 89pc of last year's export earnings, shipping 22.7 million dollars worth of leather products.

A report produced by the central bank attributed the fall in export volume and drop in international prices to declines by half in the earnings from leather and leather products. A kilogramme of leather products had received 20 dollars in the global market two years ago. This has dwindled to 15.9 dollars a kilo.