A market study of the packaging industry in the East African Community (EAC)

THE MARKET STUDY of the packaging industry in the East African Community (EAC) was commissioned in November 2012 by Ipack Ima SPA in collaboration with the United Nations Industrial Development Organisation (UNIDO), the East African Community (EAC) and the Kenya Ministry of Industrialisation. The purpose was to determine the status, needs and challenges of the packaging industry in the five countries of the EAC as a basis for targeting exhibitors and visitors to be invited to the Regional Processing, Packaging, and Converting Exhibition (EAST AFRIPACK) scheduled to take place in Nairobi, Kenya, on 9-12 September 2014. The study was prepared by Chibo Onyeji, international consultant and Mpoko Bokanga, project manager with UNIDO, with contributions from national consultants on the project: Daniel Kinigi (Burundi), Joseph Nyongesa (Kenya), Norbert Sendege (Rwanda), Sachindra Shetty (Tanzania), and Sam Karuhanga (Uganda). The findings are as follows:

Processing needs

The study revealed that processing opportunities are yet to be fully exploited. Some 92% of the companies surveyed reported they were underutilising production capacity. The top four reasons for capacity  underutilisation  were:  (1)  low demand,  (2)  lack of working capital/credit,  (3)  lack of skilled labour,  and  (4)  unreliable supply of packaging  materials,  in that order.  Underutilisation of capacity suggests the need to improve processing activities and production. This need is underscored by the expressed plan by a majority of  the operators  (63% ) to invest in  expanding  manufacturing activities in the next three years.  Only 4% reported that their production capacity was not underutilised.  Whereas  88% of  firms  reported  positive growth in sales/turnover  during  2010-2011,  some  12% , mostly  food-based  operators  including  packaging  manufacturers,  reported negative growth.

Packaging needs

The survey revealed that a large number of companies (92%) package their own products. Not surprisingly, the majority of companies (78% ) plan to invest in packaging equipment over the next  three years to improve the  quality of  their  packaging.  Obviously, operators are aware of the competitive role of packaging and want to do something about it. In fact, a good number of respondents (74%), located mostly in Kenya, indicated a willingness to contract out the packaging segment of their production line to a contract packager. The study also revealed that companies typically engage in primary, secondary and transport packaging, and that plastics and paper are by far the most popular materials used by companies for packaging; this latter finding lends credence to the outcomes of the study because it independently corroborates what is already known. 

A good number of companies (76%) will phase out their packaging technology within the next 5 years. Since 2006, the trend in major new investment in packaging machinery is upwards, suggesting that  companies  are continuously  purchasing  new  equipment  and  therefore  that  there  is  a  vibrant market for packaging machinery.  Moreover, this trend is very likely to endure because some 83% of companies think that the quality of their company’s packaging machinery is either of medium or low quality compared to those of their competitors.  

Market for expressed needs

Companies not only expressed the need to acquire specific aspects of processing and packaging equipment, but also testified they do not have such equipment, which include:  liquid filling machinery, label track traceability, systems and components for automation, materials and consumer packaging, and package manufacturing printing.  Thus, there is potential market  for  processing and packaging equipment. The study revealed that  companies  purchased  their  packaging  technology  mostly from China, followed by India, Italy, Germany and Canada, in that order. Similarly, companies purchased packaging manufacturing and printing technology mostly from India, followed by China, Italy, Germany, the US and Canada. The study revealed that short-term credit interest rates range from 6% to 34% and long-term credit interest rates range from  7.5%  to  27%.  With a significant portion of companies’ last major investment in packaging manufacturing and printing machinery debt-financed, new investments in machinery and equipment is likely to be difficult given prevailing high cost of capital.

Challenges

Prevailing general economic conditions are often not conducive to doing business competitively. Interest rates are generally high and tend to discourage borrowing capital for investment and operational needs. The records-keeping culture is not well developed among enterprises; this presents a serious obstacle to strategic and competitive planning. Skills are often not available in adequate quality and numbers.

Conclusions

SMEs face enormous competition for their products, and recognise that quality processing and packaging are a means to becoming and remaining competitive. There is urgent need, reflected in the prevalent underutilisation of productive capacity, to improve processing activities and production. Majority of companies plan to invest in the next three years in necessary equipment and technology to expand manufacturing activities.

While most companies package their own products, many plan to invest in packaging equipment and technology over the next three years to improve packaging quality. The desire for quality has prompted a good  number  of  companies  (located  mostly  in  Kenya) to be willing to contract  out  the packaging  segment of  their  production  line  to  a  contract  packager.  SMEs have expressed needs for quality processing and packaging; these needs are real and urgent and companies are willing to make necessary investments to fulfil them.  There are markets for the expressed needs in terms of specific technology and equipment requirements. Unfavourable economic conditions are a serious obstacle to realising these markets. Well-coordinated and targeted public-private partnerships including pragmatic economic policies will go a long way in addressing the challenges and facilitating the realisation of existing markets. Systematic development of skills is essential for knowledge management in packaging, converting and processing enterprises.