Flexible Packaging: The Big Unmet Demand

Flexible packaging materials are known for making products more convenient, enjoyable, and safer for consumers. These add value and marketability especially to food and beverage products.
Triggered by the country’s ambitious plan of industrialization, the demand for flexible packaging is growing in Ethiopia. However, the few companies in the country produce less than 10Pct of the local demand. EBR’s Hiwot Salelew explores the pushing factors for the surge in demand and how companies are responding to this.

In an attempt to harness the country’s potential in manufacturing, Ethiopia has embarked on the construction of 17 industrial and integrated agro parks across the country. Equipped with full facilities, including financial institutions and government offices, the parks will become central to achieving Ethiopia’s ambitious plan of transforming the structure of the economy.
The realisation of these industry and agro industrial parks is expected to boost manufacturing and export. It will also create opportunities in the form of forward and backward linkages with other industries.
One of the big demands the manufacturing growth, especially, the food and beverage sector, will create is an increased demand for packaging. However, at the moment, there are few companies that are engaged in the production of flexible packaging materials in the country. In fact, according to the information obtained from the Chemical and Construction Inputs Development Institute (CCIDI), less than 10Pct of the demand for such products is locally produced. The bulk of the annual demand of flexible packaging materials, which is 350,000 tones, is imported. With the growth of the manufacturing sector, the demand for packaging materials is even expected to increase.
Flexible packaging is one segment of packaging. “The demand for flexible packaging materials has gradually increased due to the growth of the food and beverage industry and the change in the life style of the population.” argues Grima Regassa, director of Paper and Packaging Directorate at CCIDI.
Globally, flexible packaging is defined as any package or any part of a package its shape can be readily changed. It can be used for consumer and institutional products and to protect, market, and distribute various products. Flexible packaging materials include paper, plastic, film, foil, and metalized or coated papers.
Packaging companies commonly known in the industry as ‘converters’ are engaged in the conversion of raw materials such as polymer, board or paper into consumer and industrial packaging materials. Since packaging companies rely on sophisticated printing and converting machinery to deliver quality, efficient and innovative materials that the market demands, they require relatively high capital.
The Flexible Packaging Market Report published in 2015 shows that globally, the demand for flexible packaging was USD210 billion in 2015 while it is projected to increase by 3Pct at an annual rate in average until 2020.
Consumer flexible packaging market is also expected to grow in these years. According to the same report, its market value was estimated at USD91.7 billion in 2015. This market is also expected to grow by 4.4Pct annually on average until 2020 and reach USD114 billion.
In Ethiopia, the demand for flexible packaging is projected to reach up to 464,000 tonnes after three years, according to the information obtained from CCIDI. The demand currently stands at 350,000 tones. This means the next three years will witness a 32.5Pct aggregate growth.
Yet, few companies such as Flexible Packaging Manufacturing, 3Y Packaging and Classic Packaging, are engaged in the production of flexible packaging materials in Ethiopia. According to the information obtained from the Ethiopia Investment Commission (EIC), there are only five companies that took license from the Commission between April 20, 2012 and March 15, 2017. The companies combined capital stood at ETB54.4 million while they created permanent and temporary job opportunities for 194 and 10 people respectively. Four of these companies are at implementation stages.
Flexible Packaging Manufacturing, which was established ten years ago, is one of the big players in the packaging industry. “In our factory, we produce 700 tonnes of packaging materials for biscuits, pasta and coffee packages annually.” says Girma Zegeye, its general manager.
Another company, 3Y Flexible Packaging, a factory established five years ago, also produces packaging materials for consumer products like milk, butter, chocolate, and cosmetics. Tsemeru Akalemeskel, operation director of the company, told EBR that the production capacity of their company varies every year depending on circumstances such as the supply of raw material and the market demand.
The demand for flexible packaging is not increasing solely due to the growth of the manufacturing sector. The change in the life style is also catalyzing the demand for flexible packaging materials. Urbanisation and the fast changing shopping habits among city dwellers, fuelled in part by the rise in the number of consumers who earn relatively better income, also contributed to the growth of the demand for flexible packaging. A study conducted by PCI Films Consulting reveals that the rise in foreign direct investment, improved living standard, high population growth, market liberalisation and changing consumer lifestyle boost the demand for flexible packaging.
Internationally, factors like necessity, capability and convenience draw customers to shop items that are packed using flexible packaging. In addition, flexible packaging is regarded as the safest way of extending shelf life and the most cost-effective means of packaging, preserving and distributing food items, beverages as well as pharmaceuticals.
Companies that are engaged in packaging materials production in Ethiopia share these opinions. The preference to flexible packaging materials in Ethiopia is due to many reasons says Mekedes Tadesse, owner of a retail shop of local food stuff, around Yerer in Bole District. “My customers are accustomed to buying packed processed food items for their hygiene and quality.”
Indeed, according to a report entitled ‘Market Statistics and Future Trends in the Global Packaging Industry’ published by World Packaging Organization (WPO), health awareness was regarded as the single most important driver to the growth in the packaging industry. This is influencing many producers to review the way they pack their goods.
On the other hand, packaging is a major aspect of marketing strategy for many companies that produce especially consumer goods. This is because packaging provides a marketing advantage at the point of sale. In fact the study conducted by WPO indicates that packaging is one of the major cost components in the majority of consumable products known globally.
Flexible packaging demonstrates many sustainable advantages. For starters, it provides even heating and barrier protection. This is because innovation and technology have enabled flexible packaging manufacturers to use better manufacturing techniques and inputs. For instance, in Ethiopia factories that produces flexible packaging use raw materials known as plastic film, polypropylene, polyester and coated sheet metal. “We import these materials from China, Egypt and India,” says Tsemeru.
Flexible Packaging Manufacturing also imports raw materials from China, France, German, Japan, India, Egypt, Kenya and Sudan. “We import the raw material known as metro chemical derivative from abroad.” explains Girma.
Although the sector has bright prospects, flexible packaging materials manufacturers in Ethiopia complain about the lack of skilled manpower in the area. Due to such factors, some companies bring professionals from aboard to train their employees. 3Y Flexible Packaging is one such company. They sometimes bring experts from India to train their staff. The companies also enumerate several challenges they face while importing raw materials.
Although these challenges are evident, the sector has a bright future. This is evidenced with the rapid industrialisation in the past seven years and the prospect for an increased pace of industrialisation due to the expansion of industry parks. According to officials at the Ministry of Industry, companies engaged in food and beverage sub sector will be given priority inside the integrated agro industrial parks to be constructed in the states of Oromia, Amhara, Tigray as well as SNNP. This is believed to strengthen the import substitution strategy the government has been pursuing as of recently.
The parks that will be completed with an estimated USD1.5 billion will house over 400 companies that will be entitled for up to 15 years of tax exemption as well as two to four additional years of tax holiday. The companies will also be allowed to import capital goods customs free. This huge expansion in the sector is expected to attract foreign companies that will engage in the production of flexible packaging materials.
Taking the huge demand currently being created in to considerations, Tana Pulp and Paper Factory, Yekatit Paper Factory and Burayou Paper Development Industry are undertaking expansions. EBR