The Paper conundrum

As the Ethiopian economy began to significantly expand in the last fifteen years, the demand for paper and paper products has also witnessed huge growth. In 2016/17 the demand for paper was 219,840 tons. However, the country managed to satisfy only 18Pct of the demand. The balance has always been matched by imports.

There are six companies currently engaged in the production of rolls of paper sheets from pulp and recycled paper. Although a small number of companies operate in the paper conversion sector, there is no paper mill company in the country. As a result, the country spends millions of scarce hard currency to import paper products. EBR’s Ashenafi Endale explores the issue to offer this report.

Consumption of paper and paper products is growing faster in developing countries like Ethiopia due to the expansion of education and rapid increase of disposable income. Perpetuated by these factors, the craving for paper has grown in Ethiopia. However, the country has not matched that appetite with sufficient local production to meet the mounting demand.

Habib Mohamad, CEO of Yekatit Paper Company is well aware of the gap between demand and supply. “The demand for paper products is rising dramatically. Yet, the companies that are engaged in the sub sector are unable to fulfill this demand.” he explains. Founded in 1958, Yekatit converts paper into consumer-end products and packaging materials.
Data obtained from Chemicals and Construction Inputs Industry Development Institute (CCIIDI) reveals that Ethiopia’s 2016/17 demand for paper was 219,840 tons. Local companies, while operating at 62Pct capacity, produced only 40,000 tons. The rest is fulfilled through import.
In the wake of digitization, many experts predicted that the global paper industry could diminish in the near future. Although it is growing at slower pace than before in Europe and North America, paper and forest-products industry as a whole is mounting due to the increasing demand from developing nations. In fact, the demand for paper and paper products is projected to be valued at USD213.4 billion by 2020, according to a research entitled ‘Global Paper Packaging & Paperboard Packaging Market Trends’ published by Research and Markets, the world’s largest market research store in 2015.
Many studies have been conducted to identify the driving force behind the demand for paper and paper products especially in the developing world. For instance, in their book entitled ‘The Global Forest Sector: Changes, Practices, and Prospects’ Eric Hansen and his colleagues 2010, Oregon State University, Corvallis argued that in many developing economies, increasing educational levels, are boosting demand for communication papers.
Almost a third of Ethiopia’s population, a staggering 30 million people, roughly the size of the population of the West African nation Ghana, is currently enrolled in different levels of education across the country and entirely depends on paper products.  As a result, Ethiopia’s paper consumption has been on a sharp increase with the steep ascent of the number of students. But the country is simply overwhelmed with the demand and only meets a negligible 5Pct of the paper it needs for educational supplies (that is mainly exercise books) through local supply.
Ethiopia imported just over 17,000 tons of exercise books worth ETB494 million in 2016/17 fiscal year, according to the information obtained from CCIIDI.  Roughly a decade ago, the country imported 10,000 tons of exercise books worth ETB135.4 million.
The country’s import of paper for books show a staggering rise in terms of volume of paper and paper products dominating the local market. A total of  154,000 tons worth ETB3.7 billion was imported in 2016/17 fiscal year, which is up from 82,000 tons in 2009/10, worth of ETB1 billion. Machine-finished coated papers, coated fine papers, special fine papers are common paper grades and wood free uncoated papers are some of the papers used for books.
The other forces that determine demand for paper products are rapid economic growth, along with increasing urbanization. In addition to these, paper consumption is influenced by per capita income, according to Hansen and colleagues.
Ethiopia that registered a remarkable economic growth in the last decade can be a typical example in this regard. In fact, Ethiopia managed to become the front runner in Africa in terms of economic growth. Nominal gross domestic product (GDP) per capita now reached USD861, eight fold than two decades ago. In the late 1980s, only about 11Pct of the population lived in urban areas, which currently stood at 19.5Pct.
With increasing disposable income of the people, the need for packaging products is increasing. For instance, the import of corrugated and non-corrugated papers used for packaging purposes have also jumped from 1,500 tons worth ETB26.4 million in 2009/10, to 3,000 tons worth ETB99.4 million in 2016/17.
According to Hansen and colleague, paper and paper products are expected to become the widely used packaging materials globally in the near future surpassing plastic packaging materials.  This is because paper and paper products are more suitable and consider the environmental aspect of production.
The demand of tissue paper from the growing number of hotels have also increased the import of sanitary napkins, which includes pads and paper towels as well as baby diapers from 1,200 ton in 2009/10 worth of ETB39.5 million to 5,840 tons in 2016/17 worth of  ETB459.22.
Despite the astronomical rise in demand, local production is not accelerating to substitute imports. The major challenges crippling local production can be attributed to the hefty investment that goes into paper production.
Paper production consists of three stages. The first stage is preparing pulp from different wood fibers while the second is producing rolls of paper sheets from the pulp or recycled paper. In the final stage, paper rolls will be converted into different types of end-use paper products.

All the three paper production stages need industries that consume huge investment in any scenario. And in Ethiopia, a country with roughly 100 million people, there are only six companies focusing on the second stage of paper’s production. A few more companies operate in paper conversion, but literally no company in Ethiopia is involved in making pulp from scratch

Virtually all of the inputs used by these six companies that produce rolls of paper sheets are imported, adding fuel to fire on the country’s deep-rooted forex crunch. The group of six (four of which are at the early stage of production) Ethiopia Pulp & Paper, Anmol Products Ethiopia, DA Packaging, Barguba Trading, Three Sisters Pulp & Paper Manufacturing and Suzo Industry, face chronic capital shortage to import pulp.
This is despite the fact that the Ministry of Industry (MoI) has a plan to increase local paper production to 410,000 tons from the current 40,000 tons and pulp production to 315,000 tons by the end of the second phase of the growth and transformation plan period. Two years into the second phase of the five-year growth and transformation plan period, the local paper producers capacity remains stagnant at 62Pct and paper production made a small increase from the 31,000 tons in 2015/16 that is 40,000 tons.
Stakeholders stress that all the demand in pulp, paper and end products is never fulfilled in Ethiopia, due to lack of capacity, price hikes, and inconsistent supply. In fact, locally produced paper is expensive, poor in quality, small in quantity and unreliable.
“The price of locally sourced paper rolls is 50Pct higher than those imported. On top of the price, the quality is extremely poor and none of the six companies have the skills or knowhow that the sector requires.” a production manager at one of the paper converting plants told EBR on conditions of anonymity.
While the local paper roll is more expensive than the imported one, when it comes to consumer-end goods like exercise books, the reverse is true. “Locally produced exercise books are in fact cheaper. But students, mostly in elementary grades, do not find them attractive due to their unattractive design and poor quality.” Meron Hailemichael, founder and webmaster at, a charity organization engaged in raising educational resources to provide economically challenged students with school supplies told EBR.
Meron comments she was forced to buy imported products for expensive price, because there are no competitive local products.
“95Pct of our inputs are imported because the local supply in its current shape and form cannot meet our demand. Local industries are wrought with lack of skills, and technologies.” Habib said. Yekatit Paper Company has an annual demand of 20,000 tons of paper and imports almost all of it from abroad.  “There is no university or a technical and vocational training center in the country providing training in the field of making paper and we literally had to train our own staff.”
Rajeev Kumar Sharma, general manager at Anmol, an Indian company engaged in paper conversion since 2009 shares Habib’s concerns. “Pulp is imported, substantially increasing our costs and putting a burden on consumers.” he noted. “Every country has its own challenges but the problem in Ethiopia is compounded by the fact that almost everything is imported.”
Habib and Sharma understand the huge gap in the local market and have set their eyes on the future. Both companies have put in place expansion plans. Yekatit, for instance, is investing ETB1.9 billion to produce rolls of paper and substitute imports. The company secured a loan from the Development Bank of Ethiopia (DBE).
“There is a rising demand in the education sector, especially since more and more schools are opening up across the country. The demand in the printing and packaging industries is also expected to rise as the country’s population rises and its manufacturing gains momentum.” Sharma underscored highlighting the expected rise in demand for paper products.
Despite the increasing digitization in the country, as witnessed by the recent announcement made by the country’s national carrier which has gone all paperless in its internal operations, Habib is unruffled by the recent developments.
“Some people think paper demand will die as the digital era takes over. However, our strategy is based on studies that clearly show the demand will exponentially grow as long as a sectors investment in education and manufacturing which demands labeling and packaging goods continues to go upward.” Habib explained. “A huge demand for paper is rising in Ethiopia and is expected to remain as such for long.”
Habib’s company is so confident in the existing demand for paper that they have a long term strategy to set up a factory at the start of the value chain of paper and process wood products to produce pulp.
Sharma is also upbeat about the prospect of producing paper in Ethiopia. His company, originally set up at a cost of ETB76 million, invested ETB50 million in expansion projects.
“Capital scarcity, lack of latest technology and absence of skilled manpower” are the main problems in the sector according to Sharma. “Pulp is a capital intensive industry, takes a long time to deliver on returns and requires investment in technology.”
He believes DBE must be proactively supporting the sector with the provision of credit services to investors. “We’re ready to invest in pulp if we receive government’s holistic support to overcome the sector’s challenges.” he added.
“Paper production is a heavy industry requiring huge capital. So many issues need to be addressed to embark on pulp investment. Large commercial forestry is needed,” Habib underscored highlighting all the work that needs to take place to bolster the role of the sector in the country  So far, there is only one company in Ethiopia that is trying to establish a large scale pulp factory. It has been five years since Tana Pulp and Paper was established to set up a pulp factory in Bahir Dar with an estimated cost of ETB8 to 10billion. However, due to the lack of finance, the project remains grounded.
The plan for Tana was to produce 150,000 tons of paper and the same amount of pulp on a yearly basis. Insiders told EBR that the company only managed to secure ETB1.8 billion from local banks. It also found multiple investors from abroad, but the foreign investors demanded government guarantees about their investment. According to insiders, the government is yet to respond to their demands.
Andualem Legesse, senior researcher of Pulp, Paper and Packaging Industry Development directorate at CCIIDI also agrees that the sector is capital intensive. “The machineries are expensive and the relatively longer return period, which takes a minimum of ten year to return the investment, is unattractive for the private sector, which prefers short term returns,” he noted. “A large scale pulp and paper manufacturing industry needs billions to establish. So investment in the sector has been lower.”
Lack of finances is also holding another paper and pulp project in the country a hostage. A factory with 100,000 tons annual capacity was planned to be set up in the state of Benishangul Gumuz though it is not yet realized due to the lack of capital.
Projects in the upper value chain of paper, particularly paper conversion and producing consumer-end products are relatively progressing well in the country. Yekatit’s ETB1.9 billion project and a sanitary paper products factory with 10,000 tons yearly capacity currently under construction inside Eastern Industrial Zone, are cases in point.
Andualem elaborated the main challenges in the sector. The main challenge for projects in pipeline is investment capital, while the limitation for operating companies is the lack of working capital. Sometimes, even if they get some amount in local currency, it is challenging to change it to hard currency. The third challenge is lack of infrastructure, in the areas where the industries are to be located. Especially, power interruption which also affects the output of existing companies is a challenge. Lack of raw material is also another limitation. There is no system where paper is separated from waste and used paper products in recycling. High shortage of skilled man power, logistic and tax issues also hamper the industry.

The government appears to be moving, albeit very slowly, to increase local production of paper and pulp. But when measured in comparison with the rapidly rising demand in the country, there is a critical need to boost efforts from the side of the government.

6th Year . November 2017 . No.55

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