A Market Study Of The Packaging Industry In The East African Community (EAC) Processing Needs

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.