Nigeria packaging industry plagued by dearth of local capacity, raw materials

Keith Richards is arguably one of the most knowledgeable persons in Nigeria on Fast Moving Consumer Goods (FMCG) business. A former managing director of Guinness Nigeria, former managing director of Promasidor and a key member of the Organised Private Sector (OPS) circle, Richard is known for a famous quote: “If you want to know how well business, especially the manufacturing sector, and the economy are doing, gauge activities in the packaging industry.”

In other words, an active packing industry would suggest that the manufacturing sector is active and is alive to make its own contribution to the economy. But an inactive packaging industry would mean that their primary clients, the manufacturers who place orders for packages for the products they produce, are having bad days at the factory, and are not placing orders. The latter position is often bad news for the economy.

Nigeria’s manufacturing sector has seen a lot of ups and downs. It is by sheer grit, say analysts who cover the sector, that the country has anything resembling a manufacturing sector still left. The packing industry, as has been shown, mirrors, or put differently, flourishes or suffers on the fate of manufacturers, big, medium and small.

The February numbers of the Purchasing Managers Index (PMI) released by the Central Bank of Nigeria (CBN) would suggest that the packaging industries doing well, as the index, which measurably gauges the health status of the manufacturing sector, came home positive on a number of indicators.

For instance, the plastics and rubber products sub-sector, major raw materials of the packaging industry, of the manufacturing sector grew from 55.4 index points in January to 63.0 index points in February, indicating a 7.6 points increase. Also, in the production activity, plastics and rubber products grew from 59.6 index points in January to 73.3 index points in February, which indicated a 13.7 points growth; and it appears to be growing at a faster rate, which suggests that manufacturing and production activities are taking place at a fast pace in the country.

Other raw materials used in the packaging industry are glass, cartons, aluminum, caps and corks; but the most common is plastic.

On the advantage of plastic as the most common material for packaging, Paul Gbadedo, group managing director, Flour Mills Nigeria, said the use of plastic for packaging food, beverages, chemicals, electronics and other items is a tool to enhance the value of a product and projection of its identity.

Gbadebo, who became a fellow of the Polymer Institute of Nigeria (PIN) recently, said the use of plastics for packaging contributes to the social and economic development, which also helps to protect and conserve the environment. He said without plastics, overall packaging weight would increase 300 percent, adding that the traditional materials, jute, paper, sisal, wood, cardboard, tinplate, aluminum and glassware were widely replaced with the advent of plastics due to many inherent advantages.

Polypropylene (PP), polyethylene (PE) and polyethylene terephthalate (PET) are materials from which bottles for cosmetics, detergents, pharmaceuticals, domestic containers and general hollow items produced in the country are made from with the method of processing employed being extrusion blow-molding. Plastic manufacturers are heavily reliant on the upstream petrochemical sector as well as imports of resin raw material.

With an investment now worth billions of dollars, the sector has grown from a humble beginning of less than 50 plastics companies in the 1960s to over 3,000 companies. It has also become increasingly sophisticated with new technologies introduced to the market on a regular basis. The sector has a production capacity of over 100,000 tonnes per year and companies range from small extrusion shops to big multinational injection moulding companies with huge employment figures as the country’s plastics subsector comprises both polymer production and plastics conversion.

Despite the advantages that the sector posses to contribute to the economic growth of the country with local participation and abundant local resources, operators say it is appalling that most of the revenues that accrue therein are subject to capital flights either through importation of raw materials that could be sourced locally or the repatriation of funds outside the country by operators.

Local participation is small as the sector is dominated by expatriates. This has been attributed to the fact that local players lack adequate capacity to function in the sector.

Ahmed Omah, general secretary, Institute of Packaging, Nigeria (IOPN) and the first vice president, Africa Packaging Organisation (APO), said that the dearth of local capacity is a major challenge faced by the sector, aside from other challenges that manufacturers battle within the country.

“The challenge at the moment is that not many Nigerians are involved in the packaging industry in the country. Institutions in the country have not seen packaging as a career for students to pursue and what it then means is that companies are going outside to bring packaging professionals, so basically one of the challenges is human capital, we do not have enough qualified persons locally, working in it, so everything has to be done from outside,” he said, in an interview with business a.m.

Raw materials are also a big challenge as all the raw materials have to be imported into the country, Omah lamented.

Raw materials employed in the packaging subsector are mostly imported. However, the level of dependency varies depending on the product. For paper and board packaging, raw materials are currently sourced through imports. The same applies to metal raw materials, due to the absence of tinplate manufacturing companies in the country. Imported plastic packaging and plastic resins attract five percent import tax. Plastic films and laminates come in pre-printed and attract high import duties (50 percent) to encourage domestic production. Glass on the other hand, has most of its raw materials sourced locally.

China, United States, Saudi Arabia, Korea are some of the countries where over 70 percent of raw materials are imported from by manufacturers in the sector.