LAHORE: Registered packaging companies are estimated at Rs 20 trillion, but their market share is only 30% of the total volume.
At least 70 percent of local packaging needs are met by the informal sector, depriving the public treasury of much-needed revenue, in addition to compounding the difficulties of registered businesses.
Even before the tremendous growth of e-commerce in the post-Covid-19 storyline, packaging was considered “the mother of all industries”, but with little or even no government attention, which allowed unregistered companies to capture the majority of market share. Despite its great potential, packaging is not getting the attention it deserves from the government.
According to packaging company officials, the way forward is documentation and registration of the entire industry, as this would not only increase revenue but also provide a level playing field for all players.
Talk to BOL NewsRizwan Haider, CEO of Excellent Packers (Pvt) Limited, said the government should recognize packaging as an industry.
“Registration of all businesses will put the entire industry under the tax net and as such will help to increase the country’s revenue. It will also provide a level playing field for all players because in the current scenario it is difficult to compete with those who pay no taxes,” he said.
Haider, who is also a member of the Executive Committee of the Lahore Chamber of Commerce and Industry and Convenor of LCCI’s Standing Committee on Paper and Packaging, said the benefits of documentation for the whole industry were much larger than what we actually saw.
“Unregistered companies usually buy packaging material from the informal sector. As such, packaged products are also not registered. Documenting the mother of all industries will help bring manufacturers and suppliers into the tax net,” he said.
“The informal sector is growing at a rapid pace due to the lack of checks and balances. Most unregistered packaging companies are owned by former employees of registered companies. They knew the manufacturing process and the local market. Since they pay no taxes, it is difficult for registered businesses to compete with them,” Haider said and urged business leaders to step in to provide a level playing field for all players.
Industry-wide documentation would promote healthy competition among all players, which would ultimately lead to improved quality of packaging materials, he said.
Director of Roshan Packages (Pvt) Limited, Zaki Aijaz, said the industry as a whole faces a number of challenges. The first step should be to recognize packaging as a separate industry.
“The packaging industry is highly dependent on imported raw materials. All packaging, whether paper, plastic or metal, depends on the imported raw material. As such, the volatile exchange rate and rising cost of imported raw materials are the biggest challenges,” he said.
The government should step in to give a much-needed boost to the otherwise neglected packaging industry, he said, adding that the rise in the interest rate has increased the cost of borrowing for small and medium-sized businesses. cash-strapped businesses.
“Packaging units rely on short-term loans to run day-to-day business. High interest rates have increased the cost of borrowing and therefore the cost of doing business,” he said, while suggesting the government cut the interest rate and bring it back to par with regional peers.
The local packaging industry consists of four main segments; paper, plastic, tinplate and glass. The paper and plastic segments occupy the major shares of the total market, while tinplate and glass have relatively smaller shares.
According to a report by Pakistan Credit Rating Agency, the industry has its own strengths and weaknesses but huge opportunities in the post-Covid-19 scenario.
A highly diverse product range, government support in the form of import duties on finished products, the availability of low cost labor and the growing trend of urbanization, consumerism and e-commerce are the main advantages.
The absence of an association for the whole industry, the decline in per capita income and the high level of inflation and; thus, the reduction in the purchasing power of end consumers is an obstacle.
The volatile exchange rate, high prices of imported raw materials (reliance on plastic packaging is 70%, paper 75% and tinplate 92%) and growing awareness of environmental impacts harmful effects of plastic packaging are major challenges.
Overall, packaging industry borrowings represent 41% of total capital. The average borrowing mix is largely comprised of short-term borrowings, which represent 59% of total borrowings. The remaining 41% are long-term borrowings.
This suggests that the industry relies heavily on short-term loans to run day-to-day business. As such, high margin rates have put the industry in troubled waters.
The paper packaging segment has remained relatively stable in recent years. Despite the economic downturn caused by the pandemic, the demand for the segment has remained constant, as it is part of the supply chain of various essential products and industries.
One of the major sources of demand for the tinplate packaging segment is the edible oil and ghee industry. The production of edible oil and ghee increased steadily over the period. The government imposed anti-dumping duties on the import of tinplate from China, South Africa, the EU and the United States, which provided some protection for the local manufacturer.
Likewise, the plastic packaging industry is facing challenges, with many beverage players having started setting up their own bottling plants. In the post-pandemic scenario, the demand for plastic packaging has suffered but that for paper has remained relatively constant, as it is part of the supply chain of essential products.
Plastic packaging may require more innovation and the adoption of environmentally friendly practices.