ETHIOPIA:

AFRICA’S UNTAPPED

Packaging Investment Destination

By Alphonce Okoth

With about 123 million people (2022), Ethiopia is the second most populous nation in Africa after Nigeria. The Eastern African nation is also among the fastestgrowing economies in sub-Saharan Africa. According to Prime Minister Abiy Ahmed, Ethiopia’s economy will grow to 7.5% in the 2022-2023 financial year. The IMF, on the other hand, projects Ethiopia to surpass Kenya as the largest economy in Eastern Africa in 2023. The multilateral lender expects the Ethiopian economy to expand by 13.5 percent to reach US$126.2 billion, about US$8.6 billion ahead of Kenya’s US$117.6 billion.

The rapidly expanding economy is creating new opportunities for the packaging Industry. A recent study by Manufacturing Africa noted that there is an unmet and growing demand for packaging products in Ethiopia. The study funded by the UK’s Foreign, Commonwealth & Development Office (FCDO) that supports investment into the manufacturing sector noted that Ethiopia will have a packaging manufacturing opportunity worth US$971 million by 2030, with more than 50% of the potential lying in packaging for the food and beverage sectors. Currently, about 20% of packaging is imported into the country this could expand further if investments in local manufacturing are not ramped up to meet demand.

Investments Drive Need For Packaging

Ethiopia’s manufacturing output doubled in over the past five years and is expected to expand at 13% annually. The food processing sector in Ethiopia is by far the largest manufacturing industry in Ethiopia. The food and drinks sector collectively represent about half of the total demand for packaging (about US$333 million of US$649 million), as cited by Ethio12 news. Several notable investments have gone into the sector, creating a need for more packaging. Last year, multinational soft beverage company Coca-Cola Beverages Africa (CCBA) inaugurated its US$100 million factory. Completion of the bottling plant brings CCBA’s production capacity in Ethiopia to more than 100 million cases a year and will enable the company to integrate the production of inputs such as preforms, closures and other materials, as well as the local production of new products such as Minute Maid Juice.

In November last year, Pepsico invest US$40 million in its Ethiopian subsidiary Senselet Food Processing to increase crips production in the country. This means that as the production of the crips increases so as the demand for their packages. Similarly, UK-based consumer goods company Unilever, in August last year announced plans to invest in food processing in Ethiopia. The new investments will add to Unilever’s local footprint that includes an oral care factory that was commissioned in 2019 and soap, detergent and Knorr manufacturing plants inaugurated by Unilever in 2016 and 2017 respectively. Ethiopia’s Oromia Industrial Parks Development Corporation signed an agreement worth Birr 7.8 billion (US$193.6m) to construct a food processing park in Oromia.The new park, which will process coffee, tea, edible oils, grains, dairy, meat and honey products, will come on stream in 2024. When complete, the project is set to have packing suppliers for its products.

Aside from food, Pharmaceutical manufacturing is emerging as a major industry in Ethiopia driven by the country’s ambition to become a pharmaceutical manufacturing hub in Africa by 2025. In 2020, the Ethiopian pharmaceutical market was estimated to be valued at US$905 million and is expected to grow at a CAGR of 15% to reach an estimated US$3.662 billion by 2030, according to UNIDO. To make this goal a reality, the government, with funding from the world bank, set up the Kilinto Industrial Park (KIP) to specialize in pharmaceutical manufacturing. The park has already attracted investments from Africure Pharmaceuticals which intends to produce 1 billion oral solid and liquid dosages annually. The facility will join the Sansheng Pharmaceuticals Plc facility that was commissioned in 2018 and others by Sino-Ethiopian Sunshine Pharmaceutical PLC and Humanwell Pharmaceutical Ethiopia Plc. As more pharmaceutical industries trickle into the country, the need for more packaging will arise further creating opportunities for packaging manufacturers.

Local Packaging Industry Stirs To Life

Between 1994 and 2017, there have been 198 licensed investment projects in the Ethiopian packaging industry. Just over three-quarters of the investments were from domestic sources, 17.2% originated from abroad and 6.1% were joint investments from local and foreign sources. The highest proportion of foreign investments was from China and India, followed by the USA. Growth of the sector has however not been fast enough to meet demand. “Even though agro-processing has been growing rapidly in the past few years, the packaging industry is lagging,” notes Mebratu Meles, State Minister of Industry. As a result, most manufacturers have been forced to rely on imports for packaging.

To bridge this gap, the country in 2017, initiated a plan to help it shift from importing to exporting plastic products. The move triggered increased interest from both foreign and local investors in plastic products manufacturing, said the Ethiopian authorities. This led to substantial capital investment in the sector, with Ethiopia importing US$39 million worth of packaging machinery in 2017 - a CAGR of 48% from 2012 - making it the second-largest importer in East and Central Africa, according to AsokoInsights.

“The number of both foreign and local investors in plastic manufacturing has been increasing every year. Currently, there are a total of 350 plastic manufacturing companies in Ethiopia producing 12 categories of products ranging from the automotive tire to the latest wood and plastic blend home partitions and PVC-made tiles and small household furniture,” said Eng. Yonas Abate, Plastic and Rubber Industries Development Director at the stateowned Ethiopian Chemical and Construction input Industries Development Institute.

To take advantage of the expanding pharmaceutical sector, Prime Point Packaging is establishing a new facility in the Kilinto Industrial Park to be manufacturing packaging materials for pharmaceuticals. Roshan Packages, a leading manufacturer of corrugated and flexible packaging has also expressed keen interest to invest in Ethiopia to meet the demand for packaging. Even as more investments come online, the study by Manufacturing Africa detailed various opportunities that manufacturers could tap into. According to the report, there exists a US$95 million market opportunity in the supply of PET bottles. Flexible plastic packaging (US$200 million), and cutting plants for tubes for toothpaste (US$8 million), are other opportunities that investors could tap into.

Managing Plastic Packaging Through Recycling

Ethiopia is the second largest importer of plastic raw materials from east and central African countries. Due to a lack of technology, investment, and experience only 30–40% of the 386,000 tonnes consumed yearly is recycled, according to the African Association of Entrepreneurs (AAE). Only ten plastic bottle recyclers and only two of them are using the hot wash processing that obtains a higher quality of flakes, according to the association. With plastic increasingly becoming an environmental nightmare, opportunities exist for manufacturers to explore plastic recycling.

According to Manufacturing Africa study, a US$30 million market exists for recycled plastic to replace imports for local producers to use as feedstock or for gasification (fuel). Recently, an Indian and Mauritian joint venture in Ethiopia started the production of fuel from waste plastics using new technology. The company has built a factory on 15,000 square meters in Akaki/Sebeta sub-city and the fuels, which can be produced from waste plastics, are being used for various applications including jet fuel.

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Additionally, a further US$30 to US$40 million opportunity exists to recycle PET plastic to converted polyester fibre for textile sector, the study highlights.

OPPORTUNITIES IN ECO-FRIENDLY PACKAGING

As plastic packaging takes its toll on the environment, manufacturers could explore opportunities in eco-friendly packaging. The presence of multination consumer goods companies from PepsiCo to Coca-Cola and Unilever further incentivizes investments in this area as all of them need sustainable packaging to meet their ambitious net zero carbon goals. According to Manufacturing Africa study, a US$120 million opportunity exists in the production of bio-plastics from sugar cane to reduce environmental impact of plastic use. Investors could also explore forest-certified bamboo wood pulp for paper packaging producers, local production of corrugated paper (US$70 million), metal cans production for food and beverage (US$70 million) and glass packaging production for beverages (US$70 million).

Government Incentives

Investors in packaging could exploit various incentives provided by the Ethiopian government to manufacturers. For instance, the government is currently constructing or has commissioned 15 industrial parks as part of a plan to turn the country into a light manufacturing hub in Africa. The parks offer Serviced land with common infrastructure such as wastewater treatment plant, regular water supply, and dedicated power substations. Other incentives include duty and other tax exemptions on inputs and Zero tax on exports. Relevant regulatory and supporting institutions will be located in the park to provide services, such as fast tracked registration. For pharmaceutical packaging the government further offers corporate income tax exemptions up to 8 years. To bridge the skill set gap, Ethiopia also offers manufacturers long term visas and personal income tax exemption of 5-10 years for expat employees. Further, the government also offers 25% price preference and 30% prepayments for firms manufacturing in Ethiopia and Potential for long-term procurement guarantee. Where exports are involved, Ethiopia promises manufacturers more accessible and competitive logistics as well as information consolidation and market linkages.

Ethiopia is currently implementing its Second Growth and Transformational Plan (GTP II), which sought to transform the country and place it on a path toward becoming a middle-income economy by encouraging a shift to high-productivity industries, especially manufacturing. The policy has emphasized development of manufacturing through industrial parks, encouraging foreign investment, and attracting and supporting small- and medium-sized enterprises (MSEs). This has likely contributed to the country's growth in manufacturing value-added goods, although growth in manufacturing sector employment has been much slower.

Challenges To Growth

In Ethiopia, the cost of labor is relatively low, which does help to reduce costs, but the flip side is that the country’s relatively weak labor law system and its lack of a minimum wage are challenging factors for workers and are a constraint on the development of a strong and skilled industrial labour force.

The Government does, however, recognize the importance of strengthening the skills of the country's workforce and has invested in technical training institutes, such as the Adama Technical University and several regional vocational colleges. The attractive incentives for manufacturers to bring in expats also helps to bridge the skillset gap as the country grows its own local expertise.

Another challenge for the economy, in general, and specifically for industrial and manufacturing development, is the country's relatively underdeveloped infrastructure. This includes roads, transport systems, electricity, supply chain logistics, water and sanitation facilities, mobile and internet communication services. These factors make it difficult to access many parts of the country, import and export goods, and overall makes the country less competitive from a global investment perspective. A related issue is the relative lack of industrial information for the country, including research studies that would assist (and attract) investors.

A Must Review Investment Destination

With Ethiopia set to overtake Kenya as the largest economy in Eastern and Central Africa, investment opportunities in the packaging industry are bound to expand even further. Multinational food companies are aggressively expanding their capabilities to meet demand from the Ethiopian market which boasts of a population of more than 120 million people. This is an opportunity that packaging suppliers could tap into to reduce the country’s reliance on imports which will definitely go up if local production does not expand,

A wider government strategy to position Ethiopia as a leading manufacturing hub in Africa by 2025 further creates more opportunities for packaging manufacturers. Attractive incentives including competitive tax and duty exemptions from the government make Ethiopia an attractive destination as it lowers the cost of doing business for both manufacturers and packaging producers. Challenges still abound in terms of infrastructure and access to highly skilled labor, but make no mistake, Ethiopia is rising as an economic powerhouse in sub-Saharan Africa and with it many opportunities for packaging investors to exploit