Paper bag making fails to attract big investors

When the government banned the use and importation of polythene bags in 2008, many thought this would open opportunities for investors to venture into paper bag and other bio-degradable packaging materials.
Although making of bio-degradable packaging materials presents many opportunities, investors have shied away from the sector leaving small manufacturers to play a leading role. The New Times / Peterson Tumwebaze
Although making of bio-degradable packaging materials presents many opportunities, investors have shied away from the sector leaving small manufacturers to play a leading role. The New Times / Peterson Tumwebaze

When the government banned the use and importation of polythene bags in 2008, many thought this would open opportunities for investors to venture into paper bag and other bio-degradable packaging materials.

However, eight years down the road, no major investment has been realised and most paper bags are produced on small-scale by cottage industries, while more are imported across the region to satisfy demand.

Big players have shied away, and experts have attributed this to a number of factors.

Potential investors in the manufacture of bio-degradable packaging material are scared away by the high cost involved and the lack of skills necessary in their manufacture, Chantal Umuraza, the director of chamber of industries at the Private Sector Federation (PSF), said.

Umuraza said banks are not willing to fund such projects ‘because the machinery is too expensive’ and therefore, seen as risky by financial institutions.

“The initial capital investment is very huge for most of the local investors,” she said, adding that potential investors are still hesitant due to environmental concerns.

“Any packaging material made locally should be bio-degradable, which sometimes is misunderstood by investors who do not want to be seen as conflicting with the Rwanda Environment Management Authority (REMA) guidelines,” she said.

Umuraza said manufacturers had requested government for tax waivers on packaging materials to encourage investors into the sector, but this fell on deaf ears.

“Manufacturers argue that making paper bags is expensive and strains their earnings,” she said.

She, however, advised investors to look at the entire region as it presents a larger market size.

Currently, the prices of packaging materials range from Rwf50 to Rwf2,000 depending on the size.

Umuraza pointed out that potential investors in the paper bag industry are also discouraged by fact that about 90 per cent of raw materials used in making paper bags are imported

Eusebe Muhikira, the head of trade and manufacturing at the Rwanda Development Board (RDB), said potential investors were not yet attracted to the business because of the small market for the paper bags.

“For any business to attract investors, the market size matters a lot. If the market is small, automatically the investment will be minimal,” Muhikira argued.

However, Muhikira advised local investors to look at the gaps in the packaging sector and take advantage in order to meet the surging demand.

“The fact that there are no alternatives means that there are still many investment opportunities in the sector. We, therefore, encourage business people to look at it as an opportunity rather than an obstacle.” 

Recently manufactures told Business Times that the high cost of packaging material was hurting operations by eating into their profits. 

“The cost of packaging is high and we wish the government could help us find an alternative packaging material,” said Mike Fietzek, the managing director of La-Galette, a confectionary firm.

He said if an estimate of polythene paper was allowed into the country, his packing expenses would drop from Rwf7m per month to about Rwf1.5m per month, which would enable him reduce the price of bread and make some profits.

According to the law passed in 2008, it is illegal to manufacture, import, use and sell polythene which includes polythene retail bags and plastic film used to package foods and consumer products.

The law, however, does not bar imports that are already packaged in polythene.

Bruce Musoni, an environmental facilitator at the Chamber of Industries, argues that authorising the use of polythene bags would degrade the environment and hurt agricultural production in the long-run.

“Rwanda is a mountainous country, with limited land for agriculture. If polythene bags are allowed into the country, won’t farmers and Rwandans suffer? We should not industrialise at the expense of other sectors,” Musoni noted in an earlier interview.

According Alline Akintore, an environmentalist, the paper bag industry globally emits the fourth-highest levels of carbon dioxide, making the industry one of the biggest contributors to global warming.

She also noted that plastic bag production requires less water and four times less energy than paper bag production.

“Frankly speaking, the paper versus  plastic debate is a no win, since both heavily impact the environment. But Rwanda is concerned with cleanliness, and for all reasons and purposes, paper is the answer,” Akintore noted in a recent article.

However, Boniface Mungabarenzi, whose company Finefh Traders & Packaging is installing machinery in Kigali’s Special Economic Zone to make paper bags, told Business Times that there is a lot of potential in the industry.

“With our knowledge and culture of weaving, we could use the locally-available raw materials such as sisal, banana fibres, water hyacinth, papyrus and raffia to make sustainable packaging alternatives,” she said.

Meanwhile, Umuraza challenged scientists and Rwandans in general to find ways to make packaging products from cotton, sisal, banana fibres and plants instead of focusing on a few options.

She said if packaging bags are manufactured according to the international standards, they would help market Rwanda products on the global market.

Local and regional initiatives

The East African Community intends to establish a regional packaging technology and design centre to be used by member states.

The ministry of trade and industry, MINICOM has also conducted a feasibility study for a bio-degradable plastics plant whose designs and architectural plans are in its final stages.

 

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