Nigerian plastics, printing and packaging sector enjoys staggering growth
40% expansion 2013-2017. Estimated CAGR 7% for 2018-2027 (McKinsey)
Nigeria’s plastic and packaging sector has grown rapidly in recent decades, from around 50 companies at its inception in the 1960s to more than 3,000 manufacturers currently, according to the National Agency for Food and Drug Administration and Control (NAFDAC).
Unsurprisingly growth in the sector closely mirrors that of the FMCG industry which, according to McKinsey, has seen a 40% expansion in demand for packaged goods over the last five years. This has contributed to a compound annual growth rate of roughly 12% over that same period for packaging producers, according to UK consultancy PCI Films. In spite of the slowdown in consumer spending following the recession, McKinsey expects this relatively steady growth to continue – albeit somewhat slower – at 7% CAGR over the next decade.
Supplying Nigeria’s growing plastics industry will remain a one-firm operation for some time despite particularly promising growth the plastic packaging industry. Locally-owned Quantum Petrochemical Company Limited will begin operations by Q1 2018 at its $1.5 billion methanol plant in Nigeria’s Akwa Ibom State. Workers broke ground on the 150 hectare facility three years ago. When completed, it will produce up to 3,000MT of methanol per day at full capacity.
The new plant will double the number of firms currently involved in polyethylene (PE) and polypropylene (PP) production, which is key input for the country’s flexible packaging manufacturers. Currently, according to the Raw Materials Research & Development Council of Nigeria, local PE and PP supply is dominated by Port Harcourt-based Indorama Eleme Petrochemicals Limited.
In addition to the pending arrival of Quantum Petrochemical, domestic conglomerate Dangote Group has also begun work on an $18 billion project in Lagos which will bring more than double current capacity. Once it is completed in 2019, the plant will have a nameplate capacity of 780,000MT of PP and 500,000MT of PE. The complex will also include an integrated single-line oil refinery and fertilizer plant.
The increase in investment is not surprising, given the surge in demand for plastics in Nigeria, particularly from packaging firms.
Source: Asoko Insight October 2017
Imports of packaging technology in million EURO
Imports of printing and paper technology million EURO
Imports of plastics technology million EURO
Nigeria’s plastics industry is fast growing
The Country Cluster of EUROMAP-European Plastics and Rubber Machinery confirms significant growth for Nigeria and other West African countries.
Nigeria is one of Africa’s largest importers of plastics in primary forms
As about 70% of raw materials are imported (mainly from the Middle East, Europe and Asia) and only 30% are being locally produced, the Nigerian market has great potential for exporters of plastics in primary forms.Imports of plastic raw materials, for instance, grew by 4.9 annually between 2007 and 2015, from 513 kt to 754 kt, +47%!
Source: gtai German Trade & Invest
Graph: fairtrade 2017
Business opportunities and positive sector outlook and trends
Ms Nella Hengstler, Commercial Counsellor with the Austrian Embassy in Lagos
“Nigeria will be the next global manufacturing hub. The sheer size of Nigeria’s market combined with its large and young work force will attract massive investments in the manufacturing industry. Machines and production materials will continue to be imported, though. I therefore welcome and support agrofood & plastprintpack Nigeria as it is important for European suppliers to be on ground early before the real run on Nigeria starts”.
The Nigerian plastics and packaging sector has been in existence since the 1960s, and started with about 50 plastics companies. Over time, this sector has grown in size, to over 3,000 companies, and has become increasingly sophisticated with new technologies introduced to the market. The plastics and packaging sector comprises of different subsectors, which include plastics, plastics flexible packaging and polythene bags.
The Nigerian plastics subsector is an emerging industry with the potential to drive growth within the country’s manufacturing industry.
Companies range from small extrusion shops to big multinational injection molding companies employing over 500 staff. Nigeria's plastics subsector comprises of both polymer production and plastics conversion. The plastics industry is fragmented and largely dominated by foreign players (mainly of Indian and Lebanese origin). Most new entrants over the last 5 years have been medium and small scale producers, producing mainly polyethylene terephthalate (PET) plastics for packaging food, soft drinks, water and other beverages.
Most ECOWAS (Economic Community of West African States) countries depend on Nigeria for their plastic needs, given the country’s competitive advantage in the area of sourcing raw materials. Plastic products are mostly exported to these neighboring countries by resellers as opposed to the actual manufacturers. The demand for plastics products continues to outpace supply and consumption is expected to grow significantly.
According to the Nigerian National Bureau of Statistics, plastics and rubber products recorded a growth rate of 23.8% in 2013 (after the rebasing of the Nigerian GDP in April 2014). However, this growth can be attributed to polythene and plastic packaging which constitutes the fastest growing segment of the industry. General plastic goods tend to experience a certain level of oversupply in the domestic market given the wide range of available products.
The Nigerian plastics subsector is also engaged in the manufacturing of domestic house ware. These items range from plastic cups to bottles, crates, buckets, chairs, plates, toys etc. They are made from thermoplastics and the most widely used process of production is injection molding. There is also production of poly (vinyl chloride) plastic pipes and fittings.
The subsector relies on the upstream petrochemical sector as well as imports to provide it with sufficient resin raw material inputs. Poly Ethylene and Poly Propylene are locally sourced from petro-chemical companies. Indorama Eleme Petrochemicals is the sole producer of Poly Ethylene (PE) and Poly Propylene (PP) in Nigeria. PE is produced in two major categories: High Density Poly Ethylene (HDPE) and Liner Low Density Poly Ethylene (LLDPE). PP is produced under three major categories - Homo Polymer, Random Polymer and Co Polymer. Under these categories, 13 grades of PE and PP products are produced.
The industry however faces certain challenges which stifle its growth potential. These challenges stem from high costs of production brought about by poor logistics infrastructure, as well as inadequate power supply.
The packaging industry in Nigeria is fairly developed and tends to mirror the trend in the local fast moving consumer goods (FMCG) industry. The materials used in packaging products include plastics (flexible & rigid), glass, cartons, aluminum, caps, corks etc. The most commonly used material is plastic.
Bottles for cosmetics, detergents, pharmaceuticals, domestic containers and general hollow items produced in Nigeria are made mostly from polypropylene, polyethylene and polyethylene terephthalate (PET). The method of processing employed is extrusion blow-molding. Plastic manufacturers are heavily reliant on the upstream petrochemical sector as well as imports for resin raw material.
Flexible packaging includes products such as bags and sachets made of easily yielding materials such as foil, paper or film, which when filled and sealed acquire a flexible shape. The manufacturers of these products act as suppliers to different industries, which include but are not limited to food and beverage, healthcare, textiles, etc. Companies that make use of products from the flexible packaging industry include Cadbury, Nestlé, Guinness, PZ Cussons, Unilever, etc.
Plastics packaging has become very popular in Nigeria and is increasingly being preferred to glass, especially in the pharmaceutical and cosmetics industries. One of the leading drivers of growth in the industry is the demand for plastic packaging by pharmaceutical and FMCG companies. Examples include packaging for snacks such as cashew nuts, groundnuts and beverages in plastic containers. Another major driver for plastic packaging is the growing sophistication of the middle class and their demand for well packaged local products.
Another popular form of plastic packaging is low density polyethylene (polythene). According to Foraminfera, a market research firm, the demand for polythene material in Nigeria currently stands at 80m metric tons representing a 30m metric tons increase over a 5 year period.
The packaging subsector is faced with challenges peculiar to the manufacturing industry, which increase the cost of production. These challenges range from irregular power supply, delays in clearing goods at the ports, logistical issues (transportation of goods is mostly by road, with many roads being in a dilapidated state) and multiple taxation at the federal, state and local government levels.
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 for metal raw materials, due to the absence of tin plate manufacturing companies in the country. Imported plastic packaging and plastic resins attract 5% import tax. Plastic films and laminates come in pre-printed and attract high import duties (50%) to encourage domestic production. Glass on the other hand, has most of its raw materials sourced locally.
The activities of the packaging subsector are regulated by the National Agency for Food and Drug Administration and Control (NAFDAC), Standard Organization of Nigeria (SON) and Weight and Measures Department of the Ministry of Trade.
Business opportunities. A market exists for plastic manufacturing and recycling machines in Nigeria. New and used extrusion and injection molding machines are in demand. The supply of spare parts for these machines also presents business opportunities. However, demand tends to favor technological advancement and affordable prices more than quality and durability of the machines. The largest market for these goods is in the Southern parts of the country where demand for plastic products is the highest.
Sector Outlook and Trends. Growth in the plastics and packaging sector has been driven by the increasing sophistication of the Nigerian middle class. According to McKenzie & Company the plastics subsector is expected to grow by 7% over the next 10 years. Packaged foods have seen increased demand following the 40% growth of organized retail outlets evidenced in the last 5 years. In addition, rapid growth in the FMCG sector has been a major driver; a trend which is expected to continue.
Soft drink manufacturers and bottling companies have continued to embrace PET bottles over glass. Most of the large plastic companies are engaged in juice, table water and alcoholic beverage bottle production. Companies are also increasingly packaging commodity based products in household plastics.
A positive outlook is projected for the packaging industry due to increased market demand and sophistication of the Nigerian consumers. Plastic products used for packaging will eventually become less common as new technologies and growing industrialization are shifting to more advanced and sophisticated means of packaging. Nonetheless, other uses of plastics aside from packaging (e.g. domestic ware) will continue to experience growth as consumer disposable incomes continue to rise.
Source: Aussenwirtschaft Austria, Branchenreport Nigeria – June 2014