LAHORE: The registered packaging companies are estimated to worth Rs20 trillion but their market share is merely 30 per cent of the total volume.
At least 70 per cent of the local packaging requirements are fulfilled by the informal sector, depriving the national exchequer of the much-needed revenue, besides enhancing difficulties for the registered companies.
Even before considerable e-commerce growth in the post-Covid-19 scenario, packaging was considered “mother of all industries” but with a little or even no government attention that caused unregistered companies to capture majority of the market share. Despite having great potential, packaging is not getting due government attention.
As per the packaging companies’ officials, the way forward is documentation and registration of the entire industry, as it would not only increase the revenue but would also provide a level-playing field to all the players.
Talking to BOL News, Excellent Packers (Pvt) Limited Chief Executive Officer Rizwan Haider said that the government should recognise packaging as an industry.
“Registration of all the companies will bring the entire industry under the tax net and as such will help increase revenue for the country. It will also provide a level-playing field to all the players, as in the present scenario, it is difficult to compete with those not paying any taxes,” he said.
Haider, who is also the Executive Committee member of the Lahore Chamber of Commerce and Industry and Convenor of the LCCI Standing Committee on Paper and Packaging, said that the benefits of documentation of the entire industry were much more than actually seen.
“Unregistered companies usually purchase packaging material from the informal sector. As such, packed products are also not registered. The documentation of mother of all industries will help bring the manufacturers and suppliers in the tax net,” he said.
“Informal sector is expanding at a fast pace due to the lack of check and balance. Most of the unregistered packaging companies are owned by ex-employees of registered firms. They knew the process of manufacturing and the local market. As they do not pay any taxes, it is difficult for the registered companies to compete with them,” Haider said and urged the people at the helm of affairs to intervene for the provision of a level-playing field to all the players.
The documentation of the entire industry would promote healthy competition among all the players that would ultimately lead to improvement in the quality of packaging material, he said.
Roshan Packages (Pvt) Limited Director Zaki Aijaz said that the industry, as a whole, is facing a number of challenges. The first step should be to recognise packaging as a separate industry.
“The packaging industry heavily rely on imported raw material. All the packaging whether it is paper, plastic or metal depends on imported raw material. As such, volatile exchange rate and increase in the cost of imported raw material are the biggest challenges,” he said
The government should intervene for giving a much-needed boost to the otherwise neglected packaging industry, he said, adding that the increase in the interest rate has enhanced the cost of borrowing of the cash-strapped Small and Medium Enterprises.
“The packaging units rely on short-term loans for managing day-to-day affairs. High interest rate has increased the borrowing cost and as such the cost of doing businesses,” he said, while suggesting the government to reduce the interest rate and bring it at par with the regional peers.
The local packaging industry consists of four major segments; paper, plastic, tinplate and glass. Paper and plastic segments occupy the major shares in the total market, while tinplate and glass have relatively smaller shares.
According to a report of Pakistan Credit Rating Agency, the industry has own strengths and weaknesses but enormous opportunities in the post-Covid-19 scenario.
Highly diversified product mix, the government support in the form of import duties on finished products, availability of low-cost labour and increasing trend of urbanisation, consumerism and e-commerce are the major positives.
The absence of an association for the overall industry, decline in the per capita income and high level of inflation and; thus, reduced purchasing power of the end-consumers are some hurdles.
Volatile exchange rate, high prices of imported raw material (reliance of plastic packaging is 70 per cent, paper 75 per cent and tinplate 92 per cent) and increasing awareness regarding harmful environmental impacts of plastic packaging are major challenges.
Overall, the borrowing of the packaging industry is 41 per cent of the total capital. The average borrowing mix consists largely of short-term, which accounts for 59 per cent of the total borrowing. The remaining 41 per cent is long-term borrowing.
It suggests that the industry heavily rely on short-term loans for managing day-to-day affairs. As such high markup rates has put the industry in troubled waters.
The paper packaging segment remained relatively stable in recent years. Despite the economic slowdown caused by the pandemic, the demand for the segment remained consistent, as it falls in the supply chain of various essential products and industries.
One of the major sources of demand for the tinplate packaging segment is edible oil and ghee industries. The production of edible oil and ghee has increased steadily over the period. The government has imposed anti-dumping duty on the import of tinplate from China, South Africa, EU and the US, which has provided some protection to the local manufacturer.
Similarly, the plastic packaging industry faces difficulties, as many beverage players have begun to set up their own bottling plants. In the post-pandemic scenario, the demand for plastic packaging suffered but that of paper remained relatively consistent, as it is part of the supply chain of essential products.
The plastic packaging may require more innovation and adoption of the environmentally-friendly practices.
