Printing and packaging industry players weigh in on privatization plans
What do printing and packaging manufacturers think of the state’s privatization plan? As part of its state ownership policy document, the government is currently looking to sell up to 78% of its assets in the printing and packaging industry as it aims to transform these factories into more lucrative investment avenues for foriegn investors. Stakeholders in the printing and packaging industry gathered the week before last to share their thoughts on what the sector needs and to lay out recommendations on how to bring the private sector on board.
The takeaway: Our sources tell us that the industry wants to see continued state involvement to help support the industry, which is reeling from record high production costs and outdated manufacturing processes.
A refresher on the state’s privatization drive: Every Sunday and Tuesday, workshops are held as part of a series of public consultations over the policy document — which lays out privatization plans on specific industries. These come as the government seeks to widen private sector involvement in the economy over the next three years, and aims to draw new investments worth some USD 40 bn over the next four by selling stakes in state-owned assets to local and international investors.You can refresh your memory of what went down with automotive and engineering players, the pharma industry, and FMCG players in our previous editions of Inside Industry.
What does the printing industry currently look like? Some 5k companies are registered with the Federation of Egyptian Industries’ printing and packaging division, division head Ahmed Gaber told Enterprise. Of those, some 100 companies are specialized in printing and publishing books, while the rest are focused on manufacturing food and pharma packaging.
It seems clear that the sector still needs some government support to grow: There are some serious challenges currently facing our domestic printing and packaging industry, chief among them is increasing costs of production, which has recently seen the cost of paper skyrocket from EGP 12k to EGP 30k per ton, says Gaber. To overcome this, the government still needs to play an active role in supporting manufacturers through developing more export markets and helping older companies modernize their industrial processes, Gaber explained. Bringing in newer technologies that can help make the production of packaging more efficient would also help, he adds.
Public-private partnerships could be the first step towards a solution for some of the problems the industry is grappling with at the moment, says Gaber. Only once private sector players have been given the green light to enter the sector alongside the government — and successfully brought in more large-scale investments — should the government start to consider selling its assets, Gaber said.
Export markets could be the way forward: Most factories are eagerly waiting to jump at a chance to export their products to African and Gulf countries, where Gaber says there is high demand. Existing demand from these regions should help encourage troubleshooting the roadblocks standing in the sector’s way, he says.
There’s a crucial chance for growth here: Despite the challenges facing the industry, import substitution might become an unanticipated source of growth. Take the rising cost of importing paper for instance: There could be significant long-term benefits to the industry if some publicly-owned companies were to step in and develop a local alternative, Gaber tells us. Already, certain food manufacturers have reached out to the Printing Chamber to request packaging alternatives to imported packaging like TetraPak.
But some level of state involvement would still be required to get there: The most effective means to overcoming these serious challenges and seeing substantive growth in the sector take hold will have to come through increased government investment in the industry, Ahmed Ibrahim, a member of the printing and packaging division’s board of directors, tells us. This is because public investment would encourage private sector players to allocate more capital to the industry, he explains. The government’s role in the industry is crucial and would be difficult for the private sector to fill on its own, especially when it comes to producing the machinery and providing the spare parts required for industrial-scale printing, says Mohamed Abdel Moneim, a representative for publishing house Sama.
And speaking of state involvement: Public enterprises want to see looser regs: Government-owned enterprises are finding that they are increasingly constrained by rules and regulations that are keeping them from attracting new investments and putting them at an unfair disadvantage to private sector factories in the industry. Evening out the playing field between public and private sector players in the field though tax policy reform, more localized e-paper production, and offering some more incentives, would be the best way forward, Amiria Press Board Chairman Ashraf Imam said.
Incentives are already in the picture: The recently approved amendments to the VAT Act exempts the paper industry and its associated inputs from the 14% tax in order to offer local paper mills a competitive advantage over imported materials.
Other solutions include turning to alternative materials: More investment into growing Eucalyptus trees — which are used in the production of paper and packaging materials — could help reduce the industry’s reliance on imports and draw down some of the skyrocketing costs of raw materials. But such an initiative would also require more state support, Gamal Al-Saudi, Chairman of the Board of Directors of the Egyptian Paper Manufacturing Company and Head of the Paper Division of the Federation of Industries said. An ideal scenario would be one where the government invests in Eucalyptus while the private sector buys in and uses these materials in printing, publishing and packaging processes, according to Al-Saudi.
As well as clamping down on unlicensed factories: Unlicensed factories are also among the many forces exerting pressure on the printing and packaging industry, says Gaber. As the cost of going legit rises, unlicensed players or those who are registered with the incorrect department within the Federation of Egyptian industries are putting licensed companies who are already struggling at an unfair disadvantage.
A more nuanced approach for publishing could also come in handy: Overall continued government support for the publishing industry is needed as the sub-sector slumps, Gaber says. But there’s a case for making a distinction between the publishing world and other commercial printing activities. Publishing is a seperate creative industry that needs to be handled differently than the rest of the sector in the state ownership document and really does need more private sector investment, says Dar Al Shorouk General Manager Ahmed Badir. Amending the regulations governing state-owned printing presses could help bolster their ability to attract contracts that would ultimately put them at a level of competition with the private sector.
Your top industrial development stories for the week:
- Nokia phones to be locally assembled: Nokia phone manufacturer HMD Global is partnering up with Etisal for Advanced Industries to assemble 1 mn mobile phones in Egypt this year.
- Mexican glass manufacturer Vitro plans to expand to Egypt and invest USD 400 mn to build two factories.
- The government has inked an MoU with Chinese appliance manufacturer Haier Electric to establish a USD 130 mn industrial complex to produce household appliances.