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Plastics – boring for some, but a thriving business for this East African company

Silafrica produces clothes hangers, among a variety of other products.

Silafrica produces clothes hangers, among a variety of other products.

People generally don’t give much thought to the plastic bottle from which they drink their Coke, or the hangers they store their clothes on.

However, East African company Silafrica, established in 1967, has built a successful business from plastics, and is seeing plenty of scope for future growth.

Akshay Shah, managing director for Silafrica, says that while in the past consumers didn’t really care which brand of plastics they bought, they are starting to pay greater attention.

“The consumer has become more brand conscious, regardless of the income strata. They want to be seen to be having something that is aspirational on their kitchen table, in their house, [and] on themselves. So just having the product by itself isn’t enough – a product has to represent something. It has to come from a well-known brand,” he explains.

Silafrica’s products include water tanks, crates, PET bottles, pens, containers, chairs, tubs and clothes hangers, to name a few. It owns factories in Kenya, Tanzania, Uganda and Ethiopia.

Shah says buyers are also more demanding when it comes to product design – from shapes to colours. For a long time, he explains, the consumer plastics industry in the region relied on importing products from India and China, testing them in the domestic market, and then manufacturing locally those items that sold well.

This strategy meant shoppers were getting products designed for foreign markets. To capture today’s consumer, he says, manufacturers must innovate from the bottom up – talking to the consumer and understanding their requirements and tastes.

But despite the demand for better functionality and aesthetic appeal, consumers still value affordability. Shah notes that middle and low-income buyers are the biggest market for consumer plastics.

“To be relevant in the market, the price point still has to be affordable for the particular income strata. [But] we will never compromise on quality to make a product affordable. At the very core our view is we don’t sell crap, regardless of who the customer is,” says Shah.

Business-to-business opportunities

Silafrica also sees a growing market for plastic packaging materials from corporate clients. Today, the majority of its business comes companies such as Coca-Cola, PepsiCo, SABMiller, Total, Engen, Bidco Africa and Unilever.

For the fast-moving consumer goods (FMCG) industry, Silafrica plans to introduce plastic pallets – used for handling goods. “If you look at the entire FMCG industry, there is a lot of product handling going on – be it [transporting] raw materials to the factory, or products moving around within the factory, or loading products on to a truck to take to the distributor. The movement of everything in the entire value chain is currently happening on wooden pallets,” Shah explains.

“A plastic pallet is more hygienic, it is better for the environment, and it lasts longer than wooden pallets. Plastic pallets… is the big thing that we are going to be doing [next].”

Challenges: Unreliable electricity and high interest rates

Despite it being a potentially lucrative industry, producing plastics in East Africa is not easy.

For example, electricity is vital throughout the manufacturing process – for melting, molding and cooling. However, in many countries, power is expensive and unreliable.

Another key hurdle is the high cost of working capital loans. Silafrica imports raw materials from the Middle East, Asia and South Africa, and to avoid shortages, the company has to hold enough stock to handle 90 days of production.

“Imagine the amount of cash that is just stuck [in our factory as stock], and on that we have to borrow working capital from the banks and pay high interest rates,” says Shah.

Earlier this year private equity fund AfricInvest Capital Partners made an investment in Silafrica. In a statement announcing the deal, AfricInvest said the new partnership will see Silafrica expand geographically and increase its product range, “to capture a higher share of the significant growth expected in the plastics and packaging sector across African markets”.

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