Despite the decline in productivity that has affected the manufacturing sector in recent years, the supporting packaging industry has been opening up to a myriad of opportunities that are promising to regenerate the sector.

That’s because manufacturing has backward linkages to mining and construction sector as well as forward linkages to tourism and agriculture.

Those who support the industry believe that a growth in manufacturing can lead to a growth in GDP because of the multiplier effect that results from such linkages. In 2009, manufacturing’s contributed 8.3 percent to GDP, employed 80,000 persons and exported goods valued at $722.9 million, 62.7 per cent of all goods and services exported from Jamaica.

From expanding through packaging, printing and labelling, packaging manufacturers are claiming many opportunities for expansion both within Jamaica and overseas. The most recent example is the announcement by AMG Packaging and Paper Company Limited, manufacturers of corrugated boxes, that the company will be aiming to list on the Junior Market of the Jamaica Stock Exchange (JSE). If AMG were to be successful in its bid, it would be the sixth manufacturing concern of a total nine companies to list on the JSE. Earlier this month, AMG announced through its lead broker Stocks and Securities Limited that its Initial Public Offer is aimed at getting equity financing to keep pace with increasing demand for its products, including broadening its product line beyond corrugated carton boxes. In response to queries by the Business Observer, general manager Michael Chin said AMG will be focused on gaining a larger share of the market for corrugated boxes.

“We are planning to get more involved with other corrugated cardboard products. There is a large market for wax boxes which is used to store frozen foods, fruits and vegetables. There is a wide market for corrugated boxes, trays and pads that we can tap into example file boxes, pizza boxes, and point of sale systems,” Chin said. He is anticipating that the market demand for the products and the growth prospects within the industry, will spur investors into looking at packaging.

As if collectively sensing the growth potential in this aspect of the manufacturing industry, other players such as Corrpak and Labels and Boxes, with industry participation ranging from four years to over 20 years respectively, are also pursuing expansion plans. Corrpak, like AMG manufactures corrugated boxes, while Labels and Boxes, with its subsidiary Rotoflex Jamaica, produces both paper and plastic PVC labels as well as flexible packaging such as display boxes.

The need for packaging in manufacturing has been so overwhelming that Corrpak, after four years of operation, claims 28 per cent of market share. Managing director of Corrpak, Shelley Sterling is excited about the opportunities for expansion. Sterling said prior to Corrpak’s establishment, 80 per cent of boxes were imported into Jamaica. It was a point already made by outgoing president of the Jamaica Manufacturers Association (JMA) Omar Azan at a JSE conference recently.

“The JMA brought the packaging industry together because we were importing nearly 100 per cent of our cardboard boxes into Jamaica,” Azan said. “We brought the customers and the manufacturers together and we were able to find products that they were importing, give them to each of the packaging companies that have invested in Jamaica that were working two to three days a week. And I am happy to say that we have now reduced the importation of packaging material by about 60 per cent creating more jobs in the packaging industry, allowing the packaging companies to work overtime and we are creating jobs, creating more revenue for government by just that one example.”

Chin added that the opportunity to expand became even more attractive when the government stepped in with a policy that made it expensive to import finished boxes. “One factor which has helped to boost demand for our products has been the discontinuation of waivers on finished corrugated products. In addition, our quality products and service has made our existing clients more confident in our abilities,” he said.

“Our key clients are on an expansion drive with intentions of doubling their volumes. They have committed to AMG. This will definitely affect our production. We will have to expand with new machinery and space to meet their growing demands,” Chin added.

He would not disclose further details of expansion but Sterling projects that after a planned US$1 million in additional equipment to facilitate expansion, Corrpak should be able to capture a third of total market share. She said however that space constraints are hampering expansion plans as the company currently operates from a $62,000 square foot facility on Marcus Garvey Drive. Sterling said she is talks with the Government to acquire an additional acre or so of land on which to expand so that the product line can be extended because currently there is ‘nowhere to put the equipment and nowhere to warehouse the goods’.

Labels and Boxes general manager Phillip Lee told the Business Observer that he has plans to also invest another US$1.5 to US$2 million in acquiring additional modern equipment to keep his business competitive and his products up to international standards. Lee, who manages the family owned business, said he has already re-invested US$2 million over the last three years in ensuring that the business remains on the cutting edge of technological developments in the printing and packaging industry. He has already put up an additional 12,000 square feet of factory space and also factors in economies of scale when making his purchase decisions.

The minimum quantity that Labels and Boxes can produce per machine run is 10,000 labels, Lee disclosed. He said there is no maximum capacity right now but he has printed up to two million labels for large scale manufacturers such as GraceKennedy and Seprod. He said despite a growth n the packaging industry he still has a lot of ‘excess capacity’, in part because over the last 20 years the demand for locally made labels has declined. Lee however sees an opportunity in the export market.

“I rely heavily on the manufacturing sector. My plan is should the manufacturing sector shift even further then I have to look at export,” he said. Lee pointed to the scarcity of locally manufactured items on supermarket shelves and suggested that were one to remove all that was imported, the shelves would be virtually bare. He said Labels and Boxes used to manufacture boxes for products such as Oil of Olay, Gillette, Patex, Tangit, Panadol and Panadeine, Phensic and Horlicks.

“All those operations have closed locally but the products are still on the shelves,” Lee said, adding that this is one reason his company is looking at expanding into making ‘shrink sleeves’, a form of plastic packaging that moulds to the item that it labels and is very popular abroad on higher end products. One example of this type of packaging is that of the label on the ‘Grace Blends’ bottle.

“I’m not doing shrink sleeves now. The demand for it locally is not as great but I perceive that it will be in the future,” Lee said.

However there are still opportunities for growth in production for local needs. Azan, who has been a champion of manufacturing concerns has encouraged investors that manufacturing offers a lot of opportunities.

“The environment is getting to a point where it is very lucrative to be in a productive or manufacturing environment,” Azan said. “Interest rates are coming down. Hopefully policies of government will improve when it comes to modernisation, the issue of duty free the issue of raw materials.”

“Anyone that currently has funds available and is able to invest in any area of packaging whether its plastic bottles, paper bags, plastic bags, there is a great demand for that,” Azan, said.

“I have to import king size mattress bags into Jamaica because there is no manufacturer here that produces bags to that length and width to put the king. Any area of packaging that anyone can invest in there is a great demand for that product in Jamaica,” he said.

Sterling supported Azan’s call, saying that packaging continues to frustrate local manufactures, particularly with bottles. She said Corrpak has been approached to produce plastic bottles and paper products, but that as a result of the company’s size, development phase and space constraints, it cannot respond to those needs now.

“We’ve been asked to look at plastic bottles, but I am inclined to tell you that the plastic bottle market is well supplied,” she said pointing to the Wysinco Group which manufactures and supplies plastic bottles.

Wysinco’s managing director William Mahfood, recently invested $5 million in equipment to get his plant more efficient and competitive. Mahfood is now able to no only satisfy local demand but to export more products as a result of the investment.

Sterling added that going into the manufacture of plastic bags would also be a major shift for Corrpak. “For us that would be a big shift away from what we do, which is not to say we wouldn’t do it. But we’ve never looked at it and I don’t know if the market can sustain it,” she said.

She said for now, Corrpak will be focused on gaining market share in the corrugated packaging business locally, before attempting to extend its reach overseas. Corrpak is currently exporting to Guyana, Columbia, Italy and India.

“We take the view that the local market is our base and we pay attention to it because we want the market to be solid,” she said.

Sterling also said part of the issue that has made the demand for packaging so great now is the import culture that has pervaded the market for too long. “The market has gotten so accustomed to having to import everything that they don’t stop to find out if there is a local option,” she said.

Azan has described manufacturing as a “thriving and adapting to the changing climate” and in need of the support of both investors and customers to help drive its growth.

“We don’t need to perform a miracle to stimulate production. What is necessary is for us as citizens is to create the demand by supporting our brands,” he said. “There are many untapped opportunities.”

Mark Croskery, CEO, Stocks and Securities Limited (SSL), Lead Broker for the AMG IPO noted that “this is an exciting time for players in the corrugated box industry to achieve accelerated growth by accessing capital. As other industries follow suit, this in turn, will act as a catalyst for economic growth.”