Prospects of Plastics Sector: A Rarely Told Story

Since the discovery of plastic, rapid commercialization has made plastic products an inseparable part of our lives. In fact, about 359 million metric ton of plastics were produced globally earning USD 13.2 billion in 2018 with a CAGR of 6.5%.^[1] Meanwhile, plastic has been recognized as the 12th highest export earning sector in Bangladesh which had an export value of around USD 1 billion in FY 2017-18.^[2]

The plastic manufacturing sector in Bangladesh is mainly labor-sensitive. It currently provides employment to more than 2 million people. As the industry has a cross-cutting relationship with other important sectors such as readymade garments, healthcare, automotive, and retailing as their backward linkage for plastic items, it has a more significant role to play both in domestic and export markets.

Domestic Market Structure

The total market size of the plastic sector stood at approximately USD 2.9 billion in FY 2017-18 while the domestic market size was reported to be at USD 1.9 billion with 20% year on year growth.^[2] The domestic demand comprises household plastics, toys, packaging materials for industries etc.

Due to the unavailability of the polyolefin manufacturing facility which is an important raw material for producing plastic, Bangladesh has to remain import-dependent for raw materials on China, Europe, India, Thailand etc. Despite this, the country currently manufactures over 142 plastic products and the number is snowballing.

The average annual plastic consumption per capita in Bangladesh is about 6 kg which is less in contrast to 11 kg in India, averaging 30 kg in Southeast Asia and 40 kg in Gulf countries.^[3] The number of plastic manufacturing plants reached 5000 while 98% of them belong to SMEs.

Moreover, the sector has been creating impact in employment inclusion as it is currently employing 0.2 million people in small units, 0.5 million in medium and 0.1 million in large enterprises while 0.6 million people are indirectly working with the sector.^[2]

Export Market Overview

Currently, the plastic sector contributes 1.5% of the total exports with a CAGR of 11.5%. During FY 2017-18, the total export earnings from plastic goods were worth approximately USD 1 billion.^[4] The export of plastic goods can be segmented into two major categories; deemed and direct export.

Deemed Export

Deemed exports refer to manufacturing products that will not be exported directly, but are associated with other exports industries. For readymade garments and apparel, plastic is a deemed export sector producing accessories and earning 90% of total export earnings.^[2] In 2018, the plastic industry contributed USD 900 million worth deemed export. More than 80% of the deemed exports include materials for the ready-made garments sector such as plastic hangers, buttons, clips, collar chips, packaging materials etc.

Direct Export

In FY 2018-19, the plastic industry’s direct export was projected to be USD 120 million with 22% year on year growth.^[5] The direct exports comprise mostly household plastic goods, kitchenware and toys.

The export earnings from plastic products had dropped by 16% in FY 2017-18 to USD 98 million from USD 117 million in FY 2016-17 due to the increased raw material price in the global market resulting in lower production.^[2] However, the market has been stabilized and currently, plastic goods are exported to over 68 countries such as the US, Canada, India, China, European countries etc.

Furthermore, a sizable recycling cluster has grown with a capacity to reprocess 140 metric tons of plastic waste per day.^[6] Recycled plastic waste contributes to 26% of the direct exports primarily exporting PET (polyethylene terephthalate) flakes to India which is a raw material to produce packaging materials for food and other consumer goods.^[6]

Plastic Toy Market Eyeing Growth

Even before 2010, the local demand for toys was met by importing toys mostly from China. Currently, the local demand for toys stands at USD 1 billion and the market is dominated by local manufacturers covering 60% of the demand.^[2] There are over 100 toy manufacturers of which approximately 12 are large companies including Hakkani Hark group, Kabir Garden Industries, Sabbir Plastic Industries, Aman Plastic Industries etc.

Having an average annual growth rate of 161% in the previous five years, plastic toys became a recent addition to the export basket earning around USD 40 million of export value in 2016.^[6] For its tremendous growth, the sector was announced as one of the special development oriented sectors in Bangladesh 7th five-year plan. Pran-RFL Group and GSL Exports are the leading toy exporters primarily exporting wheeled toys, plastic models and other toys in countries such as France, Belgium, Japan, Germany etc.

Government Policy Support

The Government of Bangladesh has identified the plastics industry as a thrust sector and has been providing a good number of policy-level support.

Import Duty Exemption on Raw Materials: The plastic industry faces an import duty of 5% in raw materials and manufacturing inputs which used to be 25% before FY 2015-16. The export-oriented industries are facilitated with bonded warehouses allowing them to import materials with no duty or taxes.

Import Duty Exemption on Capital Machinery: Fully export-based industries have zero import duty on capital machinery while an import duty of 2.5% to 7% is imposed upon all other industries depending on the extent of export focus.^[6]

Cash Incentives: Since 2016, the plastic industry started receiving 10% cash incentives on the export of plastic goods.

Major Barriers in the Plastic Sector

Even though the plastic sector showed promising potential to grow, the challenges faced by the industry need to be addressed to utilize maximum potential.

Compliance: Absence of testing laboratories in Bangladesh, compels the country to seek quality certification from Singapore, Germany and Hong Kong. Unavailability of national standards to benchmark the quality of plastic goods often leads to gaining poor perception in the global market. Due to a lack of clarity in regulations, companies face complications in accessing special funds like the Green Transformation Fund.

Lead Time and Costs: The industry has low bargaining power when it comes to price negotiations for raw materials in the global market as the country lacks central bonded warehouses for bulk imports, leading to higher costs of production and increased lead times.

Technical Know-how: Lack of proper knowledge of polymer science and limited capacity of the trainers of local institutions obstructs in the path of developing skilled professionals in the plastic sector.

Generalized system of preferences (GSP) Scheme: Under the GSP scheme, developed countries allow imports from developing and least developed countries with lower or zero duty benefits. Although Bangladesh enjoys these facilities under the European and Japanese GSP schemes, the country was excluded from the USA’s GSP scheme in 2013 due to failing to meet labor rights and workplace safety requirements.

Moving to the Future

The Government of Bangladesh has given tremendous priority to the plastic industry as its growth has a multiplier effect on other important sectors of the country’s economy such as ready-made garments and apparel. The industry is expected to reach USD 7.2 billion at the end of 2023 if it succeeds to maintain a similar growth trend in the domestic and export market.^[2]

Cost and Lead time Reduction: Plastic economic zones should be set up to provide the industry with central bonded warehouses for import materials lessening cost and lead times.

Product and Market Diversification: Quality control mechanisms should be established for diversifying into new products and exploring new markets that will help the market expand and ensure a strong presence in obtaining sustainable growth.

Skill and Technology Upgrading: Plastic related technical educational institutions with qualified trainers will assist the industry to overcome the challenge of unskilled labor and the inclusion of modern technology.

Recycling Industry Expansion: The fact that single use plastics are extremely harmful for the environment is undeniable. However, the plastics can be recycled by 20-30% and can be further used. Therefore, modern recycling plants, waste management systems, trained workforce and necessary infrastructure should be provided in the plastic economic zones which will increase the quality of recycled plastic helping expand the export market.

The lightweight and strength of plastics makes it usable as raw materials in almost every field. To push the growth momentum of the plastic industry to the desired level and reduce import-reliance, a plastic hub should be set up urgently. Strong emphasis on policy implementation should be given to develop an environment friendly ecosystem within the country.

Ishrat Jahan Holy, Trainee Consultant at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]