Making packaging materials: Akij Group’s Tk 1,000cr investment at risk
Akij Group has diversified its export basket by investing more than Tk 1,000 crore in setting up a plant to produce films for packages. However, due to the misuse of the bonded warehouse facility and a lack of tax protection, the company is incurring losses.
Through Akij Biax Films Ltd (ABFL), the group produces films for both single-layer unprinted flexible packaging and multilayer printed flexible packaging.
These films are used in food and garment packaging, lamination on paper, wrappers, tobacco product packaging, and in many other applications.
“We are trying to sustain the business somehow. But it has resulted in negative financials for us. This is very sad for local investors,” said Bashir Uddin.
Akij Group is one of the largest business groups in Bangladesh with diverse interests in textiles, cement, ceramics, printing, packaging, pharmaceuticals, tobacco, food, beverage, and consumer products.
According to Bashir, the local annual demand for biaxially-oriented polypropylene (BOPP), biaxially-oriented polyethylene terephthalate (BOPET) and cast polypropylene (CPP) — all produced by Akij Group—is around 70,000 to 80,000 tonnes.
Although it has the capacity to meet the entire local demand, the conglomerate only manufactures about 25,000 tonnes at the moment. Of that volume, it exports about 10,000 tonnes and the rest is supplied to the domestic market.
“We have the ability to fill the total demand in the local market, but it is highly dominated by imports due to a lack of proper tax protection and the illegal use of the bonded facility,” Bashir said.
He explained that the local market is now full of films that were brought into Bangladesh for the export-oriented industry. However, a group of importers supplies them to the local market illegally.
ABFL’s printing business customers only have to pay 15% taxes on imported films. However, if you import printed materials, you’ll have to pay around 70% tax to support local printing businesses. This protects printing businesses in the country, not the local film producer.
“The difference in tax protection is disproportionate. For a local and new industry to survive after investing more than Tk 1,000 crore with only 15 per cent tax protection is not practical.”
In the industry, there are giant players in India and China and they are much more efficient than Bangladesh, he pointed out.
“Our new company is struggling to compete because we have a higher interest rate and depreciation. We’re being beaten by the misuse of the bonded warehouse facility and tax regulations.”
“Now, our company’s survival is at great risk.”
“We were the first company to introduce the product. But we don’t need 70 per cent protection, we only need 25 per cent protection.”
Bashir recalled that flexible packaging started in the late 1980s in Bangladesh, mostly for powdered milk packaging. The demand for imports soon began to boom with snacks, food, and biscuit packaging, using printed flexible packaging made from polypropylene materials. In order to meet this high demand, some businesses began setting up flexible printing machines.
However, in the late 1990s, a small polypropylene films factory was set up with a second-hand machine. Unfortunately, because it couldn’t ensure high quality standards for food packaging, the business failed.
Akij Group has been in the paper printing business since 1970, so when it decided to enter the market, it had a bit of an advantage. ABFL started commercial operations in 2018 with an investment of about Tk 450 crore. Thanks to gradual improvement over time, the company has turned into an enterprise with an investment of more than Tk 1,000 crore. In order to produce the best quality films, it set up a modern factory in Trishal with all-European machinery. The factory is run by international professionals and employs 700 people.
ABFL has chosen Bruckner Maschinebau (Germany) as its partner for BOPP and BOPET production. Bruckner Maschinebau is the largest manufacturer of film stretching equipment in the world, and ABFL can rely on their state-of-the-art facilities to produce 2,500 tonnes of BOPP films and 3,000 tonnes of BOPET films per month.
In addition, this year ABFL added another CPP line to its production capacity. At its peak, this line can produce 600 tonnes of CPP film per month.
ABFL has also put in place in-house research and development facilities, with the help of experienced professionals. This allows ABFL to keep improving its products and stay at the forefront of the industry.
ABFL exports finished films to 22 countries, including the UK, India, France, Saudi Arabia, Italy, Brazil, Spain, Nigeria, Egypt, the UAE, Qatar, Ukraine, and Sri Lanka. The company has achieved the Food Safety System Certificate, the ISO 9001 certificate and the Good Manufacturing Practice certificate. ABFL’s annual turnover is small compared to the combined turnover of industries that consume packaging materials for their products.
Bashiruddin Ahmed, managing director of the country’s lone producer of BOPP, BOPET and CCP films, said the government could generate six times more revenue by stopping the unethical use of the bonded warehouse facility.
“The government can create the opportunity to generate at least six times more revenue by stopping the unethical use of the bonded warehouse facility,” Bashir added.
