Shift in the Egyptian Glass Landscape

Local Egyptian food processors face a hard challenge, to find the glass needed to package the product because none of the four Egyptian glass manufacturers have the capacity or the inclination to accommodate their order. Even the glass manufacturers themselves admit that the glass industry in Egypt has always been supply-led. In other words, the bottlers, juice makers, brewers and winemakers simply have to accept whatever is on offer.

For at least three years now, the glass manufacturing industry in Egypt has been unable to meet increasing local demand for glass. It is said that the shortage of glass containers is estimated to be anywhere between 15,000 and 125,000 tons annually. Glass manufacturers, on the other hand, downplay the shortage, claiming it is certainly not larger than 60,000 tons annually at the most.

Peter Carpenter, general manager of the Middle East Glass Company (MEG) confirms that "The current [production] capacity of the glass manufacturers in Egypt is around 140,000 tons annually," and admits "It's true that the demand is much higher. We have done a lot of in-house research and we think the demand locally is somewhere in the region of 200,000 tons, so there is a significant gap, particularly in the juice and jam markets."

The current landscape
Egypt's glass container industry is dominated by just four players: Misr Glass Manufacturing (MGM, formerly the public-sector El-Nasr Glass), National Glass Company (Wataneya), Middle East Glass (MEG) and Arab Pharmaceutical Glass (APG). (At least two more are expected to join their ranks soon )

The four factories have comparable production capacities, in the 38,000 to 60,000 tons per year range. MGM, Wataneya and MEG cater exclusively to the food and beverage industry, while APG's plant in Suez is primarily geared to produce pharmaceutical glass. APG is a bit player when it comes to the food and beverage industry: Its main shareholder is the Egyptian Ministry of Health and Population, which obliges it to reserve almost all of its 38,000-ton annual capacity for the manufacture of medicine bottles, despite the fact that profit margins are much higher on juice bottles.

MGM has so far spent some LE 50 million on restructuring the old plant. The plan was to inject the LE 150 million over the course of three years. Despite some complications, the group is proceeding full speed ahead with an ambitious expansion plan. With a current production capacity of 40,000 tons per year, they plan to expand to 70,000 tons by 2006 and 110,000 by the end of 2007.

Middle East Glass, the first privately owned glass company to appear on the local market, back in 1980, is owned by Yemeni tycoon Shaher Abdel Haq. As part of the Shaher Group, which also owns 58% of Coca-Cola Egypt, the company was established 25 years ago to supply glass for the group's soft-drink business. As well as supplying the nation's Coca-Cola bottler, MEG provides glass bottles to the two other major beverage producers in Egypt: ABC and Pepsi. The beverage industry purchases the entire 50,000-annual-ton capacity of MEG's Nasr City factory.

The company now is also becoming interesting for foreign investors. The cornerstone of MEG's expansion plan for the coming three years is not only to expand capacity to supply the increased demand on the local market, but also to tap into multinational supply chains.

Established in the mid-1980s Wataneya, based in Tenth of Ramadan started shortly after MEG. It is owned by the National Development Bank. Like MGM, it manufactures both glass bottles for the beverage and juice industries and jars. The current capacity at Wataneya is reportedly 46,000 tons per year, according to industry sources. It is rumored that the company is currently facing financial difficulties, which could have an effect on any further plans for expansion in the industry.

Why the shortage?
"There are only three glass manufacturers who cater to the food and beverage industry in Egypt, and 75 million people who consume products that are packaged in glass. The wild growth in the food-processing sector during the past five years (by about 35%) has fuelled the increased demand for glass. It is said that Faragallah (market leader in juice) alone is responsible for a large proportion of the shortage in juice bottles. Five years ago, they started out with orders for around 5-6 million bottles per year and are now up to 150 million bottles. MGM, Wataneya and APG all supply Faragallah.

Foreign producers are lining up to tap unmet local demand. Lebanon's two glass manufacturers are already in line to win mayor orders but aren´t considered as serious competitors. Egyptian glass factories can afford to deny smaller orders and start at the very least of 5-7 million units.

Glass imports
"The big companies don't have a problem with the existing factories, but the majority of the market is not as important. The majority are medium-to-small processors. They are looking for high quality and good designs for medium-sized batches of glass, which they can't get on the local Egyptian market."

One manufacturer explains that the issue with smaller orders is not only the cost of acquiring molds. "Changing from one job to another can take three, four hours or it can take 24, it's difficult to predict. Any downtime is money lost for us: Our furnaces have to run 24 hours a day, 7 days a week, 365 days a year. When we are changing a job or running routine maintenance and repairs on our machines, the raw material continues to go into the oven. If the machines are not working, it goes out as waste. That's why small orders and special molds are problematic."

If I have a small order for a design that I am already running on my assembly line, then there is no problem," adds another. "But everyone now wants to have special designs." He points out six different shapes of same size glass juice bottles that his factory manufactures: "I believe it's a waste of resources to have so much variety."

The food processors complain about lack of variety and uniform look of glass on the shelf, because the factories all use the same molds. Imported glass is horribly expensive when considering the cost of shipping and a 55% customs tariff which make such products unattractive for the Egyptian market.

A piece of the pie
But competition is coming, and the next round of investors looks a lot like Al-Ahram Beverages: heavyweights with a vested interest in the industry. Two have already made plays: Kama Glass in Tenth of Ramadan and Wadi Foods in Sadat City. Both are entering a very capital-intensive industry where technical know-how is vitally important.

Wadi has invested LE 90 million in the first phase of a 55,000 square meter facility, which will initially use just one furnace. "We have decided to start our capacity small so that we can get the operation up and running as quickly as possible," says Wadi Holding Vice- President Ramzi El-Nasrallah.

Wadi claims that it will not be competing with the existing glass manufacturers. Instead, it plans to focus on a niche with which the company is very familiar: small and medium-sized export-oriented food processors that are currently importing glass from Italy, Spain, the Emirates and Saudi Arabia at six or seven times the cost of local glass. The location is also strategic because there are no other glass factories serving the area. We will be within close proximity to both Sixth of October and Alexandria. Products can go directly from the desert road to the port in Alex."

Between 2-5% of Wadi's glass production is slated for in-house consumption. The rest will go to both the local market (up to 25%) and exports (70%). The factory is expected to be operational by the last quarter of 2006.

Kama Glass, which began laying the groundwork for its glass manufacturing facility before Wadi Foods, is expected to be operational by the end of this year.

Potential for exports
Egypt's potential for becoming a glass exporter appears strong. Silica sand, the main raw material necessary for glass production, is available in abundance in the Sinai. In fact, Egypt exports silica sand to glass operations in the region. Couple that with the availability of affordable labor, and the logistics are all in place. Egypt can eventually replace the glass factories of Europe. It has all the capabilities to become a major glass exporter including massive natural gas reserves.

"The glass factories that serve the region, not just Egypt, but also in Lebanon, Saudi Arabia, Bulgaria, Italy, Dubai and South Africa, are all booked out through 2006. But food processors are going to need the increased capacities that local factories are now claiming to be in the process of implementing to serve the local market before they can think of exports."

"Initially, we may focus on exports to Africa," a producer says. "Then, as our quality becomes assured, we may be able to enter some of the European markets. The branding issue of 'Made in Egypt' may be a handicap right now, but I don't necessarily think that it is an insurmountable one. It will just take time to change.

He continues: "The industry is on the verge of a dramatic change- It will take about three years for the Egyptian glass industry to meet European specifications for glass containers. "


Source: OGIS GmbH, www.glassglobal.com (The foregoing information was compiled from publicly available information in reports and news releases, Text- and images: Courtesy: Hadia Mostafa, Mohsen Allam)