Bamburi Drops supplier to reduce costs

Bamburi Drops supplier to reduce costs
Published: 01 March 2005

Hundreds of jobs in the Kenyan paper sector may be lost, after a leading cement company decided to import bags for its products.  The move by Bamburi Cement Company is a major consumer of locally-manufactured cement bags leaves the giant Pan Africa Paper Mills in a bit of a quandary as it fights to plug a Sh7.2 billion exposure ,according to confidential documents.  Bamburi manufactures nearly 60 per cent of cement sold in Kenya. Citing breakages and losses, the firm has decided to import woven Polypropylene (WPP) which can be recycled. 

Environmental issues aside, East African Packaging Industries (EAPI) was also supplying the firm with sacks; now its Mombasa factory faces a bleak future.  Bamburi uses 21 million cement bags every year, which it has been buying from EAPI for the last three years. Already, over half the workers at EAPI’s Mombasa factory are on notice. 

What is even more worrying is that East African Portland Cement Company, in which Bamburi owns a substantial stake, could as well choose to import its bags.  "The bottom-line impact of the introduction of WPP bags is a reduction of 12 per cent to 16 per cent of spending on cement bags, which works out to about Sh60 million per annum," Bamburi said in a statement to BusinessWeek.  East African Portland manufactures nearly two-fifths of cement sold in Kenya, and is a major lifeline for EAPI (and Pan Paper) with which it has a contract set to end in June this year. 

The firm will carry on making sacks for EAPCC and Seychelles Cement Company. Lafarge holds stake in both meaning changing into WPP in the near is not a far-fetched possibility. Its affiliates in Zambia, Tanzania (where the modern Rasia plant is churning out the WPP bags), Malawi and Zimbabwe have already made the switch as has Tanzania, and Bamburi is talking of regional standardisation of packaging.  Lafarge also has interests in Uganda’s Hima Cement. WPP bags are touted to reduce the risk of adulteration and theft, common in Uganda. 

All industry players BusinessWeek talked to were swift in admitting the commercial logic of the Bamburi move. Breakages in cement sacks is a source of major losses, with the firms bearing the loss.  "To help the customers recoup losses due to these breakages, the company has been issuing rebags for free. With WPP implementation, the cost of rebags being five per cent of total packaging cost, will be eliminated," said Bamburi. 

The Lafarge firm says that before the oil prices assumed an upward trend, savings would have amounted to a 20 per cent reduction in cost, translating to $1.2 million (Sh92.4 million). At the time, the WPP bags were going for $0.20.  "We expect that a future reduction in fuel prices could see us make the savings indicated here," said Bamburi. 

What could be at issue, however, is the environmental factor, with the change coming amid calls for a ban on non-biodegradable plastic packaging.  The proposed bill could be the reason few players would deign to invest in either upgrading production lines, or building new plants to produce Polypropylene bags, despite ready demand from Bamburi and sugar factories.  Bamburi has won international plaudits for its famous Haller Park conservation project, and ditching bio-degradable paper for WPP provides fodder for environmentalists as well as opportunists.  The firm, nonetheless, is rolling out a buy-back project, where it is paying a shilling for each bag, which is to be recycled. 

Besides hailing the toughness of the WPP bag and its water resistance, Bamburi has come up with a list of why the product is good for the environment. One is that it conserves forests. For Pan African Paper Mills, who certainly have planted trees for manufacturing paper, this might not sound very interesting.