Light Manufacturing Sector: Packaging Value Chain Assessment

Over the past ten to fifteen years, there has been significant new investment to establish packaging manufacturing firms that can compete with imports in the Georgian market and which have begun to export to nearby countries in the Caucasus region. Currently, the packaging value chain in Georgia consists of around 20 manufacturing firms that produce three broad categories of products: packaging for goods shipment, packaging for retail presentation, and packaging for food and beverages. The packaging value chain is highly strategic and sensitive to changes in the structure of the Georgian economy. A number of key structural trends are currently underway that are expected to have a positive impact on packaging sector demand over the short- to medium-term. These include the growing share of retail transactions conducted by larger non-specialized retailers, rapid growth in the food service industry, an upward trend in the exports of some key packaged goods, and changes in the business enabling environment that favor paper-based packaging over plastic for ecological reasons. Aggregate trends in output and consumption in the packaging value chain show a spike in overall consumption in 2014 with a drop the next year followed by a slow recovery. However, this overall evolution is underlined by a stronger trend for increased national production of packaging materials, represented by the steeper increase in the blue domestic production line since 2015. By 2017, while overall consumption was still below 2014 levels, domestic production had surpassed the 2014 peak ceiling and had reached an all-time high. The key explanation for this trend seems to be the increasing competitiveness of Georgian packaging manufacturers who are successfully displacing imports. This is clear from the contrasting evolution of the imports (red) and domestic production (blue) lines in Figure 1. Starting from nearly the same amounts in 2013, domestic production has grown while imports have fallen. Thus, while locally produced packaging and imports each had around a 50 percent market share in 2013, by 2017, Georgian packaging manufacturers had increased their market share to 56 percent. The packaging value chain in Georgia consists of a number of business activities that were considered as potential niches for Georgian producers. These include shipping boxes, crates, containers, retail boxes, retail bags, paper cups, plastic industrial stretch wrap, plastic crates, plastic tubs, cups, lids, bottles, and containers for food packaging, cardboard and cardboard boxes, paper cups and paper bags, and plastic containers and wrapping. Employment in the value chain is also rising at a rapid pace, with around 1,500 employees in 2017, representing a 47% increase from the employment levels of 2013. Women constitute 30% of the workforce in the packaging sector, and the vast majority of packaging firms are medium enterprises as measured by the number of employees, with between 20 and 100 employees. However, there are two firms (out of the twenty in the value chain) that can be classified as large enterprises with at least 100 employees. In general, packaging is a capital-intensive business with significant investments in equipment and plant. Major increases in employment tend to go hand-in-hand with investments in plant and equipment. The packaging value chain within the light industry sector consists of a number of business activities that were considered as potential niches for Georgian producers. These include business activities such as plastic containers and wrapping, cardboard containers/boxes, and paper cups/bags. The packaging value chain is expected to continue to grow, driven by demand from businesses and the increasing competitiveness of Georgian packaging manufacturers.