The $8 Million Kaylite MisInvestment

If you are in Zimbabwe you wont be a stranger to ultimatum ban on the use of Expanded Polystyrene (EPS) that was announced a couple of weeks ago and revoked a few days later with a 3 month grace period to get EPS off the streets. Expanded Polystyrene (EPS) is just me being fancy as article writers are allowed to be but we really know it as Kaylite and everyone seemed to love using it for food packaging. The impact of this ban is huge because anything to do with food generally equates to good business in Zimbabwe. In fact, if anyone wanted to start anything remotely similar to Silicon Valley in Zimbabwe they would have to centre it around food because that’s our thing. The average Zimbabwean has no interest in apps or cryptocurrency; we are already having a hard enough time keeping track of the currencies we have in circulation. Given the success of the food industry and the widespread use of kaylite, it would seem very wise to invest in it right? Well that may have been so a few weeks ago but there’s a company that lost millions and may lose more because of the ban.

The initial ban on kaylite packaging is a mandate of Statutory Instrument (S.I) 84 of 2012 (Yes 2012, this isn’t a 2017 thing). The unfortunate thing is that the ban has kept coming on and off since then. To be more clear the ban has been mentioned every year since then but not enforced. So much so that our biggest supermarkets and fast-food outlets were increasing and not decreasing their use of kaylite. I know with Chicken Inn for example, no more than three years ago the chicken came in boxes (that I liked) then one day they woke up and decided the government could shove their kaylite ban where the sun don’t shine and moved almost completely to kaylite packaging. Chicken Slice, their competition, has never in my memory used anything other than kaylite. Update: This week I did see a Chicken Slice paper box. Progress!

I don’t challenge the fact that there was seemingly a gap in the market that needed to be filled and It was taken; but was it a smart decision? Having established the ban to be from a 2012 SI it means Kaylite has been illegal since then. The responsible office like all others in our country hasn’t acted in the past on this ban but this did not mean Kaylite stopped being illegal.  Though there seemed to be some provisions by EMA in the past, these have not seemed to be very clear and as such the ban came back overnight. How do you invest in something that is illegal and then go on to get a large chunk of the industry’s business off that?

Towards the end of 2016, Versa Pack who were the biggest kaylite manufacturers at the time closed down. I may not know too much about the circumstances leading to their shutdown but now it seems less like a heartbreak for Versa Pack. In the midst of that shutdown, a new player took control of the space and that was Planas Trading. These guys were set to provide 40% of Simbisa Holdings’ kaylite packaging and Simbisa currently buys close to 2 million kaylite packs monthly. Simbisa owns Chicken Inn (and their nasty beef burgers ), Fish Inn (that has been closing in all the places I love to eat) and just about everything we know to be Innscor. The real key takeout is that Planas had landed the sort of deal that sets you up…maybe for life.

So the smart management at Planas went on to invest in new machinery (obviously to reduce unit costs and increase capacity) and a patch of land to set up this machinery.  Planas this year spent $1.2 million on land for expansion in addition to the $6 million they have already spent in building up their plant. EMA (the Environmental Management Agency) then remembered that they had banned kaylite and decided to enforce over night. A sharp wake up call to Planas who I’m sure where wondering why EMA reared it’s ugly earth protecting head a little too late for them. That is expansion plans gone to the dump straight away. The idea was great, just unfortunately dependent on government authorities not doing their job which isn’t the case now.

Belina Payroll - The Leading Force in integrated Payroll and HR Software Support
Sponsored Ad

This is me just thinking now. A lot of money has been poured into the machinery, the land, the inputs to produce the kaylite; and now they are stranded. Even if Planas attempts to push the kaylite into the market with the remaining three months it will be hard. Good companies will be working on the alternatives and how to reduce the costs of those. Hunyani and NatPrint (paper based packaging firms) will be rubbing their hands gleefully at the coming business. Hopefully Planas can ship their machinery off into a neighbouring country that hasn’t gotten around to banning kaylite yet. If the ban was just on the use of kaylite maybe Planas could’ve exported the material but this is truly a difficult situation. Maybe they can talk to Kaylite King who seem to have lots of alternative uses for kaylite (among them flower pots, cooler boxes and cistern floats)

The greater good is the good health of Zimbabwean citizens so the ban itself is good. Environmentally it puts us in a better position as well. Our cities were getting filthy thanks to kaylite and near non – existent refuse collection activities of or municipalities. If you were to give it a tag of either Brilliance or Blunder what would you give Planas for their decision to  invest their kaylite plant in a country with a Kaylite ban.

 

Advertisements

6 comments

    • At the time it was obviously brilliance…the sheer number of eateries popping up left, right and centre would’ve easily sustained them and quickly gotten back their ROI unfortunately, as with all businesses in Zim,no one can tell which law is going to be resuscitated. It created it over night so it’s quite unfortunate. Exporting may just be the option at this stage,to curb redundancies and to bring in the much needed fires

      I understand other uses of kaylite have also been banned and unbanned (to be banned again like the food packaging) users will also have to look for alternatives so pot plant and Kaylite chips guys will also have to look at alternatives.

      Always a pleasure reading your articles Mr Moyo!

      Liked by 1 person

  1. I think it was a blunder from the onset by investing heavily into an illegal product without a backup plan. If I were the CEO of Planas, I could have looked into the paper business and started it on a small scale, just in case the worst reality came to life like it did…We would suffer losses, but gradually ease ourselves into the paper business.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s