MANUFACTURER OF THE MONTH- Once a month, Inside Industry looks at a manufacturer — whether locally bred or an international player with a manufacturing base here in Egypt. The monthly feature covers manufacturers in different industries to look at their success stories, the challenges they have faced as local manufacturers, and the path forward as Egypt looks to build a more robust local industry. This month, we spoke with Mira El Khanagry, CEO of El Khanagry for Plastics.

El Khanagry for Plastics is a plastic product manufacturer and it’s the second generation of our family business. We merged Technoplast and Modern Seouf Plastics and rebranded to El Khanagry for Plastics. I’ve been with the company since before I even graduated from university, and I’ve really grown up there — starting out as a secretary to now being in charge of the company.

El Khanagry currently focuses on manufacturing packaging, specifically for edible oils and water, preforms, jars, and pharma products. We have a very wide range of products — pretty much anything that falls under the umbrella of packaging. We have manufacturing lines for household items, garden or outdoor furniture, and some industrial supplies like car bumpers, because there’s a large amount of versatility with injection molding machines. However, our core focus remains packaging, and that’s where we direct all of our capacity — industrial supplies are only manufactured for clients on demand.

Currently, our packaging uses PET plastic, and 100% of our input materials are imported, so we’ve really been struggling with that for the past year or more. There are no suppliers of PET plastic here in Egypt, except for one plant in the Suez Canal Economic Zone, but we have to go through the same process and troubles as we do when we’re importing from outside of Egypt, so that doesn’t really resolve our issue. We were lucky that we always try to keep a strategic stock of raw materials on hand, so when all of these problems with the FX situation and import controls started cropping up, we were able to rely on that stock. However, it was when that stock became depleted that the real problems began.

All of our production output is currently sold locally, which means that we don’t have the benefit of having secured a source of FX income to offset the cost and pressure of having FX expenses. And on the local market level, the competitive landscape in our field is a bit tough because you can create products that look more or less the same, but are of vastly different quality, just by using cheaper machinery. If you invest a lot in machinery, the products look the same as their cheaper alternatives and consumers can’t always tell the difference, unless they have high quality standards and know what they’re looking for. That’s one of our edges — we really focus on quality.

To be able to export our products and have a competitive edge — or just have a feasible value proposition — we have to modify our product, which requires investing in machinery to create the right products that are exportable. Of course, I would love to be able to divert some of our production capacity and output to exports, but even the starting point of importing the necessary machinery is difficult because of the current restrictions. There has to be a complete change in the product to be able to export, but if you’re trying to navigate the current difficult situation and just keep your head above the water, you’re not left with a lot of time or room to innovate. Having smooth operations for six months would allow us the space to think strategically and start taking some action on pivoting.

By focusing on the right products to export, you’re diverting the line of production and the whole philosophy of the company — which is definitely something we’d like to consider when we have the space to do so. I would like to export a product that’s more environmentally friendly and is more recyclable. I want to start dabbling in using different materials as alternatives to plastic, without abandoning plastic altogether.

We would also need to have government and policy backing to be able to take the risk of pivoting towards exports. Say, for example, we decide to produce biodegradable packaging. That’s not really widely used or sought after in the local market, so you would need to have the government standing behind you and saying, “Yes, we want to go in that direction,” and then at least providing the business environment — including access to FX — to be able to operate and move forward in that direction. That’s not the case right now.

The analogy that captures our current situation is that it’s similar to sailing a large ship through a storm. We’re a medium to large company — had we been a small sailboat, we would have sunk by now (which many competitors have, and which is good for our business but unfortunate for the bigger picture since a healthy economy needs competition). We’ve been stuck in the middle of an “out of season” storm — ie, unexpected and not something we had planned for — for over a year and a half, and the crew is tired. All we can think about is how to stay afloat, provide for the material needs of the crew, and somehow keep them motivated to wait out the storm, even though nobody knows when that might be. But after such a long storm, the crew is hungry and down (employees’ morale is at a low that we have not seen before), the ship is worn out (even importing spare parts is a challenge), and there is still no destination in sight. When in survival mode, you need some calm sea to redirect the ship (upgrade machinery, innovate products, explore new markets). We’re hoping for some smooth sailing soon.

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