Paper Industry of South Africa.doc.docx

AGLOBAL / COUNTRY STUDY AND REPORTonPAPER INDUSTRY OF SOUTH AFRICA

Submitted to(N. R. Institute of Business Management, Ahmedabad)IN PARTIAL FULFILLMENT OF THEREQUIREMENT OF THE AWARD FOR THE DEGREE OFMASTER OF BUSINESS ASMINISTRATIONInGujarat Technological UniversityUNDER THE GUIDANCE OF

Faculty GuideProf. Juhi ShahProf. Shweta BambuwalaProf. Neha Rohera

Submitted byRavi Shah-117350592016Mohammed Bharmal-117350592042Pratik Govani-117350592057Zil Shah-117350592062Vaibhav Chauhan-117350592115Kandarp Thakkar-117350592155 [Batch: 2011-13]MBA SEMESTER IV(N.R. Institute of Business Management)MBA PROGRAMME

Affiliated to Gujarat Technological UniversityAhmedabadApril, 2013DECLARATION

We, Ravi Shah, Mohammed Bharmal, Pratik Govani, Zil Shah, Vaibhav Chauhan and Kandarp Thakkar hereby declare that the report for Global / Country Study Report entitled PAPER INDUSTRY OF SOUTH AFRICA is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged.

Place: Ahmedabad

Date:

NAMESIGNATURE

Ravi Shah117350592016

Mohammed Bharmal117350592042

Pratik Govani117350592057

Zil Shah117350592062

Vaibhav Chauhan117350592115

Kandarp Thakkar117350592155

Page | iN. R. Institute of Business Management (GLS-MBA)

Certificate

This is to certify that Mohammed Bharmal, Vaibhav Chauhan, Pratik Govani, Ravi Shah, Zil Shah, Kandarp Thakkar Enrolment Numbers 117350592042, 117350592115, 117350592057, 117350592016,117350592062 and 117350592155 respectively student of N. R. Institute of Business Management (GLS- MBA) have successfully completed their Global Country Report titled on Paper Industry of South Africa in partial fulfillment for the requirements of the MBA programme of Gujarat Technological University. This is his original work and has not been submitted elsewhere.

DirectorFaculty Guide

(Dr. Hitesh Ruparel)Prof. Juhi Shah Prof. Shweta Bambuwala Prof. Neha Rohera

Page | iiPREFACE

To be an MBA student is a matter of pride which helps you to develop from a normal human being into a disciplined and dedicated professional. In the management field you cannot create success storied if you are not well learner.

Mere theoretical knowledge cant help you in any field whether it is management, technology, research or any other field. The only thing that can help you is having a sound practical knowledge of the concerned field is a part of my learning in management field and also fortunate of the MBA programme. We have been fortunate to receive practical knowledge in one of premier organization- NRIBM.We have tried to present whether knowledge we gained and learned at NRIBM during our project period in a very systematic manner.

Page | iiiACKNOWLEDGEMENT

We express our heartfelt gratitude towards the people who have been of great help to us in carrying out this project in the best manner possible.

We are obliged to N. R. Institute of Business Management which has given us an opportunity to get practical knowledge in the field of management and also for helping us to undergo this project. The learning during this project has been a great experience.

Most importantly we would like to thank Prof. Juhi Shah, and her support in the preparation of this project and guiding us. Finally, we should like to thank all those who directly and indirectly contributed to this project. This project was an excellent opportunity for us to relate our classroom course to the real business.Last, but not the least we would like to thank our parents, who had directly or indirectly helped us in preparing this project report and gave their valuable time to help us.

Page | ivEXECUTIVE SUMMARY

SOCIAL ANALYSIS

South Africa is one of the most diverse countries among the world. Many urban areas in South Africa have a different ethnic group that reflects the whole population. The population of South Africa includes the original black peoples and European, Chinese, Indian and many more from rest of the world have migrated to South Africa. The South African culture and etiquettes is much complicated and not easy describe due to its diversity.

THE FAMILY IN SOUTH AFRICA:

The South African family consists of the small nuclear families and extended families. The colored and more conservative/conventional Afrikaans cultures gives more importance to extended families than the small and nuclear families, while the white English-speaking community gives more importance to the nuclear family.

THE RURAL/URBAN DICHOTOMY:

In South Africa a huge differences is seen between the rural and urban areas. More than half of the white people living in rural areas are Afrikaner farmers who are descended from the Calvinists descended. They view world as narrow, and they give value to human civilization above materialism.

Many rural black people of South Africa are still attached and follow their old traditions; on the other hand the urban black people are more and more influenced by the urban environment and international and modern life style that surrounds them.

ETIQUETTE IN SOUTH AFRICA:

Several greeting styles are prevailing in South Africa, it depends on the type of person you are meeting and also on the culture and tradition the person follows. While meeting or gathering with foreigners, most of the South Africans shake hands and maintaining their eye contact with a smile on their face.

There are two main occasions in the South Africa when the tradition of gift giving takes place. Birthdays and Christmas are the two main occasions for giving present to someone. The South Africanpeople celebrate their 21st and 40th birthdays by giving huge party and a lavish gift for the near ones.

Page | vSouth Africans do not believe in long relationships or creating a personal relation in conducting a business. These people are more of a transactional nature. Major differences are seen in communication style prevailing in South Africa; it purely depends on the cultural heritage on an individual. In most part of South Africa the people keep harmonious working relationships among each other and avoid conflicts.

These people often use the metaphors and sporty language to demonstrate a point. Most of the South Africans, although ethnic, prefer to meet face-to-face above common communication means such as telephone email, letter, etc.

It is very important to develop mutual trust and understanding before any business negotiation.

DEMOGRAPHY:

The population numbers approximately more than 50 million, which comprises of formally recognized Bantu-speaking groups; the white Afrikaners the Dutch descendants, the German people speaking Afrikaans, the French, and a variety of Dutch; the English speaking descendants of British; a multiracial that speaks Afrikaans and/or English; and the Indian immigrant who primarily speaks Tamil and Urdu.

Seventy percent of the populations in South Africa are the black Africans, whereas the white people make up eleven percent of the total population, Coloureds are eight percent, more than two percent are Indians, and other minorities come under less than two percent of the population.

HISTORY AND ETHNIC RELATIONS:

The South Africa has rich abundant of early human fossils which are found in Sterkfontein and other places. The earliest modern citizens were the San known as Bushman hunter gatherers and the Khoi people called the Hottentot, who herded domestic animals. The San are said to have their presence in South Africa since thousands of years and the rock art, the ancient cave paintings give the evidence of their presence in South Africa.

After the annihilating the San and Khoj, the Bantu speaking people and the European colonist had many conflict against each other which continued till democratic transformation of 1994. The black Africanrulers founded a large, powerful kingdoms and nations at the time of colonial expansion possible through

Page | viincorporating neighboring leaders. The result of this incorporation was the emerging of the nations like Zulu, Xhosa, Pedi, Venda, Swazi, Sotho, Tswana, and Tsonga, along with the white Afrikaners.

History says that Afrikaners considers themselves as the true South Africans, and while giving the citizenship to all the inhabitants of European descent, denied that status to people of colored until the democratic transition of 1994. These European decent retain a connection to Europe and also maintain their identity of being the South Africans.

There is a strong sense of cultural separateness and individuality which coincides with the practical forms of cooperation and common identification of population. The diversity and division within cultural groups and the balance of problems between those groups throughout the 20th century prevented civil conflict among the ethnic groups in the country.

So uth Afri ca s Paper and Pul p I ndus try

The paper packaging industry in South Africa is said to have been started in 1780, when a Cape Town woman, used paper to wrap fruit and send it to the Dutch East Indies. By the turn of the nineteenth century, there were scores of cardboard box makers in Cape Town, and on the Reef. In 1910 the newly formed Government of the Union of South Africa set up a commission to investigate the extent and nature of manufacturing in South Africa. The packaging industry grew and diversified along with the growth of the South African economy. In the post World War 11 years, in particular, the industry expanded rapidly, with new factories opening almost every year in the 1950s. During the 1970s and '80s, the packaging industry became increasingly concentrated, and now dominated by a few large companies. The manufacture of other converted paper products, such as tissue products and printed articles, followed a similar history.

South Africa is the nation, which is only African producer of pulp and paper after Swaziland. South

Africa produces approx. 370,000 tons of mechanical wood pulp, 1,400,000 tons of chemical wood pulp,

315,000 tons of newsprint, 960,000 tons of printing and writing paper and more than million tons of other paper and paperboard each year. South Africa imports $US 400 mn of paper and paperboard each year. The major pulp and paper companies operating in South Africa are Sappi and Mondi. Margins in South Africa have traditionally been 6% higher than overseas making it a very lucrative $US 2.5 bn market. As a resultMondi is reconsidering major investments following the downturn in the international pulp price. The

Page | viicompany planned to spend R500 mn including R 268 million on upgrading the Kraft Piet Retief Linerboard plant and the Merebank mill.

In 2009, the forest and forest product sectors value-add was R23 billion, equating to 1.4% of South Africas gross domestic product (GDP). A total of 207,967 people are employed in the sectors value chain. Pulp and paper sectors direct contribution to South Africas balance of payments (BoP) in 2010 was an impressive R4.5 bn.

Major Grades of Paper are printing, writing, packaging, personal products, etc. others are

Page | viii Paper Production & Consumption in South Africa 2011

(All values in metric tonnes)

Paper

ProductionPaper

ImportPaper

ExportPaper

Consumption

Newsprint316,72513,90055,512275,113

Printing/writing473,759562,060173,265862,554

Corrugated

materials/containerboard

993,235

87,211

302,025

778,420

Other wrapping papers89,169089,169

Tissue203,48058,11911,247250,352

Other paper98,41165,00843,984119,435

Board27,87627,876

Total2,202,655786,298586,0342,402,919

Major Players of the industry are:

Mondi Group

Sappi

Nampak

Mpact

South African Paper Mills

Major Products offered by the Industry are:

Containerboard

Kraft Paper

Page | ixCorrugated Packaging

Industrial Bags

Extrusion Coatings

Consumer Goods Packaging

Advanced Films & Components

Office Paper

Professional Printing Paper

Coated and Uncoated Paper

Present trade with quantity and amount of paper firms in South Africa

A) Mondi Group

Revenue: 5,739 million EUR Profit: 357 million EUR Production: 5 million MTPA Employees: 23,400 Approx.B) Sappi

Revenue: 6,347 million USD Profit: 104 million USD Production: 5.4 million MTPA Employees: 15,100 Approx.C) Mpact

Revenue: R 6,821million Profit: R313 million Production: 0.9 million MTPAEmployees: 3,700 Approx.

Page | x WTO General Trade Implication for Paper Industry of South Africa

Achieving free and fair trade in forest and paper products a statement by leading global forest and paper industries in Geneva, Switzerland July 2003. These industry representatives are united in their belief that accelerated trade liberalization of forest and paper products, mainly through the WTO, provide a means of expanding output, economic and employment growth and easing poverty.WTO members should move with the greatest possible speed towards the goal of eliminating all tariffs on forest and paper industry products, whether by ambitious formula approach to eliminate tariff, expansion of current zero to do zero deals, or a combination of these mentioned approaches, taking accounts of established WTO provisions in respect of developing countries.

Barriers Applicable to Paper Industry of South Africa

Water Licenses

Skill development & Technology transfer

Investment

Demand of raw materials exceeds supply

Trade Policies in Paper Industry of South Africa

South Africa supplies less than 2% of international demand, though physical volumes have grown substantially over the last decade. Although South Africa is in a position is not among the dominant producers, consumers or exporters in the world pulp, paper and board industry, South African companies have evidently established themselves as significant players in the international market. This principle recognizes that raw material exports from a region or country could be beneficial and thus value can be added to them locally.

There are different policies for:

Tariffs

Nontariff Measures

Antidumping Measures

Page | xiGovernment Procurement

Property Right Protection

Technological Advancement Taking Place into the Paper Industry of South Africa

A large number of innovations in technology, process and management in the pulp and paper industry that can contribute to more environmentally kind pulping and bleaching methods, better use of recycled paper and fillers and recycling of in house water. They made a distinction between available and emerging technologies. Emerging technologies are stock preparation (pulping), the use of recycled paper and paper production proper.

Demand Drivers for Paper Industry

Increase supply of raw materials (fiber)

Ease supply constraints for downstream processing activities

Increment in downstream processing activities

Ease supply constraints for self-governing saw millers

Page | xii I ndia s Pa per and Pul p Indus try

Indian Paper Industry is a booming industry and is expected to grow in the coming years. The consumption of paper cannot be ignored and this awareness is bound to bring about changes in the paper industry for the better. The Indian Paper Industry accounts for about 1.6% of the worlds production of paper and paperboard. The expected turnover of the industry is around Rs 25,000 crore (USD 5.95 billion) approximately and its contribution to the exchequer is around Rs. 2918 crore (USD 0.69 billion). In 2009-10, the country produced around 9.2 million tonnes of paper, growing at an average 7-8% compared with 2% growth rate in developed countries. The paper industry growth is forecast at 8.4% annual growth rate, touching around 11 million tonnes in 2011-12and 15-16 million tonnes by 2015.In 2009, the annual operating capacity was 9.2 million tonnes and annual production was 7.4 million tonnes, and with currently undertaken expansions, another 1.5 million tonnes is expected to be added by 2012. Per capita consumption increased from 8.4 kg during 2008-09 to 9.2 kg in 2009-10, with a growth of 10.6%.

Estimated paper demand

Paper demand statistics2005200620072008200920102011

Per capita consumption (Kg)77.37.88.39.189.410

Growth (%) in per capita consumption4.20%6.80%6.40%10.60%3.20%6.30%

Indian population (mn)1,0961,1141,1311,1471,1641,1821,199

Growth (%)1.60%1.50%1.40%1.40%1.50%1.50%

Total paper demand (mn MT)7.78.18.89.510.210.212

Growth (%)5.80%7.80%8.10%8.10%8.10%8.10%

Major Players in the Industry

Ballarpur Industries Limited (BILT)

Hindustan Paper Corporation (HPC)

ITC

Tamil Nadu News Print Limited (TNPL)

JK Paper

Page | xiii Major Products offered by the Industry

Writing

Printing

Stationery

Kraft paper

Recycled board and virgin board

Tissue paper

Newsprint paper

Present Trade with Quantity And Amount of Paper Firms in India

A) Ballarpur Industries Limited (BILT)

Revenue: Rs. 4747.8 Crore Profit: Rs. 800.9 Crore Production: 886,230 MTPA Employees: 3,000 Approx.B) Hindustan Paper Corporation (HPC)

Revenue: Rs. 1041.38 Crore Profit: Rs. 88.31 Crore Production: 282,712MTPA Employees: 2,000 Approx.C) ITC

Revenue: Rs. 3,667 Crores Profit: Rs. 819 Crores Production: 558,884 MTPAEmployees: 3,500 Approx.

Page | xiv Barriers to Paper Industry in India

Enhancing Industrys competitiveness for facing worldwide competition.

Economies of scale.

Defragmentation of industry

Modernizations of mills

Building new capacity

Meeting additional demand of paper

Productivity improvement

Creation of raw material base

Environmental up gradation, green technology

Setting mechanism to collect, sort, grad and utilize the recyclable waste paper

Present Trade Policies in Terms Import-Export in Paper Industry of India

India imports about two million tonnes of pulp (soft wood and hardwood) and waste paper (sack waste for unbleached grades, envelopes and magazine waste) for newsprint. Major exports are following grades of papers: A4 copiers, wood-free which is from bamboo and agro waste by small mills, MG varieties which is come from small agro based mills, coated duplex which are mostly recycled fiber and large quantity of converted products like books, stationery items, magazines, childrens comic books and comics which is exported to Middle East, South-East countries, Eastern Europe and US.

Since 1992, the govt. has taken further steps to improve the situation of the paper and pulp sector. Govt. include excise rebate to small units, customs duty on the import of paper grade pulp and wood chips, remove statutory control over production, distribution and price of white printing paper and provision of infrastructural through increased allocation of coal and wagons. Import duty on paper and pulp in 1991-92 was 140%, it has since gradually been reduced from 65% to 40% and further to 20% in 1995. Yet, customs duty on inputs and intermediates has not been brought down on comparable scale. Total import of wood pulpfor the production of newsprint and newsprint products are allowed on more flexible scale.

Page | xv Technological Advancement Taking Place into the Paper Industry of India

Now Indian mills are increasing their capacity for putting up the chemical recovery system. Rigorous environmental laws, increasing energy cost, chemicals and other utilities and increasing demand of high brightness paper are forcing the paper industry to adopt improved pulp washing systems and modifications in bleaching practices. Large sized mills, bamboo based, wood and bagasse are producing pulp with conventional Kraft process and are well equipped with chemical recovery system while the small and medium size paper mills based on agro-residues are following soda process without chemical recovery.

Grow th Drive rs of In d ias Pap e r an d Pu lp In du stry

Economic growth

Targeted growth of 12% for manufacturing sector

Increasing literacy rate

Increasing govt. spending on education

Population growth

Changing demographics

Higher urbanization (2.5% growth)

Higher proportion of young adults

Increasing living standards

Demand for high quality magazines

Lifestyle changes & media growth

Page | xvi Industry Comparison of India and South Africa

INDIASOUTH AFRICA

Per capita consumption9.2 kg86 kg

Total production11 Million MTPA4.5 Million MTPA

Total Turnover of the IndustryRs. 25,000 CroresR 2,600 Crores

Major PlayersBILT,HindustanPaper

Corporation, ITC, TNPL, JK Industry.Mondi Group, Sappi Group,

NAPMAC, Mpact

Products Offered by the firmsWritingandprintingpaper,

Paperboard, Speciality paper, Newsprint paperContainerboard,KraftPaper,

Packaging paper,Industrial Bags, Coatings, Release Liner, ConsumerGoodsPackaging, Advanced Films &Components, Office and Professional Printing Paper

Present Market Shares (%)BILT 17%, Hindustan Paper

Corporation 8%

ITC 16%, TNPL 9% JK INDUSTRY 7%

Technological AdvancementFiber lineA sectoral analysis of wood,

paper and pulp, R & D, Fiber quality

BarriersEnhancingIndustrys

competitiveness toface worldwide competition, Economiesofscale,De- fragmentationofindustry,Waterlicenses,Skill

developmentandtechnology transfer,Investmentfinance, Land tenure, Demand of raw material exceeds supply

Page | xvii

Modernization of mill

Building new capacity, Meeting additional demand of paper, Productivity improvement, Creation of raw material base, Environmentalupgradation, greentechnology,Setting mechanism to collect, sort, grad and utilize the recyclable waste paper

Requirements of ResourcesFibers,wood,technological

resources, PulpFibers,wood,technological

resources, Pulp

Comparison between BILT and MONDI

Ballarpur Industries Limited

(BILT)Mondi Group

LocationIndiaSouth Africa

RevenueRs. 4747.8 Crore5,739 million EUR

ProfitRs. 800.9 Crore357 million EUR

Production886,230 MTPA5 million MTPA

Business MarketIndia, MalaysiaEurope, Russia, South Africa

and emerging markets

(approx. across 30 countries)

Buying business in other countriesMalaysiaAustria, UK, France, Russia,

Slovakia, Poland, Hungary, Denmark, Netherlands, Bulgaria, Italy, and Mexico

Page | xviii

SubsidiariesBallarpur International

Graphic Paper Holdings

B.V.

BILT Graphic Paper

Products Limited

Sabah Forest Industries

Largest pulp and paper company of Malaysia

BILT Tree Tech LimitedAustrias Neusiedler AG

and Frantschach AG

Cofinec in Poland

Russias Syktyvkar mill

And in many more countries

DivisionsFor Indian country onlyEurope & International and

South Africa (two divisions separately)

Strategically viewsIntegrity

Imagination

IndividualLeading market positions

High-quality, low-cost asset base

Focus on performance

Key Products1. Coated woodfree

Art Paper C1S

Art Paper C2S

Art Board C1S

Black Centered Board

LWC

SBS Board

2. Uncoated Woodfree

Hi-Brights

Creamwove

3. Business Stationery

Bonds1. Containerboard

Appearance

Kraft

Semi Chem

Recycled

2. Kraft Paper

Sack Kraft Paper

Market Pulp

Specialty Kraft Paper

3. Corrugated Packaging

Eco Line

Easy Line

Page | xixKey Products (Cntd.)4. Copy paper

Premium Copy Power

5. Specialty and Fine

Cartridge

Ledger

6. Industrial Grades

Ivory Boards

Posters

Smart Line

Packaging Types

Applications

Technologies

4. Industrial Bags

Pasted Open Mouth

Bags

Pasted Valve Bags

Pinch Bottom Bags

Refuse Bag

Protector Bags

Terra Bag

FIBCs / Big Bags

Features

Filling Equipment

Industrial Bags production videoEurosac presents

Russell the Spruce

5. Extrusion Coatings

Technical Coatings

Consumer Coatings

6. Release Liner

Building / Roofing

Envelopes

Fiber Composites

Graphic Arts

Hygiene

Labels

Page | xxKey Products (Cntd.)Medical

Tapes

7. Consumer Goods Packaging

Stand Up Pouches

Reclosable Bags

(FlexZiBox)

Non-Reclosable Bags

Paper-based Bags

Microwaveable

Packaging

Labels

Special Product

Features

Printed Laminate and Barrier Materials RollstockPrinted Mono Film

Rollstock

Biodegradable Films - Sustainex

8. Advanced Films & ComponentsDiaper components

Femcare components

Label film

Laminating film

Tube Laminating FilmsSurface protection films (temporary)

Page | xxi

Key Products (Cntd.)Surface protection

films (permanent)

Transport and pallet protection

Industrial films for form-fill-seal (FFS) applications

9. Office Paper

Multifunctional papers

Color laser papers

Creative Papers

ColorLok

Green Range

10. Professional Printing

Paper

Digital printing

Pre-print

Offset printing

Green Range

Market Positions 53% of the coated wood-

free paper market

An impressive 80% of the bond paper market

35% of the hi-bright

Maplitho market No. 1 in office paper and

UFP in Europe

No.1incorrugated packagingin emerging Europe

No. 1 in Kraft paper in

Europe

No. 1 in industrial bags in

Europe

Page | xxii FINDINGS

Findings from South African Paper Industry

The pulp and paper manufacturing industry is an important contributor for South African economy. 1970 onwards, annual growth rate has surpassed the international average, contributing R 3,526 million per annum to South Africas economy. Major part from this is invested in local resources, innovation and local human power. In 2009, forest and forest product sectors value add was R23 bn, equating to around 1.5% of South Africas GDP. A total of 2 lacs people are employed in the sectors value chain.The overall industry turnover is reached to R 26,000 million in 2011. Per capita consumption is

86 kg per year and total production is 4.5 million MTPA per annum. Major grades offered by the industry are for printing, writing, newspaper, packaging, tissue papers, etc.Major players of the industry are Mondi, Sappi, Mpact, Nampak, South African Paper Mills, etc.

But Mondi and Sappi have major of the industry stack.

Major products offered by the industry are containerboard, Kraft paper, corrugated packaging, industrial bags, coatings, release liner, consumer goods packaging, advanced films &components, office paper, professional printing paper, etc.Imports have continued to increase fairly strongly at around 3.5% per annum since 2006.

Packaging and Tissue papers import is increasing. It shows that there is significant growth in

consumption of packaging and tissue paper.

Pulp exports are growing strongly in recent years, with most other grades decline as exports.

Findings from Indian paper Industry

The INR 25,000 crores Indian paper industry is of about 1.6% of the worlds paper and

paperboard production though the country is having stack of about 16% in the global population.

11 million MT of paper production is done in each year. Growth rate is of about 8.4% annually.

Paperboard accounts for around 47% of the total market size, writing and printing paper having

29.6%, newsprint having 19.5% and specialty paper having 3.6% stack.

Page | xxiiiPer capita consumption is 9.2 kg.

Major players in the industry are BILT, ITC, HPC, TNPL, etc.

Writing and printing paper, paperboard, specialty paper, newsprint paper are the major products offered by the industry.Improving industrial competitiveness to face global competition, economies of scale, de- fragmentation of industry, modernization of mills, building new capacities, meeting incremental demand of paper, productivity/quality improvement, creation of robust raw material base, environmental up gradation and green technologies, setting mechanism for collection, sorting, grading and utilization of recyclable waste paper are the main barriers to the industry.Indias per capita usage of paper has become doubled in the last decade and this growth is

expected to continue.

Moreover, India is the 15th largest paper consumer in the world, which amounted around 11.49 million tonnes per annum in FY2012. It is one of the quickest growing markets in the world, with approximations proposing a market size increase to 20 million MTPA by 2020.

Identification of the Opportunity to Get Supplies from the Foreign Market for Indian Company to Get Cost Advantages

Major issue for India's pulp and paper sector is very high cost of production, which is caused by less availability and high cost of raw materials.Energy cost has increased on account of inadequate availability of coal thereby increasing imports. No availability of good-quality fiber, plant size that is uneconomical, technologic obsolescence and environmental compliances are a big challenge.Paper mills of India have remarkable opportunity to improve their profit margin by increasing their investments in automation systems and enterprise solutions, and integrating them to achieve collaborative production management.Mondis great quality, satisfactory invested assets and its focus on very low cost production continue to be major competitive advantages.By having technology from company like Mondi, Indian mills can reduce their cost of production.

Page | xxivIt appears that in South Africa there is increasing pressure for the collection of recycled materials, specifically to drive the reduction of costs and therefore remain economical. Recycling rate is continues to improve, with some grades increasingly exported. Over a million metric tonnes of paper was collected for recycling with a value of approximately R640 million.So Indian paper industry should use the technology, which is used by the South African industry for the recycling of paper.

Gap Analysis between MONDI and BILT

BILT caters primarily to the writing and printing paper segment. They have also their presence in specialty paper and the tissue paper business.While Mondi group is an international paper and packaging group specialist in containerboard, corrugated packaging solutions, Kraft paper, industrial bags, coatings, release liners, films, consumer bags & pouches as well as office, pre-print and offset paper.So, BILT can import other than writing and printing papers from Mondi group to cater Indian market.

Gap Analysis between Indian and South African Paper Industry

Indias major import is Pulp (softwood and hardwood). India imports about two million tonnes of pulp and waste paper (sack waste for unbleached grades, envelopes waste and magazine waste) for newsprint.While South Africas main export is Pulp and it is growing strongly.

So, here India can import pulp from the South Africa, where which is easily available.

Page | xxv CONCLUSION

The major Paper industry firms that we have discussed here like Mondi, Sappi, Mpact, Nampak, etc. filled with various new and valuable paper products that they provide to the people of South Africa. The trade taking places in this firms also noticeable and profitable to the economy of the country. The legal aspects and barriers in Paper and Pulp industry are also hard to understand and manageable.

Also we can see that when compared to the paper industry of India the results are somewhat satisfactory. The working of the paper industry in both the countries is different and from the findings it is clear that the South African paper sector remains highly concentrated. Large number and variety of products are offered in South Africa. Necessary raw material like Pulp is easily available there.

Technically and economically South Africa focuses on paper and pulp industry more than the Indian paper and pulp industry. South Africa comes up with the lots of innovative and modern techniques in production.

BILT can expand its product line from writing and printing paper segment with the help of MONDI Group. BILT can cater Indian market with the variety of paper products. They also can have technological advancement to have low cost production.

There are opportunities to enter the paper industry in South Africa but with the help of deep research and required resources only. With the challenges like management of risks, growth of paper industry, currency exchange, availability of raw material, global economy, environmental laws and government laws, it is necessary to understand the whole structure of the Paper industry.

Indian paper industry is in growth stage and this industry will be booming in upcoming years and in this time joining hands with South African paper industry will be very fruitful for us. Paper industry plays thevital role in the growth of both countries GDP.

Page | xxviTABLE OF CONTENT

PREFACE ..III

ACKNOWLEDGEMENT .....IV

EXECUTIVE SUMMARY ...V

Chapter

No.TopicPage

No.

1PAPER INDUSTRY OVERVIEW

1.1 GENERAL INFORMATION ABOUT THE PERFORMANCE OF PAPER INDUSTRY OF SOUTH AFRICA

1.2 MAJOR PLAYERS AND OVERALL PRODUCTS OFFERED BY THE PAPER INDUSTRY OF SOUTH AFRICA

1.3 PRESENT TRADE WITH QUANTITY AND AMOUNT OF PAPER FIRMS IN SOUTH AFRICA

1.4 WTO GENERAL TRADE IMPLICATION FOR PAPER INDUSTRY OF SOUTH AFRICA

1.5 BARRIERS APPLICABLE TO PAPER INDUSTRY OF SOUTH AFRICA

1.6 TRADE POLICIES IN PAPER INDUSTRY OF SOUTH AFRICA

1.7 TECHNOLOGICAL ADVANCEMENT TAKING PLACE INTO THE PAPER INDUSTRY OF SOUTHAFRICA

1.8 INVESTMENT PATTERN AND FINNCIAL DEPENDENCY OF PAPER INDUSTRY IN SOUTH AFRICA

1.9 REQUIREMENTS OF RESOURCES FOR THE PAPER INDUSTRY IN SOUTH AFRICA

1.10 DEMAND DRIVERS FOR PAPER INDUSTRY

1.11 OVERVIEW TO INDIAN PAPER INDUSTRY

1.12 MAJOR PLAYERS AND OVERALL PRODUCTS OFFERED BY THE PAPER INDUSTRY OF INDIA1

2

10

16

17

19

20

26

31

32

38

39

43

Page | xxvii

1.13 PRESENT TRADE WITH QUANTITY AND AMOUNT OF PAPER

FIRMS IN INDIA

1.14 BARRIERS TO PAPER INDUSTRY IN INDIA

1.15 PRESENT TRADE POLICIES IN TERMS IMPORT-EXPORT IN PAPER INDUSTRY OF INDIA

1.16 TECHNOLOGICAL ADVANCEMENT TAKING PLACE INTO THE PAPER INDUSTRY OF INDIA

1.17 INVESTMENTPATTERNANDFINANCIAL DEPENDENCYOF PAPER INDUSTRY IN INDIA

1.18 GROWTH DRIVERS FOR PAPER INDUSTRY IN INDIA

1.19 INDUSTRY COMPARISON49

54

57

58

59

60

62

2CASE STUDY OF COMPANIES

2.1 MONDI GROUP

2.2 BALLARPUR INDUSTRIES LIMITED

2.3 COMPANY COMPARISON64

65

81

93

3FINDINGS

3.1 OVERALL FINDINGS FROM SOUTH AFRICAN AND INDIAN PAPER INDUSTRY

3.2 IDENTIFICATION OF THE OPPORTUNITY TO GET SUPPLIES FROM THE FOREIGN MARKET FOR INDIAN COMPANY TO GET COST ADVANTAGES

3.3 GAP ANALYSIS BETWEEN MONDI AND BILT

3.4 GAP ANALYSIS BETWEEN INDIAN AND SOUTH AFRICAN PAPER INDUSTRY97

98

99

100

100

4CONCLUSION101

5BIBLIOGRAPHY103

Page | xxviiiLIST OF TABLES

Table No.TopicPage No.

1.1RECYCLING RATES9

1.2PAPER PRODUCTION AND CONSUMPTION IN SOUTH AFRICA

20119

1.3TECHNOLOGICAL PATHWAYS27

1.4ESTIMATED PAPER DEMAND40

1.5PAPER TYPES AND ITS APPLICATIONS41

1.6HPC PRODUCTS46

1.7DEMAND FORECAST52

1.8COMPARISONBETWEENINDIANANDSOUTHAFRICAN

PAPER INDUSTRY

65

2.1PRODUCTION STATISTICS76

2.2MONDIS OPERATING COUNTRIES78

2.3FINANCIAL SUMMARY82

2.4PROFIT AND LOSS STATEMENT OF BILT88

2.5COMPANY COMPARISON96

Page | xxixLIST OF CHARTS

Chart No.TopicPage No.

1.1MAJOR GRADES OF PAPER5

1.2COMPARISONOFDOMESTICPRODUCTIONANDTOTAL

PAPER IMPORTS

6

1.3PAPER CONSUMPTION6

1.4DOMESTIC PRODUCTION7

1.5TOTAL EXPORTS7

1.6TOTAL IMPORTS8

1.7MAJOR INDIAN PLAYERS42

1.8COST STRUCTURE50

2.1STRUCTURE OF MONDI GROUP70

2.2CONTRIBUTION TO GROUP REVENUE75

2.3PAPER PRODUCTION AND NET SALES87

2.4DEBT EQUITY RATIO AND PBDIT87

2.5PAPER MAKING PROCESS92

Page | xxx

Chapter-1

Paper Industry Overview

Page | 11.1. General information about the performance of Paper industry of South Africa

1.1.1A brief history of paper products in South Africa

The paper packaging industry in South Africa is said to have been started in 1780, when Cape Town woman, used paper to wrap fruit and send it to the Dutch East Indies. By 1780, 'East Indiamen from the Netherlands' regularly delivered paper and card board for the making of packaging in southern Africa.

By the turn of the nineteenth century, there were scores of cardboard box makers in Cape Town, and on the Reef. In 1910 the newly formed Government of the Union of South Africa set up a commission to investigate the extent and nature of manufacturing in South Africa. Among those who gave evidence were Mr. W.E. Laughton, Paper Bag Maker, and Messrs Weinberg Brothers, cardboard box makers of Cape Town. At this time paper packaging manufacturers such as Laughton and Weinberg relied on imported paper and board, and Mr. Weinberg "doubted whether paper could be made in South Africa, even with special protection".

In 1920, a new company was launched by immigrant, John Herzberg. The Company, together with Oscar Fruman's Transvaal Box Manufacturers, and Willie Kalmanson's Universal Cardboard and Box Corporation, were the early forerunners of what we know today as Nampak. In 1933, two Port Elizabeth firms began to produce multiwall paper sacks for cement packaging. In the early days, boxes were made by hand. Sheets of cardboard were cut to size with the help of a ruler and knife, and the pieces were stapled or glued together. In Cape Town in the 1920s, the workforce was largely made up of women, who worked long hours for piece rates.

The packaging industry grew and diversified along with the growth of the South African economy. In the post World War 11 years, in particular, the industry expanded rapidly, with new factories opening almost every year in the 1950s. During the 1970s and '80s, the packaging industry became increasingly concentrated, and is now dominated by a few large companies. The manufacture of other converted paper products, such as tissue products and printed articles, followed a similar history.

Commercial printing in South Africa was established as early as packaging, and it grew in various forms, throughout the nineteenth century. By 1939, when Sappi's first paper mill began to sell domestically produced paper, local printers were already well organized. At first they resisted the entry of local paper onto the market. But the relationship between the local paper industry and the printers grew, and by the time Sappi launched its printers award in 1979, the industry was already largely reliant on local printing papers. Local tissue production began a little later than the other converting industries. In 1948, Cellulose Productsopened its doors, and started to produce tissue wadding.

Page | 21.1.2 Overview to South African paper industry

South Africa is the only African producer of pulp and paper other than Swaziland. South Africa produces approximately 370,000 tons of mechanical wood pulp, 1,500,000 tons of chemical wood pulp,316,000 tons of newsprint, 970,000 tons of printing and writing paper and more than one million tons of other paper and paperboard each year. In addition, South Africa imports some $US 400 million of paper and paperboard each year.

South Africa has a relatively rich source of raw materials from the pine forests of the Kwazulu-Natal and Mpumulanga regions. The warm, equatorial climate of these parts has meant that trees grow quicker than in most paper and pulp producing countries north of the equator.

The major pulp and paper companies operating in South Africa are Sappi, which is listed on the London, Paris and Johannesburg Stock Exchanges, and Mondi, which forms part of the Anglo American Industrial Corporation group of companies. Other companies involved in the forestry industry are parastatal Safcor and Hunt, Leuchars and Hepburn (HLH), which had planned to sell 50% of its holdings to Sappi and Mondi before competitions board intervention recommended that Anglo American and Mondi acquire 100% of the holdings and swap it to foreign interests in exchange for offshore assets.

Downstream packaging companies include Nampak, Kohler and its subsidiary Carlton Paper, and Consol, which together share more than 80% of the market. Hortors, Bowler Metcalf, Aries, Alex White, Harwill, Clegg, Plastall, Rheem, Transpaco and Coates Brothers are other local operatives while Swedish company Ekman Liebig established a South African presence in late 1995. Mondi and the Dutch group KNP BT have restructured their paper merchanting interests in South African companies Paperlink and Finwood. Between them, Nampak and Carlton Paper control 70% of the SA tissue industry. Nampak's factories at Klip River and Cape Town produce 50 000 tons/year. Carlton Paper produces 47 000 t/year.

Margins in South Africa have traditionally been 5% higher than overseas making it a very lucrative

$US 2.5 billion market. The 1994 / 1995 upswing in paper and pulp markets worldwide has also buoyed the

South African market, with Sappi reporting a record 291 % increase in EPS for the year ended February

1995 and Mondi experiencing a 20 % increase in turnover during 1994. However the drop in world prices towards the end of 1995 caused a downturn in profitability.

As a result Mondi is reconsidering major investments following the downturn in the international price of pulp. The company planned to spend R 500 million including R 268 million on upgrading the Kraft Piet Retief Linerboard plant and the Merebank mill.

Kohler has authorized subsidiary Carlton Paper to spend $US 35 to build a waste paper recycling plant at the Enstra facility near Springs. The new plant would almost eliminate the use of virgin pulp and consume72,000 tons of waste paper per annum. The technology has been provided by Kimberley-Clark.

Page | 3In early 1996 the HLH sold its 50% interest in softwood operations to Sappi for R 220 million. Mondi acquired Hunt Leuchars & Hepburn's mining timber and Sivacel export interests for $US 220 million. In order to remain internationally competitive and increase output, Mondi invested over R540mn in its Richards Bay pulp and linerboard mill.

Since the late 1990s, Mondi has begun rationalizing its assets with the aim of focusing on its core activities pulp, paper and packaging and move away from the solid wood sector. As a result, the organization could be selling large amounts of forest land and seven saw mills, depending on investor interest.

Sappi has undertaken to acquire from the Industrial Development Corporation (IDC) its investment in

Saiccor at a future date. This acquisition will probably be paid for in the form of Sappi Limited equity. In

1999, the company extended its marine pipeline in Natal in order to reduce the effects of the factory waste on the environment.

Jacaranda Tissue, run by Ntsiki and Ian Gwebu, plan to implement a recycling operation that will operate within Soweto, collecting its waste paper for raw material, and making and selling their products - mainly toilet paper and kitchen towels - to the township community. Phase one will be a $US 25 million tissue mini-mill for Soweto that will produce 10,000 tons/year. If the community concept works out, a second 10 000 tons/year facility, also costing $US 25million, will be added - either in Soweto or cloned to another township. A site for the Sowetan mini-mill has been secured at Devland, near the golden highway. A crucial stakeholder will be Eco-S, a Finnish consulting company that has developed the mini-mill concept and will provide the technological know-how.

1.1.3 Paper and Economy

The pulp and paper manufacturing industry is a key contributor to the South African economy. Since

1970, its annual growth rate has outdone the international average, contributing R35, 26 million annually to South Africas economy. Much of this is invested in local resources, local innovation and local people power.

In 2009, the forest and forest product sectors value-add was R23 billion, equating to 1.4% of South

Africas gross domestic product (GDP). A total of 207,967 people are employed in the sectors value chain.

The industry is not without its own economic challenges but has been making a steady recovery since the 2008 recession which resulted in a decline in pulp and paper demand. Recovery is being driven mostlyby packaging and tissue grades.

Page | 4Pulp and papers direct contribution to South Africas balance of payments in 2010 was an impressive R4.5 billion. This is primarily due to the fact that Sappis chemical cellulose mill is a market leader and has increased production at its Saiccor mill in Umkomaas, KwaZulu-Natal. Sappi is investing a further R2.4 billion in production of chemical cellulose at its Ngodwana mill in the province of Mpumalanga. This pulp has many end uses, primarily in textiles but it could also be used to produce bio plastics.

1.1.4 Major Grades of Paper

Chart 1.1 Major Grades of Paper

1.1.5 Summary Findings from 2011 Production Import and Export Statistics

June 2012

Overview

As the worldwide recession pales, the local pulp and paper industry has settled out with some grades of paper showing small growth in demand. Selected grades of pulp, packaging and tissue are still produced sustainably in South Africa, however, with rising imports, increasing costs and global over capacity in products like newsprint; profitability and therefore the sustainability of producing certain grades in South Africa may be a challenge going forward. Printing and writing grades are definitely under some pressure. Please note that all graphs are indexed against 2006, which has the value of 100.The left axis is a numericalvalue given to a product relative to its performance in the base year of 2006.

Page | 5Chart 1.2 Comparison of domestic production and total paper imports

South African consumption profile

Overall, consumption per capita has risen, driven by the increased consumption of packaging and tissue. Printing and writing grades are, however, showing the first indications of a per capita decline. The0,86 kg/per person change is a statistically significant movement given that, generally speaking, we are no longer seeing the effects of massive stock changes related to the recessions impacts on packaging and paper. However, as South Africas Living Standards Measure profile develops, so tissue and packaging demand should grow.

Chart 1.3 Paper Consumption

Page | 6South African production

Comparative statistics (indexed to 2006) show the following: printing and writing 75 (or 25% lower than 2006), packaging 104, tissue 114 and pulp 105. This is a fair representation of where the productive focus has moved to. One would expect this focus to continue into the future.

Chart 1.4 Domestic Productions

South African exports

Pulp exports are growing strongly, with most other grades decline as exports. Again, as an indexed comparison, printing and writing 62, packaging grades 81, tissue 101 and pulp 146. These trends appear to be well established.

Chart 1.5 Total Exports

Page | 7South African imports

Almost across the board, imports have continued to increase fairly strongly at around 3.5% per annum since 2006. This is of grave concern to the sector and unless something is done to stem the tide, further machine closures can be expected. Given that consumption is marginally lower and production is broadly off peak, substitution appears to be gaining momentum in some areas. As an indexed comparison we see printing and writing at 114, packaging grades 125 (plus local production up, emphasizing market growth), tissue 135 (as with packaging) and pulp 62.

Chart 1.6 Total Imports

Raw materials

Rising costs in energy and fiber will see the greater use of recovered fiber or collected waste paper in paper manufacture. A potential feed in tariff for bagasse for energy could threaten two of the countrys paper mills in KwaZulu-Natal. Water licenses for planting trees have been granted for some 30,000 hectares but tree licenses are still not easily obtained despite the governments promise of 100,000 hectares of land for trees by 2018.

Recycling

It appears there is increasing pressure for the collection of recycled materials, specifically to drive the reduction of costs and therefore remain competitive. The recycling rate continues to improve, with some grades increasingly being exported. Over a million tonnes of paper was collected for recycling with a valueof approximately R640 million.Page | 8Table 1.1 Recycling rates

Recycling rates20112010

Recovered paper as a %

of recoverable paper59.5%58.0%

Table 1.2 Paper production and consumption in South Africa 2011

(All values in metric tonnes)

Paper

ProductionPaper

ImportPaper

ExportPaper

Consumption

Newsprint316,72513,90055,512275,113

Printing/writing473,759562,060173,265862,554

Corrugated

materials/containerboard

993,235

87,211

302,025

778,420

Other wrapping papers89,169089,169

Tissue203,48058,11911,247250,352

Other paper98,41165,00843,984119,435

Board27,87627,876

Total2,202,655786,298586,0342,402,919

Page | 91.2 Major Players and Overall Products offered by the Paper Industry of South Africa

Mondi Group

Mondi is an international paper and packaging company employing over 23,400 people with operations across more than 30 countries, predominantly in Central Europe and Russia. After acquisition of Nordenia in 2012, company's business expanded in Western Europe and USA, and contribution from South Africa, its former HQ, declined. It is fully integrated across the paper and packaging process from growing of wood and the manufacture of pulp and paper (including recycled grades), to the conversion of packaging papers into corrugated packaging and industrial bags. It has primary listings on the Johannesburg Stock Exchange and the London Stock Exchange. It is a constituent of the FTSE 250Index.

History

The roots of the global business that is now Mondi were first planted in 1967 in South Africa, when Mondi's former owners Anglo American plc built the Merebank mill. Following more than two decades growth and consolidation in South Africa, Mondi came to Europe in the early 1990s to start a long period of expansion through acquisition.

Mondirunbusinessesincountriesincluding Austria,the UK, France, Russia, Czech Republic, Slovakia, Poland, Hungary, Denmark, the Netherlands, Bulgaria, Ukraine and Italy, as well as operations in Mexico.

During this time, many major companies often market leaders in their home nations became part of Mondi. These included Austrias Neusiedler AG and Frantschach AG, Cofinec in Poland, and Russias Syktyvkar mill, which is central to Mondi's future expansion plans into emerging opportunities in Asia and the Americas.

Mondi became an independent dual-listed business in mid-2007 when they successfully demerged from Anglo American with listings on the London and Johannesburg Stock Exchanges. From January 2008, in place of the former Mondi Packaging and Mondi Business Paper business units, Mondi began operating as two divisions: Europe & International and South Africa.

The Mondi Group consists of two main divisions: Europe & International and South Africa. Mondi produces uncoated fine paper, corrugated products as well as bags and specialties and serves diverse industries. Uncoated Fine Paper includes office and printing paper as well as paper for the pre- and offsetprinting segments.

Page | 10Product Offerings

Containerboard, both virgin and recycled, and corrugated packaging solutions (shelf-ready and heavy- duty packaging, trays and boxes) are used for diverse industrial applications including the food sector. Mondi converts Kraft paper into bags and specialty products for rugged industrial applications. These bags are compatible with high-speed filling and used primarily in the cement and construction industries. Bags and microwaveable packaging are produced of film-based flexible packaging. Special technologies, such as extrusion coating, laminating, siliconsing and printing facilitate other uses and applications. Containerboard

Kraft Paper

Corrugated Packaging

Industrial Bags

Extrusion Coatings

Release Liner

Consumer Goods Packaging

Advanced Films & Components

Office Paper

Professional Printing Paper

Page | 11SAPPI

Sappi Limited is a global pulp and paper company group. Sappi is a producer of coated fine paper and chemical cellulose. The company conducts its business through three business units: Sappi Fine Paper, Sappi Forest Products and Sappi Trading.

Sappi Fine Paper is managed through three regional business units: Sappi Fine Paper North America, Sappi Fine Paper Europe and Sappi Fine Paper South Africa. Sappi Fine Paper has manufacturing and marketing facilities in North America, Europe, Southern Africa and Asia. It also manufactures uncoated graphic and business paper, coated and uncoated specialty paper, and casting release paper used in the manufacture of artificial leather and textured polyurethane applications.

Sappi Forest Products, based in Southern Africa, produces commodity paper products, pulp, chemical cellulose and forest and timber products for Southern Africa and export markets.

Founded in 1936 in South Africa and headquartered in Johannesburg. The company sells its products to merchants, converters, printers, publishers and other direct customers.

Sappi has its largest market in Europe, with a share of 54%

Paper production of 5.1 million tonnes per annum (TPA) - 2.8 million TPA of paper pulp production

- Chemical cellulose production of 600,000 TPA - Manufacturing operations in nine countries on four continents - Sales in over 100 countries - 15,100 employees worldwide.

Product Offerings

1 Side Coated PrintKraft paperTissue

2 Side Coated Print

Prestige

1 Side coated

2 Side Coated Web

Containerboard

Uncoated chemical

Uncoated mechanical

2 Side coated

Page | 12SOUTH AFRICAN PAPER MILL

South African Paper Mills (Pty) Ltd. is an independent paper mill situated in Durban, South Africa. The company has been operating for the past five years. S.A. Paper Mills operates three paper machines and which currently produces approximately 15 000 tons per year.

The mill manufactures G.T. Ribbed Kraft, plain Kraft, Testliner, Fluting Paper and White Kraft Paper. This paper is available from 40gsm to 230gsm.

Having an in-house converting plant enables us to supply the paper in reels, sheets, counter reels, all of which can be converted to any size within our machine deckle of 1700mm on paper machine no. 1, 2100mm on paper machine no. 2, and 3100mm on paper machine no. 4.

They produce colored paper - Pink, Green, Orange, Blue and any other specific colors that customers may require.

They also produce gift wrap and this can be delivered in single rolls, flat sheets, counter rolls or reels and are available in a variety of patterns and colors.

They are also setting up a plant to manufacture paper bags. The bags will be manufactured from plain brown paper and printed paper. The market for this would be Pharmacies, Curio shops, retail stores etc. We could also do continuous prints.

They also have an in-house sheeter and web printing machine. This enables us to produce paper with special prints and this can be done in reels or sheets. We also produce SFK (single face kraft) which is widely used in the packaging industries. This can be supplied in rells or sheets.

The paper is currently used locally and internationally to manufacture:

1. School Book Covers

2. Envelopes

3. Gift-wrap

4. Paper Bags

5. Paper Cores

6. Corrugated Sheets

7. SFK

Page | 13They are currently exporting to the following countries:

Botswan

Dubai

Germany

Ghana

Ivory Coast

Kenya

Malawi

Mauritius

Nigeria

Tanzania

Uganda

United Kingdom

Zambia

Zimbabwe

Product Range

1. Ribbed Kraft Paper

2. Test Liner

3. Fluting Paper

4. Envelope Paper

5. Exercise Book Cover paper

6. Case Paper

7. Wrapping Paper

8. Packaging Paper

9. White Kraft

Page | 14Mpact

Mpact Limited, formerly Mondi Packaging South Africa, is one of the largest paper and plastic packaging businesses in southern Africa, with 30 operating sites, 23 of which are manufacturing operations, based in South Africa, Namibia, Mozambique and Zimbabwe. Mpact employs over 3,700 people.

The Group, which listed as a separate entity on the JSE and demerged from Mondi* in July 2011, has the leading market position in southern Africa in corrugated packaging, recycled-based carton board and containerboard, recovered paper collection, polyethylene terephthalate (PET) performs, styrene trays and plastic jumbo bins.

These strong market positions allow us to meet the increasing requirements of customers, achieve economies of scale and achieve cost effectiveness at our various operations. Approximately 90% of our revenue is derived from these product lines.

Paper Business

The paper business consists of three divisions: corrugated packaging, paper manufacturing and recycling.

Recycling

We are the largest paper recycler in South Africa. The recycling division has seven sites across the country. Recovered paper sources include pre- and post-consumer material sourced from a multitude of paper pickup programmes including commercial, kerbside, schools, churches, communities, housing complexes, offices and an extensive network of agents and dealers.

Paper manufacturing (Paper)

The paper division manufactures recycled-based packaging and industrial paper grades such as containerboard and carton board. In addition, we sell Baywhite, a premium quality white-top kraftliner produced by Mondi Limited, for which we have exclusive distribution rights in South Africa and sub- Saharan Africa.

Corrugated

The corrugated division manufactures and sells a comprehensive range of printed and unprinted converted corrugated products, including board, which we use to manufacture corrugated packaging, corrugated boxes, die-cut cases, folded glued cases, trays and point-of-sale displays.1.3 Present trade with quantity and amount of paper firms in South Africa

A) Mondi Group

Revenue: 5,739 million EUR Profit: 357 million EUR Production: 5 million MTPA Employees: 23,400 Approx.

B) Sappi

Revenue: 6,347 million USD Profit: 104 million USD Production: 5.4 million MTPA Employees: 15,100 Approx.

C) Mpact

Revenue: R 6,821million Profit: R313 million Production: 0.9 million MTPAEmployees: 3,700 Approx.

Page | 161.4 WTO General Trade Implication for Paper Industry of South Africa

Achieving free and fair trade in forest and paper products a statement by leading global forest and paper industries in Geneva, Switzerland JULY 2003.

This statement expresses strong industry support for accelerated trade liberalization in wood and paper products through the World Trade Organization (WTO) Doha Development Agenda.

This statement reflects the views of forest and paper products industries in Canada, Chile, New Zealand and the United States as well as the forest industry in Australia and the paper industry in South Africa. Between them these industries represent 34 percent of world trade in wood products, 54 percent of world trade in wood pulp and 25 percent of world trade in paper.

Representatives of these industries met in Oaxaca, Mexico, in May 2003 to discuss the progress in the Doha negotiations and to consider options for furthering the interests of the global forest and paper industries in these critical negotiations.

These industry representatives are united in their belief that accelerated trade liberalization of forest and paper products, particularly through the WTO, provides a means of expanding output, employment and economic growth and alleviating poverty.The Doha negotiations offer an unparalleled opportunity to eliminate trade barriers, put in place more effective trade rules and address the specific concerns of developing countries. A successful and robust outcome from the Doha negotiations is critical to ensuring the future expansion of the worlds forest and paper industries.

Reviewing progress in the Doha negotiations, industry representatives agreed that:

WTO members should move with the greatest possible speed towards the goal of eliminating all tariffs on forest and paper products, whether by an ambitious formula approach to tariff elimination, an expansion of current zero for zero deals, or a combination of these approaches, taking account of established WTO provisions in respect of developing countries; The goal of eliminating non tariff barriers should also be pursued with speed given their increasing prevalence and effect in blocking trade expansion; Greater clarification, refinement and more disciplined application of anti-dumping provisions is required; and They will seek more effective rules and disciplines to address the use of subsidies.

Page | 17Industry representatives called on their respective national governments and all member countries of the WTO to ensure:

That effective modalities for non-agricultural market access were identified as soon as possible, but before the WTO Ministerial in Cancun, Mexico, in September 2003; and That Trade Ministers meeting in Cancun resolves to keep the Doha negotiation to its original timeframe for conclusion by 1 January 2005.

Industry representatives further agreed:

To convey the views in this statement to their respective national governments and to industry stakeholders and the general public in their countries; To consult regularly amongst themselves with a view to co-coordinating their respective positions and strategy in respect to the Doha negotiations; and To explore opportunities to present these views and any subsequent considerations to WTO

officials and national delegations in Geneva and as appropriate at the WTO Ministerial Meeting in

Cancun, Mexico, in September 2003.

Page | 181.5 Barriers Applicable to Paper Industry of South Africa

Key economic constraints, which are holding back development in the forestry sector, are as follows:

Water licenses: Issuing of water licenses has become a serious obstacle for forestry development.

Communities can sometimes not afford the required environmental impact assessment. Furthermore, there is also a delay from the regulatory government departments. Lack of personnel capacity in regional office, and sometimes incomplete application forms also add to the delay.

Skills development and technology transfer: The new forest growers and beneficiaries of land reform do not necessary have the skills and relevant technology to grow the trees optimally. The communities also require business skills to manage their operations effectively.

Investment finance: Tree planting cannot take place without securing investment finance. Long rotations in forestry require long term capital for establishment, maintenance and harvesting operations and consequently, delayed return on investment. As a result there is some level of reluctance to invest in forestry business.Land tenure: Most of the land that has been identified as suitable for new affore station is tribal or land belonging to communities where land claims settlement issues still need to be resolved before tree planting can take place. Also, there is lack of proper consultation and mobilization with communities in line with forestry development protocols.Demand of raw material exceeds supply: The demand of raw material far exceeds supply and this has resulted in the closure of most downstream processing industries especially in furniture and small-scale saw milling industry. More jobs will still be lost if the demand/supply equation is not addressed amicably. The small players in the industry are mostly affected by this due to the vertical integrated nature of the industry where big companies own plantations and smallbusinesses rely on supply from DAFF plantations.

Page | 191.6 Trade Policies in Paper Industry of South Africa

Introduction To Trade Policies

In 2006, the industry was a net exporter to the value of R1.7 billion which was roughly 7.8 percent to the overall exports of manufactured products. The total turnover in 2006 was around R13.1 billion, and 35 percent of it was destined for exports. The industry employed some 250 thousand people directly and some one million people indirectly (Ministry of Water Affairs and Forestry, 2006. The economic significance of commercial forestry is expected to increase in the future which can be attributed to a constellation of factors. Firstly, the long term growth prospects of the industry are assessed to be excellent. It is believed that annual wood demand facing the forestry industry will almost double from the current consumption of 19 million cubic meters by 2011. Secondly, there are strong income incentives for downstream wood processing industries to integrate backwards so as to plant more to earn more. Thirdly, being a world leader in the pulp and paper technology, South Africa has a strategic competitive advantage.

The pulp and paper sector of the industry is hence of utmost importance to the economy. The pulp, paper and board sector of South Africa is small but has a significant place in the international export market, traditionally dominated by North America and the Scandinavian countries. South Africa supplies less than2% of international demand, though physical volumes have grown substantially over the last decade. Although South Africa is in a position is not among the dominant producers, consumers or exporters in the world pulp, paper and board industry, South African companies have evidently established themselves as significant players in the international market. This principle recognizes that raw material exports from a region or country could be beneficial and thus value can be added to them locally.

Import Policies

Tariffs

South Africa is a member of the World Trade Organization (WTO), the Southern African Development Community, and the Southern African Customs Union (SACU). As a member of SACU, which links the trade regimes of Botswana, Lesotho, Namibia, South Africa, and Swaziland, South Africa applies the SACU common external tariff (CET). In practice, South Africa effectively sets the level of MFN tariffs applied by all SACU countries. South Africas average applied duty in 2011 was 8.1 percent. Almost97 percent of tariffs are charged on an ad valorem basis, with rates ranging from 0 percent to 96 percent. The International Trade Administration Commission (ITAC) is tasked with administering South African trade laws. ITAC continues to receive requests from a number of industries for tariff protection, and U.S.companies have cited protective tariffs as a barrier to trade in South Africa.

Page | 20For example, U.S. apparel exporters expressed concern about increases in South African tariffs on over

120 clothing items in late 2011. Tariffs for these products were increased from 20 percent and 40 percent up to their WTO bound rate of 45 percent, i.e., the rate that generally cannot be exceeded under WTO rules, and serve as a further impediment to enter South Africas apparel market.

The South African government introduced a National Industrial Policy Framework and Industrial Policy Action Plan (the Framework) in 2007, with the goal of promoting value added industries in eight sectors, including: capital and transport equipment; automotive goods and components; chemicals, plastic fabrication, and pharmaceuticals; forestry, pulp, paper, and furniture; business process outsourcing; tourism; biofuels; and clothing and textiles. The Framework sets out specific mechanisms to assist these sectors, including a comprehensive review of import duties that has been underway for the last few years, and a potential reduction of selected import duties on inputs and components.

Nontariff Measures

The Minister of Trade and Industry is authorized to prohibit imports into South Africa, by notice in the Government Gazette, of goods of a specified class or kind, except under the authority of, and in accordance with, the conditions stated in a permit issued by the ITAC. The ITAC requires import permits on used goods if such goods are manufactured domestically, thus creating a de facto ban on most used goods, including used clothing. Other categories of controlled imports include waste, scrap, ashes, residues, and goods subject to quality specifications. Other often cited nontariff barriers to trade include customs valuation above invoice prices, import permits, antidumping measures, and excessive regulation.

Antidumping Measures

Transparency and due process remain issues with respect to the actions of ITAC and its administration

of South Africas antidumping laws and regulations.

In September 2007, South Africas Supreme Court of Appeal ruled that ITAC had improperly calculated the five year expiration date of antidumping duties imposed on A4 paper imported from Indonesia and that; as a result, authority to impose duties had expired prior to the initiation of the sunset review for that product. ITAC subsequently announced its intention to terminate antidumping duties on several imported products because the sunset review of those duties had not been initiated before the expiration of the fiveyear period as calculated under the courts interpretation of South African law.

Page | 21Government Procurement

Government purchases are made through competitive tenders for goods, services, and construction. South Africa uses government procurement to promote the empowerment of the historically disadvantaged majority population in South Africa through its Black Economic Empowerment (BEE) strategy. See the section on Investment Barriers for more details on BEE.

South Africas Preferential Procurement Policy Framework Act of 2000 (the Framework Act) and its implementing regulations created the legal framework and a formula for evaluating tenders for government contracts. To augment this, the DTI has been working on regulations to clarify the Framework Act and to incorporate the objectives of the Broad-Based Black Economic Empowerment Act of 2003. These regulations would give preference to bidders who comply with BEE objectives and would include BEE thresholds in tender evaluations. In procurement valued up to one million rand (about $130,000), 80 percent of the tender evaluation would be based on the bid price and 20 percent on the suppliers commitment to BEE objectives. For tenders valued over one million rand, companies would earn 90 percent of their points from their bid price and 10 percent from their commitment to BEE objectives.

The National Treasury is working with the DTI to align preferential procurement regulations with the BEE Code of Good Practice on Procurement in order to help standardize how firms are evaluated on their compliance with industry BEE scorecards. South Africas National Industrial Participation Program, introduced in 1996, subjects all government and parastatal purchases or lease contracts for goods, equipment, or services with an imported content equal to or exceeding $10 million (or the rand equivalent thereof) to an industrial participation obligation. This obligation requires the seller/supplier to engage in local commercial or industrial activity valued at 30 percent or more of the value of the imported content of the total goods purchased or leased under a government tender. South Africa is not a signatory to the WTO Agreement on Government Procurement.

Intellectual Property Rights (IPR) Protection

Enforcement of intellectual property rights (IPR) in South Africa presents challenges. In recent years, the South African government has introduced measures to enhance enforcement of the 2004 Counterfeit Goods Act. The government has appointed more inspectors, designated more warehouses for securing counterfeit goods, destroyed counterfeit goods, and improved the training of customs, border police, and police officials. Although law enforcement authorities often cooperate with the private sector in investigating allegations of trade in pirated or counterfeit goods, some members of the business communityhave expressed concerns about lax enforcement of IPR laws against imports of infringing goods, as well as

Page | 22slow and cumbersome court proceedings. There have been some concerns that the South African Customs Administration interpreted a 2011 court ruling as limiting its ability to seize potentially infringing goods that are marked for transshipment through South Africa.

This interpretation is still being debated within the South African government. Under South African law, complainants can take both civil and criminal action against IPR offenders. The number of arrests for trading in pirated or counterfeit goods has increased in the last few years. In addition, South Africa has taken steps to improve enforcement, such as the creation of DTIs enforcement unit, and the establishment of Commercial Crime Courts in several cities. The South African government has also formed an interagency counterfeit division including the DTI, the South African Revenue Service (SARS), and the South African Police Service to improve coordination on IPR enforcement.

SARS has launched a public awareness campaign about the seriousness and impact of IPR crimes, with special attention to counterfeiting issues related to merchandising for the 2010 World Cup soccer tournament in South Africa. DTI is also working with universities to incorporate IPR awareness into college curricula. Despite efforts to improve IPR enforcement, monetary losses from counterfeiting and piracy remain high. U.S. industry is increasingly concerned about illegal commercial photocopying, especially at universities, libraries, and other on-campus venues. U.S. industry has also expressed concern about software, optical disc, and Internet piracy, the growing number of counterfeit production facilities, advertisements of burn-to-order services, and the unwillingness of South African Internet Service Providers (ISPs) to shut down infringing sites or access thereto. Counterfeit medicines are also a growing problem. There is no direct legal protection for local distributors against parallel imports. However, in 2011, several members of the Motion Picture Association of America, acting individually, successfully obtained a civil injunction against a major DVD rental chain that was parallel importing their product. The Cape High Court awarded costs against the importer, who is appealing the decision.

Services Barriers

Investment Barriers

In February 2007, the DTI published Codes of Good Practice in the Government Gazette that included a new generic scorecard to measure a companys level of BEE in areas such as equity ownership, management, employment, procurement from black-owned companies, and development of black-owned enterprises. The Codes permit multinational corporations to earn BEE equity ownership points for empowerment actions in non-equity areas, provided the DTI approves and provided the multinational has a global corporate policy of owning 100 percent of the equity in its subsidiaries. Many U.S. companies hadpressed for the right to use such equity-equivalent mechanisms. Although completion of the Codes of

Page | 23Good Practice has cleared up much of the uncertainty that surrounded BEE, they are complex documents and much about their interpretation and implementation remains unclear. By the end of 2009, only one multinational company had received DTI approval of an equity-equivalent program, which has led to complaints that the approval process is slow and nontransparent.

Several transformation charters have also been negotiated by stakeholders in sectors such as financial services, mining, and petroleum. These charters are intended to promote accelerated empowerment within particular sectors. It is expected that many of these charters will be converted into binding sector codes. There is uncertainty, however, as to whether equity-equivalent plans approved by DTI under the Codes of Good Practice would automatically satisfy equity requirements imposed by the transformation charters. In at least one case (the information and communications technology sector), a DTI-approved equity-equivalent plan was determined not to satisfy the requirements of a charter. In the financial services sector, a charter was reopened after labor unions complained that the charters equity requirements were too generous to banks. Government, banks, and unions have so far been unable to agree on a revised charter, although talks continue. Because the time period for publishing the sector specific charter in the Government Gazette has lapsed, some argue the sector is now governed by the Codes of Good Practice.

Electronic Commerce

The Electronic Communications and Transactions Law govern all companies that conduct electronic commerce in South Africa. The law was designed to facilitate electronic commerce, but has been criticized as imposing significant regulatory burdens. The law requires government accreditation for certain electronic signatures, takes government control of South Africas .za domain name, and requires a long list of disclosures for websites that sell via the Internet.

In early 2009, the South African Law Reform Commission submitted draft legislation and discussion documents on privacy and data protection for public comment and held a series of workshops on the draft legislation. Industry is still evaluating the extent to which this legislation, which is still awaiting action by the National Assembly, will affect the ability of South African and foreign companies to receive and sendtrans border flows of personally identifiable data.

Page | 24Other Barriers

Ownership Patterns

While South Africas business environment has improved dramatically in the post-apartheid era, the energy, transportation, and telecommunications sectors are still dominated by state-owned or state controlled monopolies.

Transparency and Corruption

Laws such as the Promotion of Access to Information Act and the Public Finance Management Act, both enacted in 2009, have helped to increase transparency in government. The 2011 Prevention and Combating of Corrupt Activities Act defines graft, bars the payment of bribes by South African citizens and firms to foreign public officials, and obliges public officials to report corrupt activities. One shortcoming of the Act has been its failure to protect whistleblowers against recrimination or defamation claims. South Africa has no fewer than 10 agencies engaged in anticorruption activities. Some, like the Public Service Commission, the Office of the Public Protector, and the Office of the Auditor-General, are constitutionally mandated to address corruption as part of their responsibilities. However, high rates of violent crime create a strain on enforcement capacity and make it difficult for South African criminal and judicial entities to dedicate adequate resources to anticorruption efforts. Following the April 2011 elections, the Zuma administration pledged to make anticorruption efforts a high priority and initiated a presidential hotline to receive reports of corrupt practices.

Business Mobility

Many economic sectors in South Africa experience severe difficulty in recruiting because of skills shortages and emigration. For a number of years, U.S. and other foreign companies have complained ofdifficulties in the procedures for obtaining temporary work permits for their skilled foreign employees.

Page | 251.7 Technological Advancement Taking Place into the Paper Industry of South

Africa

A large number of innovations in technology, process and management in the pulp and paper industry that can contribute to more environmentally benign pulping and bleaching methods, increased use of recovered paper and fillers and in-house water recycling. They made a distinction between available and emerging technologies. Available technologies are already implemented by a number of firms, but are not yet common practice within the entire sector. Emerging technologies are those technologies in the development phase or that have been implemented only in a very few firms. Table below lists the available and emerging technologies in stock preparation (pulping), the use of recycled paper and paper production proper.

Technology pathways at present time

Increased electricity production

For kraft mills, electricity is generated in back-pressure turbines, utilizing the steam produced in the recovery boiler and any other boilers before it is used in the production processes. The electricity production can, for example, be increased by raising the steam quality (when investing in new boilers), increasing the dry solid content of the black liquor, decreasing any throttling and/or reducing the process steam demand, and investing in a condensing turbine. Increased electricity production due to increased dry solid content of the black liquor, reduction of any throttling and/or investment in a condensing turbine to utilize a potential steam surplus are considered.

Lignin extraction

In the kraft pulp process, the fibers are used for production of pulp (or paper), and the rest of the wood components lignin and parts of the hemicelluloses are dissolved in the black liquor. Lignin can be extracted from the black liquor by using either e.g. acid precipitation. Currently, acid precipitation is closer to commercialization and thus is the process assumed when lignin extraction is discussed. In the acid precipitation process, CO2 is used to precipitate the lignin, which thereafter can be filtered and washed. From a mill energy systems perspective, lignin extraction will lead to reduced heat content in the black liquor in the recovery boiler, and thus to reduced steam and electricity production, together with an increasedsteam demand in the evaporation plant due to the increased evaporation load from wash filtrates.

Page | 26Table 1.3 Technological pathways

Page | 27

Page | 28

Carbon capture and storage (CCS)

Being large energy users, pulp and paper mills have large on-site emissions of CO2. Since these emissions are associated with only a limited number of geographical sites, the PPI, like other energy- intensive industry branches, is suitable for implementation of carbon capture (CC). Further, since a large share of the CO2 emissions associated with the European PPI are biogenic, if CCS is implemented the levels of CO2 in the atmosphere can be further reduced in comparison to implementing CCS only on fossil emission sources. Since the main source of CO2 from the pulp and paper industry is boiler flue gases, there are in principle three technology options for capture: post-combustion, pre-combustion and oxy-combustion. In this thesis, post-combustion using chemical absorption is considered since it is the only technique not requiring any reconstruction of the boiler. For post-combustion with chemical absorption the energy cost for capture is 50- 70% of the total cost and thus cannot be neglected. Hence, for CC to be economically and technically realistic the source of CO2 must be large enough and the energy demand of the capture process should preferably be possible to integrate (fully or partly) with other processes at the capture site. The potential for heat integration of post-combustion CO2 capture to kraft pulp and paper mills who show thatthermal integration is possible to a substantial extent.

Page | 29 Black liquor gasification (BLG)

The black liquor generated in the kraft pulp process is burned in the recovery boiler in order to recover the cooking chemicals and produce steam for the mill process steam demand. Another alternative for the recovery of chemicals and energy in the black liquor is to use BLG. In this thesis, the BLG technology considered is the one based on the Chemrec process, since this is the technology, which currently is being most developed and is closest to commercialization. Introducing BLG will alter a mills energy balance. As in the case of a conventional recovery boiler, the BLG unit will have a net surplus of steam. The amount of steam, however, will be lower than if the same amount of black liquor is burned in a recovery boiler. Due to the lower steam production, additional fuel needs to be burned in the (bark) boiler if the steam production is to be unchanged. On the other hand, the BLG unit also generates a product gas which can be used to produce either biofuels or electricity. For the case of biofuel production, the mills electricity production willdecrease and for the case of electricity production it will obviously increase.

Page | 301.8 Investment Pattern & Financial Dependency of the Paper Industry in South

Africa

Mondi Group

The roots of the global business that is now Mondi were first planted in 1967 in South Africa, when their former owners Anglo American plc built the Merebank mill. Following more than two decades growth and consolidation in South Africa, they came to Europe in the early 1990s to start a long period of expansion through acquisition.They have bought businesses in countries including Austria, the UK, France, Russia, Slovakia, Poland, Hungary, Denmark, the Netherlands, Bulgaria and Italy, as well as operations in Mexico.During that time, many major companies often market leaders in their home nations became part of Mondi. These included Austrias Neusiedler AG and Frantschach AG, Cofinec in Poland, and Russias Syktyvkar mill, which is central to our future expansion plans into emerging opportunities in Asia and the Americas.They became an independent dual-listed business in mid-2007 when we successfully demerged from

Anglo American with listings on the London and Johannesburg Stock Exchanges.

Sappi

Sappi was formed in South Africa in 1936 to serve South African consumers with locally produced paper.