Breaking the Mold: FDI Opportunities in ASEAN’s Plastics Industry

By: Dezan Shira & Associates
Editor: Elizabeth Leclaire

With a combined population of over 600 million and a GDP exceeding USD 2.5 trillion,  ASEAN nations comprise both a substantial consumer base and a  significant portion of the global market, particularly within the plastic industry. With the region’s rapidly developing middle class and subsequent increased consumption of plastics, the sector’s production rates have witnessed a steady nine percent annual growth over the recent years. In particular, the nations of Indonesia, Malaysia, Vietnam, and Thailand increasingly contribute to the development of ASEAN’s plastics industry.

Indonesia

With a population of over 250 million and increased governmental efforts to industrialize the nation, Indonesia is expected to develop into the world’s seventh largest economy by 2030. In order to grow the nation’s economy, the Indonesian government has focused its attention on cultivating the country’s domestic plastic production. The nation currently imports over 40 percent of its plastics, with most imports arriving from Singapore, Malaysia, Thailand, Europe, and the United States. In order to promote a greater reliance on domestic plastic production, Indonesia’s Plastics and Rubber Scheme announced plans to obtain 70 percent of the nation’s plastics from local companies. Additionally, plastic imports to Indonesia are subject to tariffs as high as 20 percent of the shipment cost.

In 2014, Indonesia’s per-capita plastic consumption averaged 17 kilograms, compared with an annual  consumption rate of 35 kilograms per person in Malaysia and 100 kilograms per person in Europe. However, Indonesia’s middle class is expected to double to a total of 141 million people within the next five years, and plastic consumption is anticipated to grow in tandem with the development of a larger consumer market and increased demand for packaged goods.

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The nation’s primary consumer usages of purchased plastic is food and beverage packaging, followed by the nation’s agricultural, automotive, and electronics sectors.  According to the Indonesian Packaging Association, food packaging accounts for 70 percent of plastic consumption sales and grew by a total of eight percent in 2013 to total USD 5.3 billion. Plastic raw material sales increased by seven percent last year and reached over USD 4.8 billion.

However, despite significant efforts to expand its plastics industry, Indonesia lacks a large-scale plastic recycling model. Currently, most plastic recycling is handled on an individual business basis, but the government has expressed interest in establishing a national plastics recycling program in order to generate increase plastic production.

Malaysia

While Indonesia seeks to promote its domestic plastic consumption market, Malaysia continues to serve as one of ASEAN’s top exporters of plastics. With over 1,450 plastic production companies, Malaysia is the ASEAN region’s top plastic export nation. Its primary export destinations include Europe, China, Singapore, Japan, and Thailand. In 2013 alone, Malaysian plastic sales reached over USD 4.27 billion, an increase of 4.5 percent from the year prior. Imports grew by 6.5 percent and accounted for 60 percent of Malaysia’s plastic production. Last year, plastic manufacturing increased again by 13 percent while exports rose by 17 percent.

Consuming approximately 45 percent of Malaysia’s plastic production is the nation’s packaging sector, followed by the electronics industry at 26 percent, automotive industry at 10 percent, and construction industry at 8 percent of the total plastic consumption market. Notably, Malaysia has found success in supplying niche plastic demands: the nation specializes in the production of linear low-density polyethylene (LLDPE) stretch film within Asian and Middle Eastern markets and is also a primary contributor to the global medical device plastic industries.

Recently, Malaysia has focused its attention on mitigating the industry’s harmful environmental effects. Comprised of 60 percent of the nation’s plastic manufacturers, the Malaysian Plastic Manufacturer Association (MPMA) has coordinated with the Japan-Malaysia Green Partnership Program to reduce the effects of plastic production on the environment. At the same time, the Malaysian Plastics Design Association has partnered with the Ministry of International trade and Industry in order to promote the domestic production of name brand Malaysian plastics.

Due to a rise in Malaysia’s minimum wage to USD 214 per month, plastic production costs have increased within the country by approximately 10 percent over the course of 2015. Labor costs for plastic manufacturing have grown by up to 40 percent while electricity tariffs increased production costs by another 17 percent. Despite increase production costs, Malaysian plastic production has still remained competitive in the global market.

Vietnam

Despite a decrease in cumulative economic growth in recent years, Vietnam’s plastic industry has grown at an average annual rate of 25 percent. Last year alone, individual plastic consumption averaged 48 kilograms, and this consumption rate is anticipated to reach 55 kilograms annually by the end of 2015. The nation’s plastic industry’s top export destinations include Japan, the United States, Cambodia, Germany, and the Netherlands. In the first nine months of 2014 alone, Japan and the United States imported USD 238.6 million and USD 121.2 million worth of Vietnam’s plastics, respectively.

The nation’s top plastic export products are plastic bags, packaging products, technical plastic products, and household items.  Approximately 40 percent of Vietnam’s plastics are used for consumption, followed by 35 percent for packaging purposes, 14 percent for technology, and 11 percent for construction. Vietnam’s plastic industry currently accounts for 4.8 percent of the country’s total industrial production value alone, and the government anticipates that total plastic production will reach USD 8.81 billion by 2020.

Vietnam relies heavily on foreign imports of raw materials for its plastic production. Currently, between 80 to 90 percent of the nation’s raw materials used for plastics are imported, with imports from America amassing over USD 3 million in 2012. In an effort to increase dependence on domestically produced raw materials, Vietnam’s government placed a one percent import duty on raw materials beginning in 2014 that will increase annually by one percent.

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Thailand

Similar to Vietnam, Thailand’s plastic production industry has grown rapidly in recent years and currently boasts over 5,000 operating plastic production companies. However, unlike in many of its ASEAN neighboring countries, over 60 percent of Thailand’s plastic production companies are relatively small with a maximum of 30 employees. Despite small company size, Thailand plastic exports contribute significantly to the global plastic market.

Plastic packaging accounts for 48 percent of Thailand’s plastic consumption, followed by 15 percent of plastic consumption allotted for its electronic sector, 14 percent for its construction sector, and 8 percent for its automotive sector. China, Japan, and the United States are Thailand’s top export destinations for plastics, totaling roughly USD 12.3 billion in 2013. Together, China, Japan, and the United States account for 48.8 percent of Thailand’s total export market.

As one of ASEAN’s top automobile and electronic producers, Thailand’s domestic market also relies heavily on the nation’s plastic production. Recently, however, Thailand has sought to decrease its own consumption of plastics in order to reduce the environmental dangers facing the nation. According to this year’s Asia Plastics Forum, plastics comprise over 15 percent of the nation’s total waste output, while only 15 percent of plastic is recycled for further use. As a result, Thailand has invested of USD 60 million in bio plastic development in the past seven years. Thailand’s government has recently announced that they plan to continue investing money in environmentally friendly plastic design and manufacturing, with 80 percent of donations coming directly from the government and the remaining 20 percent from Thailand’s private sector.

Conclusion

ASEAN’s plastic industry is anticipated to expand greatly both domestically and internationally in the coming years and is likely to present significant opportunities for foreign investors. This past October, after a negotiation period of over five years, twelve nations including the United States, Australia, Vietnam, Malaysia, Japan, and Canada passed the Trans-Pacific Trade Agreement (TPP). Under the TPP, trade regulations between the member countries will be liberalized in order to strengthen economic relations. With the growth of ASEAN nations’ consumer bases, broadening of plastic import and export markets, and expanding foreign trading power, ASEAN’s plastics industry offers foreign investors significant opportunities to enter the South East Pacific’s plastics market.  

Thailand in particular offers foreign investors greater opportunities within ASEAN’s plastic market because of its emphasis on developing the bio plastics industry. In recent years, Thailand’s  government has continued to promote environmentally friendly plastic production companies. As one of the first countries to devote its attention to reducing plastic waste within the region, Thailand’s bio plastics market is relatively new and open to foreign investors. Unlike its neighboring nations of Vietnam and Indonesia, which focus on cultivating locally manufactured plastics, Thailand provides greater access for foreign investors in ASEAN’s plastics sector.

Further Support from Dezan Shira & Associates

With experience helping foreign investors access many of the region’s sectors, including plastics, Dezan Shira & Associates in well placed to help facilitate FDI into this emerging growth sector. For a free consultation, please get in touch with our pre-investment, market entry, and corporate establishment specialists at asean@dezshira.com. 

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