Market Measurem o PERFORMANCE en ne te rS tBuoday r d sn ASSOCIATES RESEARCH M e l a m i n e a n d 2011 Ve MARKET (PVT.

) LTD MEASUREMENT 12 Cleveland avenue

MILTON STUDY PARK, HARARE ON MELAMINE AND VENEER BOARDS PREPARED FOR ESTEWALT INVESTMENTS (PRIVATE) LIMITED KAGUVI STREET HARARE

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BACKGROUND INFORMATION
Estewalt Investments (Private) Limited is a duly registered company in accordance with the laws of Zimbabwe. Their predominant activities are within the timber processing industry and have been manufacturing the following products under its ambit: Coffins and Caskets Wardrobes Office furniture (chairs, desks, etc)

However, Estewalt would like to diversify its product range by manufacturing a critical ingredient (raw material) used in the design and assembly of designer kitchen units, wardrobes and office partitioning. To this end, they commissioned Performance Research Associates (Private) Limited to carry out a Market Measurement Study on Melamine and Veneer Boards.

RESEARCH METHODOLOGY
In order to get a glimpse of the market dynamics within the timber industry and in particular the importation of melamine and veneer boards, Performance Research Associates visited several secondary sources of data that included: ZIMSTAT (formerly Central Statistical Office. The CSO was approached to extract data related to Housing Plans Approved. Every local authority is required by law to submit data related to housing plans approved to ZIMSTAT for publication. Further, this same institution was approached to provide data on the import trend patterns for wood products in general and timber products in particular. This was done in order to establish the rate of product-uptake at which the local market is consuming imported melamine and veneer products.

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THE DYNAMICS OF THE MANUFACTURING SECTOR IN ZIMBABWE

In 1980, Zimbabwe inherited a parallel economic system which consisted mainly of two interrelated economic steams:

The formal economy. This was a highly developed and well structured economic system that was and continues to be the back-borne of all official economic activity. At independence in 1980, this economic stream was growing at 14.25% per annum.

The informal economy. This economic system was completely neglected and to a great extent, nearly all economic activities were illegal. This economic segment was the sustenance of life for most people in the rural areas, peri-urban dwellers and low socioeconomic members of urban settings.

Over the years, it became clearer to the Government of Zimbabwe that the future of Zimbabwes economy lies with the support of the small to medium sized enterprises. Business activities within the informal economic segment are estimated at US$ 3 billion and this makes this segment equally important as the formal official economic segment. As it stands at the moment, the economic activities within the small and medium sized companies within the country are likely to continue to play a key strategic role in directing the economic development of the country. Whilst some selected small to medium sized companies have been experiencing some demand driven economic growth, the majority of companies within the formal manufacturing sector have been experiencing some teething problems related to:M a r Page t k e M e a s u r e m e n t S t u d y o n M e l a m i n e a n d V e n e e r B o a r d s

De-industrialization. Lack of spare parts and the continued use of antiquated manufacturing equipment and machinery has been a serious cause for concern for many a manufacturer as this was causing them to produce products that were retailing at prices that were higher than those imported, making most of their products uncompetitive.

Shortage of working capital and absence of lines of credit. Since the dollarization of the economy in 2009, Zimbabwe has continued to have a shortage of working capital and the near absence of lines of credit since the sanctions imposed on the country are still in effect.

Unfair competition from imports. The flooding of imports both genuine and fake have been creating serious competitive pressures for the manufacturing sector and this has been causing a lack of real growth for most companies as demand for the local products remains depressed. As at the end of 2010, Zimbabwe imported goods in excess of US$ 3 billion in 12 months.

Highly inadequate and erratic supplies of key economic enablers namely electricity, fuel, coal, and water.

Within the formal economy, real manufacturing growth rates for the next 5 years are expected to grow by the following margins.

From the above, it can be seen that real growth within the, manufacturing sector will grow modestly from 6 to 7% during the next 12 months but it will decline to 4% in 2013 and swing back to 5% in 2015. However, during the same period, targeted economic growth will be averaging 7.1% during their entire planning period. What this means is that a significant proportion of this growth will be coming from small to medium sized companies. The mere fact that capacity utilization for the manufacturing sector remained at less than 50% as at the end of June 2011 means that the other 50% DEMAND GAP can realistically be filled up either by imports or by SMEs with strong manufacturing capacity and adequate financing.

SWOT ANALYSIS FO ESTWALT INVESTMENTS

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STRENGTHS
Estewalt Investments has been in the furniture manufacturing business for more than 5 years and as such, they have been developing strong raw material supplier and market linkages that will give them a competitive advantage as well as creating economies of scale.

WEAKNESSES

Geographical Presence. Estwalt Investments is limited in its ability to serve the market for timber related products because it operates from Harare and has no branches outside Harare. Even within Harare, the company is still limited in its capacity to effectively serve the broader market because of logistical and financial constrains.

Market Visibility. Because of diminished capacity utilization, Estewalt Investments is unable to build brand visibility that will assist it in building trust and confidence within the market.

Limited Product Range. The company is limited in terms of its product offering, hence its desire to broaden its product range by acquiring a melamine and veneer manufacturing machine, which will manufacturer melamine and veneer boards for the local and export markets.

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OPPORTUNITIES
Estewalt Investments can tap onto the opportunities being presented in the construction and timber industries as banks start to disburse short-term and medium term loans to commerce, industry and the household markets segments as construction of buildings, factories and residential homes start to take shape.

MARKET MEASUREMENT FOR TIMBER PRODUCTS

The measurement of the size of the melamine and veneer timber market will be measured by analyzing two main sources of secondary data: Housing plans approved. Data on housing plans approved assisted us in determining the size of the household market for timber used for cupboards and kitchens. From this dataset we will were able to establish the size of the market in units and value as demonstrated below. HOUSING PLANS APPROVED YEAR HARARE BULAWAYO OTHER LOCAL AUTHORITIES 2004 2005 2006 2007 2008 2009 2010 TOTAL 1438 1678 1617 1202 723 784 696 8138 822 703 712 530 652 362 582 4366 965 1507 1772 1599 1446 879 1106 9274 3483 3888 4101 3331 2831 2080 2304 22008 TOTAL

From this dataset we assume that about 15% of housing plans approved are never build into M a r Page t k e M e a s u r e m e n t S t u d y o n M e l a m i n e a n d V e n e e r B o a r d s

houses and another 15% are build but not completed. We further assume that of those that are completed another 25% do not need specialized fitted cupboards and kitchens. This finally leaves us with 45% of the above units as potential candidates for specialized fitted cupboards and kitchens.

MARKET SIZE FOR MELAMINE AND VENEER BOARDS IN RESIDENTIAL HOUSES YEAR HARARE BULAWAYO OTHER LOCAL AUTHORITIES 2004 2005 2006 2007 2008 2009 2010 TOTAL 647 671 728 541 325 353 313 3037 370 316 320 238 293 163 262 1962 434 678 797 719 650 395 498 4171 1451 1665 1845 1498 1268 911 1073 9711 TOTAL

At this point, in order to pick directional indicators in terms of the size of this market, we predetermined the size of an average specially fitted kitchen and calculated that it would cost an average of $3,500=00 to put up a well designed fitted kitchen made of melamine or veneer wood. This data will transform the above data into the following information:MARKET SIZE FOR MELAMINE AND VENEER BOARDS IN RESIDENTIAL HOUSES YEAR HARARE BULAWAYO OTHER LOCAL AUTHORITIES TOTAL

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2004 2005 2006 2007 2008 2009 2010 TOTAL

2,264,500 2,348,500 2,548,000 1,893,500 1,137,500 1,235,500 1,095,500 12,523,000

1,295,000 1,106,000 1,120,000 833,000 1,025,500 570,500 917,000 6,867,000

1,519,000 2,373,000 2,789,500 2,516,500 2,275,000 1,382,500 1,743,000 14,598,500

5,078,500 5,827,500 6,457,500 5,243,000 4,438,000 3,188,500 3,755,500 33,988,500

IMPORTS OF MELAMINE AND VENEER BOARDS

In order to further consolidate the market size for melamine and veneer boards, the imported data of these timber boards in both units and value from 2006 through to 2010 revealed the following patterns of note:-

Since most of the melamine boards and veneer boards consumed in the country are imported, this set of data reveals that the total market size for melamine and veneer boards stands at $13,300,000=00. Of this amount, $4,300,000=00 or 32.33% was used for household kitchens with the balance being used for the following:

Industrial use (office partitioning) = 58.99% = $7,845,670 Cupboard Making and Fitting = 8.68% = $1,154,330

Between 2009 and 2010, the period of dollarization, the market for melamine and veneer boards grew by 17.78% across the board. If this rate of economic growth is assumed for the next five years, we anticipate that the total market for melamine and veneer boards will be as follows: -

MARKET SEGMENT Kitchens

2011 $4,300,000

2012 $4,946,760

2013 $5,826,294

2014 $6,862,209

2015 $8,082,310

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Wardrobes Office Partitioning TOTAL MARKET

$1,154,330 $7,845,670

$1,359,570

$1,601,301

$1,886,012

$2,221,345

$9,240,630 $10,883,614 $12,818,721 $15,097,890

$13,300,000 $15,546,960 $18,311,209 $21,566,942 $25,401,545

It should be noted that the prices that were captured were FOB and were captured at the source of the imports. This means that in determining actual retail prices for these products, the costs should incorporate aspects related to insurance and freight charges as well as duty.

The average price per tone was $516.5=00 FOB.

MARKET STRUCTURE COMPETITIVE LANDSCAPE

The major players in the importation of melamine and veneer products who will be the course of competitive pressure to Estewalt Investments will be: COMPANY
Dominion Marketing

NATURE OF INDUSTRIAL ACTIVITY

Wholesaling of Imported Timber Products including Melamine and Veneer Processed Timber Products

Board Wax

Wholesaling of Imported Timber Products including Melamine and Veneer Processed Timber Products

Kitchen Deco Romeo Kitchens Simply Kitchens Tusilago Kitchens P.G Timbers DST Timbers Halsted Brothers T.S Timbers

Manufacturing of Kitchen Units Manufacturing of Kitchen Units Manufacturing of Kitchen Units Manufacturing of Kitchen Units Manufacturing of Timber Boards for Ceilings, Office Partitioning Manufacturing of Timber Boards for Ceilings, Office Partitioning Manufacturing of Timber Boards for Ceilings, Office Partitioning Manufacturing of Timber Boards for Ceilings, Office Partitioning

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Architectural Aluminum Creative Systems

Office Partitioning Office Partitioning

These companies are mere importers of melamine and veneer boards with the exception of PG Industries. This company has been manufacturing melamine and veneer boards until its machinery broke down. As of this moment its machinery is not functioning because of spare parts problems. The manufacturer who used to supply the machinery has since upgraded their machines and spare parts for old machines are no longer available. This development would give Estewalt Investments an unassailable lead in terms of procuring a machinery that would manufacture these boards locally and being able to market them at prices that are reasonably fair enough to switch the loyalty of the above companies from importing the melamine and veneer boards to buying them from Estewalt Investments.

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EXPORT BUSINESS OPPORTUNITIES

Zambia
Zambia imported a total of $3,442,000=00 worth of various timber related products during the course of 2010. This was a 35.56% increase over 2009 imports that stood at $2,218,000=00. A graphical summary of Zambias wood products imports is as follows: -

During the same period, melamine and veneer product imports into Zambia were as follows:In 2010, the country imported a total of $2,220,000=00, which represented 64.50% of total processed wood into the country. This goes to show that melamine and veneer products are the most sought after products in the country. This will put Estewalt Investment into a strategic position of supplying the market with this product since all of Zambias wood products are basically imported. A tabular summary of these import patterns is as follows: -

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BOTSWANA
Total processed wood imports into Botswana stood at $24,177,000=00 as at the end of 2010. This was a 16.76% increase over 2009 imports that stood at $20,706,000=00. A graphical summary of imports from 2007 were as follows:-

Melamine and Veneer Timber imports into the country stood at $5,746,000=00 as at the end of 2010. This represented a 23.77% of total processed wood imports into the country. A graphical summary of melamine and veneer processed wood imports is as follows:-

NAMIBIA
Total processed wood imports into Namibia stood at $44,445,000 as at the end of 2010. This was a 10.28% increase over 2009 imports that stood at $40,301,000. A graphical summary of Namibian processed wood imports produced the following patterns of note:

Of this amount, total melamine and veneer imports accounted for 22.38% or $9,946,000=00. This amount was a 16.78% increase over 2009 imports that stood at $8,532,000=00. A graphical summary of 5 year aggregate import trend patterns is s follows:-

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SUMMARY OF MARKET OPPORTUNITIES

Zimbabwe, Zambia and Botswana present immense opportunities for Estewalt Investments as the three countries consumed a total of $30,896,000=00 worth of melamine and veneer timber products during the course of 2010.

COUNTRY

TOTAL ANNULA IMPORTS OF MELAMINE AND VENEER PROCESSSED TIMBER

Zimbabwe Botswana Zambia Namibia

$13,352,000=00 $5,476,000=00 $2,220,000=00 $9,946,000=00

THREATS
The greatest threats to the viability of Estewalt Investments will be the continued importation of melamine and veneer boards from South Africa and China. A great deal of these imports is substandards products and Estewalt can effectively counter their market presence by manufacturing high quality boards that they will retail at affordable prices.

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