The Business Of Condoms

As a revolting youth against apartheid regime in 1976, Sikhulu Hugh Mtshali would not have known that three and a half decades later he would sit at the helm of a company that has a big social impact. He is the executive chairman and a director of RRT Medcon, the only male condoms manufacturing company in South Africa.

The company whose factory is in Ballito – a fast-growing tourism and business hub located roughly forty kilometers north of Durban, in KwaZulu-Natal – currently employs 120 people, majority of whom are women from the area. RRT Medcon produces 230 million condoms per year and sells mainly to the national government, non-governmental organisations and retail outlets.

Spurred by concern over sexually transmitted infections and teenage pregnancies, the demand for condoms can only keep growing in South Africa and the rest of Africa where governments and NGOs are ramping up disease prevention programmes.

This year the global condoms market is expected to be worth US$6 billion, with 27 billion units sold largely in emerging economies of Asia, Middle East and Africa, according to research firm Global Industry Analysts.

Yet, manufacturing of condoms has not caught on in Africa where they are needed most. Nearly all condoms that are sold and distributed on the continent are imported. Access to new condom markets could be a challenge for the few Africa-based manufacturers because many consumers tend to favour imported products, a culture that is perpetuated by various procurement regimes. For instance, the Department of Health this year gave the largest share of the condoms tender to importers. 

Sikhulu Hugh Mtshali, executive chairman and director of RRT Medcon

If Mtshali could get his factory to produce three billion condoms today, he would. The expansion would see this analytical chemist fulfill his aspiration to become Africa’s preferred supplier of condoms. But that would depend on how quickly he can secure some R300 million-expansion capital and new markets. 

First registered as Kohrs Medical Supplies in 1993 to import and distribute condoms, the team quickly realised that the company’s strategy for growth rested on manufacturing. But, getting into the manufacturing play proved an uphill task.

In recent decades, South Africa’s economic activity shifted from traditional industry to a more service-based economy. The manufacturing sector has seen patchy growth cycles, declining in its contribution to the GDP, from 24% in the early 1980s to 13% today. Employment statistics for the sector have fallen by more than 25% over the same period, according to Statistics South Africa.

There are several reasons for the sector’s sorry state of affairs. The bottom-line is, many operators and aspiring industrialists are struggling to access financing and up-to-date technology and expertise. Manufacturers lack adequate infrastructure, better policies and are threatened by labour unrest and imports.

Mtshali relates to many of these struggles, saying the challenges are locking out prospective industrialists.

When the company, then called Medcon (Pty), learned German-Malaysian condom manufacturing company, Richter-Tech, was looking for a partner in South Africa to manufacture and distribute its range of condoms in sub-Saharan Africa, it seemed like a great opportunity to pursue the manufacturing path.

Richter, which has over 70 years experience in condom making, had branched out to sell turnkey condom manufacturing factories out of Penang, a port city in Malaysia. For about US$500,000, Richter would assist buyers to set up the factories, grant various warranties and instruct on standard operations procedures.

In 2001 RRT Medcon (Pty) – a joint venture between Richter Hi-Tech and Medcon (Pty) – was launched to manufacture condoms in South Africa. The R1.2 million investment by Medcon saw Richter commissioning condom manufacturing machines to the South African partner. The partnership has been beneficial and enabled knowledge and skills transfer and information sharing, says Mtshali.

RRT Medcon condom factory in Ballito. Condoms have been freely distributed in South Africa since 1992

RRT Medcon’s condoms are made from imported latex, which is then chemically processed at the Ballito factory to make it rubbery. The process of manufacturing is lengthy, and extreme measures are taken to ensure all condoms are effective. Every condom is tested for defects, including holes and burst tests. If it passes, it is then rolled and packaged. Among the branded products are Viva condoms, Lovers Plus and Trust Condoms.

Mtshali says acquiring good technology, machinery and equipment to manufacture quality products is incredibly costly. A spot check by uSpiked revealed that most importers simply present foreign-issued standards certification with very little local verification. “As local producers, it is mandatory to comply with the South African Bureau of Standard’s quality specifications, yet many of the competing imports are not subjected to the same standard,” says Mtshali.

Considering the fluctuating rand, the cost of importing latex and aluminum foil greatly impacts RRT Medcon’s bottom line.

“The impact is huge due to the rate of exchange and this has a direct negative impact on profits. However, our motto is ‘quality first’, therefore we try to get the customer to absorb the shortfall through price increases during the year,” says Mtshali. Another issue is inflation, which he says the Department of Health should do more to cushion operators in strategic sectors such as health.

The company has an established relationship with South Africa’s National Department of Health, dating back to 1993. This year RRT Medcon was awarded R149 million contract to supply condoms, a 5% share of the department’s R3.52 billion budget for condoms and lubricants for the next three years.

South Africa’s public procurement policy is designed to support local manufactures, but according to Mtshali, the tendering system needs re-thinking.

“The system puts more emphasis on price instead of local manufacturing, black ownership and job creation. The points system is measured on 90 (price)/10 (Black Economic Empowerment and local supplier). This needs to be addressed as a matter of urgency and if not, local manufacturers doing business with government will find it difficult to remain in business, thereby threatening an already fragile jobs market,” says Mtshali.

Echoing this concern is Kenneth Brown, the chief procurement officer at the Department of Treasury. Addressing a parliamentary portfolio committee recently, Brown railed against supply chain managers who are not familiar with the Treasury-issued General Procurement Guidelines.

RRT Medcon has been forced to lower prices to remain competitive, and Mtshali says this has hampered the growth of the company. “We had to inject private funds into the business to stay afloat."

Of the things that worry him most regarding the venture, lack of strong government support for local manufacturers, stifling regulations and red tape, top the list.

“There are three areas where government support would be extremely helpful – funding for small and medium-sized manufacturers, review of the retrogressive ‘points system’ rule in the Public Finance Management Act, and ensuring local suppliers are paid timeously.”

In July the Department of Trade and Industry announced plans to create 100 black industrialists in the next three years, as part of a radical economic transformation programme that is meant to catalyse greater participation in productive sectors of the economy. However, without practical, business and entrepreneurial skills and hard work of entrepreneurs, targeted policies and facilitation will not work.

“All aspiring industrialists must be prepared for hard work, to learn everything there is to know about their businesses, to never cut corners with regards to quality. One thing I have learned in my long journey is the importance of patience. There is simply no quick money or fix.”