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SUGAR IN MOZAMBIQUE: BALANCING COMPETITIVENESS WITH PROTECTION

[DRAFT]

SEPTEMBER 2015

This publication was produced for review by the United States Agency for International

Development. It was prepared by DAI and Nathan Associates.

Sugar in Mozambique: Balancing Competitiveness with Protection

SUGAR IN MOZAMBIQUE: BALANCING COMPETITIVENESS WITH PROTECTION

[DRAFT]

Program Title: Mozambique Support Program for Economic and

Enterprise Development (SPEED)

Sponsor: USAID/Mozambique

Contract Number: EDH-I-00-05-00004-00/13

Contractor: DAI and Nathan Associates

Date of Publication: September 2015

Author: Peter Kegode

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or of the United States Government.

Sugar in Mozambique: Balancing Competitiveness with Protection ii

Contents Acknowledgements ................................................................................................................. iv

Executive Summary .................................................................................................................. 1

Introduction ............................................................................................................................. 4

Background .............................................................................................................................. 4

Is Mozambican Sugar Competitive? ......................................................................................... 7

Policy Approaches .................................................................................................................. 13

Case Study Mauritius ............................................................................................................. 15

Case Study Kenya ................................................................................................................... 16

What next for Mozambique’s sugar industry ........................................................................ 19

References ............................................................................................................................. 22

Figures Figure 1: Sugar Production by factory 10 Figure 2: Per capita consumption of sugar in selected economies 11 Figure 3 Cane production comparative business model 12 Figure 4 World Market Sugar Prices 16 Figure 5: Cost of protection in the long run 21 Tables Table 1: Sugar Production and Consumption in Africa 9 Table 2: Comparative analysis of industry efficiency 13 Table 3: Sugar reference prices in Mozambique 14 Table 4: Sugar industry competitiveness rankings 14 Table 5: Trends of Ex-Factory Prices for sugar for selected countries 17 Table 6: Results of Mauritius Sugar Industry diversification strategy 18 Table 7: Tariffs & Non-Tariff Barriers used to protect the sugar industry in Kenya 19 Table 8: Results of Kenya’s sugar industry Long term protection measures 20 Table 9: List of people interviewed 26 Table 10: Sugar industry Competitiveness Matrix 26

Sugar in Mozambique: Balancing Competitiveness with Protection iii

Acronyms

ACP African Caribbean & Pacific

APAMO Associação dos Produtores do Açucar de Moçambique

CEPAGRI Center for Promotion of Agriculture

COMESA Common Market for Eastern & Southern Africa

CPI Center for Investment Promotion

CTA Confederação das Associações Económicas de Moçambique

DNA Distribuidora Nacional do Açucar (National Distributor for Sugar)

EAC East Africa Community

ECOWAS Economic Community of West Africa States

EPZ Export Processing Zones

EU European Union

EUR Euro

FDI Foreign Direct Investment

GAIN Global Alliance for Improved Nutrition

GOK Government of Kenya.

GOM Government of Mozambique

KSB Kenya Sugar Board

MAI Missingir Agro-Industrial

MIC Ministry of Industry and Trade

PEDSA Plano Estratégico para o Desenvolvimento do Sector Agrário

ROI Return on Investments

ROE Return on Equity

SADC Southern Africa Development Cooperation

SADC Southern African Development Community

SASA South Africa Sugar Association

TC/TS Tons of Cane / tons of Sugar

USAID United States Agency for International Development

Sugar in Mozambique: Balancing Competitiveness with Protection iv

USD United States Dollar

USDA United States Department of Agriculture

VAT Value added Tax

Acknowledgements This report was prepared for the Confederação das Associações Económicas de Moçambique (CTA) by USAID/Mozambique’s Support Program for Economic and Enterprise Development (SPEED). The author wishes to thank all representatives of the Mozambican government, and private sector communities who took the time to share information. A complete list of interviews held can be found in Annex A.

1

Executive Summary Due to reforms in the EU, Mozambique’s main sugar export market, there is a need to reexamine the country’s sugar industry policy. These changes come at a time when the country is also defining its industrial and trade policy objectives. The costs and benefits of sugar policy to date and how this ties in to industrial policy formulation for the country as a whole are important factors to be considered. This study seeks to examine the following questions:

Is Mozambique’s sugar industry competitive?

Is protecting the sugar industry the best option for Mozambique?

What are the costs of long-term protection?

What are the opportunities for Mozambique’s sugar sector?

The study, requested by the Confederation of Trade Associations (CTA) coincided with the Mozambican government’s decision to increase sugar reference prices by 109% for raw brown sugar and by 107% for white refined sugar. Before Independence Mozambique was a major sugar producer but by 1980 production had fallen to 13,000 metric tons as a result of the civil war which destroyed much of the country’s major infrastructure including the sugar mills. Peace brought with it the challenge of rebuilding the sugar industry, which was a priority for the Government given the pressing the need to create employment. Regional producers were natural partners due to geographical proximity and their reputations for research and technology in the sector. South Africa’s major sugar companies Illovo and Tongaat-Hulett came to Mozambique at the invitation of the Government as did Mauritian investors who renovated Companhia de Sena. Within Mozambique the sugar industry is widely considered to be a success story, contributing significant economic, social, environmental and developmental benefits to the country. Over time 37,000 jobs have been created making the sugar sector the second largest employer after the public sector in Mozambique. The revitalization of the industry meant that Mozambique needed to guarantee a market in which to sell its sugar. This was partially achieved by seeking to manage the national market and also by focusing on exports to the European Union (EU). In 2001 Mozambique was given access to the EU sugar market through Everything but Arms. As a result of this agreement Mozambique’s sugar production had jumped to 200,000 metric tons by 2004. However the EU has been actively reforming its sugar import policy over the past 10 years. There is currently a global sugar surplus of 4 million tons which, along with the existing global inventory 20-25% of which is pushed onto the world market as residual, or dumped sugar which has the potential to disrupt supply and the prices of sugar in vulnerable markets such as Mozambique. At the same time global demand for cane products such as sugar, ethanol, and molasses is growing rapidly due to rising incomes in emerging markets and growing interest in renewable sources of energy worldwide. The sugar industry worldwide is facing many changes, with the potential reduction of the EU market, the creation of new products and opportunities and major investments taking place in countries which would naturally compete with Mozambique.

Sugar in Mozambique: Balancing Competitiveness with Protection 2

Mozambique has ideal conditions for sugar production. The sugar industry is of great importance to the economy with sugar being the second largest agricultural export after tobacco. The Government’s initial goal when it decided to revive the sector was to create rural employment and revitalize industry. In order to do so it provided a number of concessions including a VAT exemption and subsequently established a reference price. Initially these decisions were taken to give the industry time to develop, grow and become competitive based on a domestic market and exports. Mozambique’s cane supply model is controlled by the millers and has the scale necessary to deliver better cost structures and higher yields, making the sector competitive in the region. Indeed on the basis of actual and potential yields and the industry’s business model, Mozambique’s sugar industry should be competitive and should not require protection. However the Government has resorted to reference pricing three times between 2001 and 2015. The need for reference pricing raises questions as to the competitiveness of Mozambique’s sugar sector. There are concerns about the data used to calculate the cost of production of sugar in Mozambique. Recent studies suggest that Mozambique should be a low cost producer but the cost indicated by sugar industry in negotiations for the reference price was significantly higher than expected. Since both the agricultural environment and business model of the industry appear favorable, the most likely explanation for the lack of competitiveness of the industry and thus the need for reference pricing lies in the business environment. Key constraints affecting the sector include the high cost of transport and logistics, poor road and rail infrastructure, high cost of energy, low skill levels, shallow financial markets that make it difficult to structure long-term financing, inability to structure debt instruments for financing capital intensive projects, lack of fair competition, unstable domestic policy environment that undermines free market dynamics, lengthy process of acquiring land, inability to use land as collateral, best practice for accessing communal land, and the community compensation process and negotiations. A number of investments in both sugar and biofuels have been frustrated by these constraints. Mozambique uses the reference price as a protection mechanism. It is a policy tool used to regulate the prices of sugar imports into Mozambique and is triggered when there are increased volumes of cheap imported sugar in the domestic market selling at lower prices than locally produced sugar. When establishing a reference price industry value chain studies are recommended in order to determine the costs, and confirm the distribution of revenues to various actors in the chain. In Mozambique this type of study was not conducted prior to establishing the reference price. Protecting a sugar industry is a costly affair, for government, business communities, consumers, society and the economy in general. There must be diligence in balancing competitiveness with protection in order to maximize social, economic, political and environmental benefits from the sector. To illustrate this the study compares the cases of Mauritius and Kenya as potential models for Mozambique’s sugar policy. Mauritius effectively pursued a horizontal approach in its industrial development strategy and demonstrates the possibility of achieving broad economic growth through a balanced industrial policy using horizontal approaches to diversify away from a sugar based economy. Kenya engaged in strong protectionist measures which have ended in crisis for the industry as a result of pursuing a policy which lacked strategy and vision, and failure to develop strong institutions. The failure of Kenya’s sugar sector has resulted in high social, economic and political costs.


Strong synergies obviously exist between agribusiness, agricultural performance and poverty reduction in Africa. Focus on value addition in agribusinesses such as sugar is therefore central to existing strategies for economic diversification, structural transformation, and technological upgrading of African economies. However arriving at a defensible cost benefit analysis of the sugar sector which enables us to balance the cost of protection versus the benefits potentially conferred is complex due to difficulty of finding credible data for analysis. The study finds that there is need for further study to value and monetize costs and benefits related to the sugar sector in Mozambique, for effective policy making. The study recommends that, following the Mauritian model there should be a clear phase-out plan to transition the sugar industry into a sustainable and competitive situation. The current vertical policy (“sugar as a winner”) should be shifted towards a horizontal policy. Mozambique should pursue a careful balance between competitiveness, industrial policy and protection of its sugar sector. It is important to craft robust value addition and industrial policies based on horizontal economic models, improve the business environment, invest in new infrastructure and logistics, and improve industry coordination mechanisms, in order to consolidate the industry’s gains and create a new growth trajectory using sugar as an economic driver for Mozambique.


Introduction Due to reforms in the EU, Mozambique’s main sugar export market, there is a need to reexamine the country’s sugar industry policy. These changes come at a time when the country is also defining its industrial and trade policy objectives. The impacts of any policy must be analyzed to ensure that they do not have negative outcomes, and the sugar policy is no exception. The costs and benefits of this policy to date, the possible effects of continuing, and how this ties in to industrial policy formulation for the country as a whole, are valid factors to be considered. This study sought to examine the following questions:

Is Mozambique’s sugar industry competitive?

Is protecting the sugar industry the best option for Mozambique?

What are the costs of long-term protection?

What are the opportunities for Mozambique’s sugar sector?

The study, requested by the Confederation of Trade Associations (CTA) coincided with the Mozambican government’s decision to increase sugar reference prices by 109% for raw brown sugar and by 107% for white refined sugar, following a proposal by the Association of Sugar Producers (APAMO) aimed at protecting the sector from cheap sugar entering the domestic market. Ongoing reforms in the EU sugar market mean that it is necessary to reexamine Mozambique’s sugar policy in the context of national industrial and trade policy. This study comes at a time when Mozambique’s sugar industry is at crossroads in its development, and the country needs to map out very clear strategic and inclusive policies that will drive the competitiveness of the industry while delivering social, economic and developmental benefits to the wider population Considering the strategic importance and political sensitivities associated with sugar in Mozambique, the government views the reference price policy measure as temporary and is commissioning an in-depth study to gauge its impact, as well as to support in developing a strategy for diversification of the sector. Mozambique’s sugar policy challenges include the need to identify pathways for absorption of surplus sugar in the domestic market, while balancing investors’ interests and the welfare of producers, workers and consumers. This report is based on a literature review combined with industry data gathered through interviews with the Center for Promotion of Agriculture (CEPAGRI), the Ministry of Industry and Trade, the Ministry of Agriculture, CTA, and UNIDO. Comparative information on other sugar producing economies was also gathered where relevant. Preliminary findings were presented at a workshop in Maputo. Background Before Independence Mozambique was a major sugar producer, with production in the 1972/73 season reaching over 325,000 metric tons. By 1980 production had fallen to 13,000 metric tons as a result of the civil war which destroyed much of the country’s major infrastructure including the sugar mills. Peace brought with it the challenge of rebuilding the sugar industry, which was a priority for the Government of Mozambique (GOM) given the pressing the need to create employment. Regional producers were natural partners due to geographical proximity and their reputations


for research and technology in the sector. South Africa’s major sugar companies Illovo and Tongaat-Hulett came to Mozambique at the invitation of the GOM1 as did Mauritian investors who renovated Companhia de Sena. Tongaat-Hulett’s sugar operations in Mozambique consist of the Xinavane and Mafambisse sugar mills and surrounding estates with 35,701 hectares under cane. By 2010 he company had completed an investment of about US $ 100 million in these mills, raising their capacities to 230,000 metric tons and 92,000 metric tons of sugar per year respectively. The two mills have a combined work force of 12,069 employees2. By 2013 Illovo’s Maragra mill had productive capacity of 84,000 metric tons and employed 1,015 permanent workers and 4,415 seasonal workers3. Companhia de Sena’s Marromeu mill has installed capacity of 100,000 metric tons and produced 59,505 metric tons of sugar in 20144. It has a work force of over 6,000. Within Mozambique the sugar industry is widely considered to be a success story, contributing significant economic, social, environmental and developmental benefits to the country. Over time 37,000 jobs have been created making the sugar sector the second largest employer after the public sector in Mozambique5. The revitalization of the industry meant that Mozambique needed to guarantee a market in which to sell its sugar. This was partially achieved by seeking to manage the national market and also by focusing on exports to the European Union (EU). In 2001 Mozambique was given access to the EU sugar market through Everything but Arms (EBA), an initiative under which all imports to the EU from Mozambique are duty- and quota-free. The EBA sugar initiative is considered a form of development assistance for Least Developed Countries (LDC). As a result of this agreement Mozambique’s sugar production jumped from 13,000 metric tons in 2001 to 200,000 metric tons in 2004. However the EU has been actively reforming its sugar import policy over the past 10 years. Prior to 2006 the EU had in place export refunds which covered the difference in price between the inflated EU price and the world price of sugar. This allowed the EU to export sugar competitively and allowed for the re-export of sugar from ACP countries (and India) at competitive prices. However a WTO ruling found that the levels of these refunds exceeded what was permissible effectively forcing a reduction in sugar prices. The decision meant that Europe had to reduce the level of preferential access that ACP countries were afforded to its markets shifting these non-reciprocal preferential agreements to reciprocal, free trade ones. The EU was one of the world’s largest sugar importers between 2008 and 2011 but this is about to change.6In 2017, the EU’s sugar production quotas and minimum price supports are set to expire, which is likely to create a more volatile sugar market. The expected increased production of white refined beet sugar from the EU will likely place downward pressure on international white sugar prices, and producers unable to rapidly adjust production levels accordingly may be forced out of the market. Furthermore, a fall in white sugar prices will translate into collapsed

1Lars Buur, The Journal of Development Studies, The White Gold, “The role of government & state in

rehabilitating the sugar industry in Mozambique 2Tongaat-Hulett website.Accessed 4.9. 2015

3 Illovo Sugar website accessed 4.9.2015

4 CEPAGRI

5 CEPAGRI

6 ISO report (2014) “ The EU Sugar Markets post 2017”, pg 35


margins for sugar refiners, as competition is expected to increase among European, Middle Eastern, and North African processors. The dismantling of the ACP Sugar Protocol in 2017 and abolition of isoglucose (sweeteners derived from maize and wheat used in the soft drinks industry) quotas are likely to impact negatively on EU sugar consumption, leading to higher production of sugar in the EU itself and effectively making the EU a net sugar exporter. The volume of sugar exports into the EU from ACP suppliers is projected to decline from 3.8 million tons in 2012 to about 1.5 million tons in 20177. Similarly, the price of sugar exported to the EU by ACP suppliers is projected to reduce from EUR 584 / metric ton to EUR 405 / metric ton by 2023. This price erosion in the EU market presents a new challenge to ACP suppliers, including Mozambique. Global sugar production in 2014/15 was the highest on record at 187.1 million tons of raw sugar value. Global consumption is estimated to reach 183.1 million tons this year, resulting in a surplus of 4 million tons in 2015. The existing global inventory is estimated at about 34 million tons of which 20-25% or 8.5 million tons8 is pushed onto the world market as residual sugar9. This sugar is also referred to as dumped sugar and has the potential to disrupt supply and the prices of sugar in vulnerable markets. However at the same time global demand for cane products such as sugar, ethanol, and molasses is growing rapidly due to rising incomes in emerging markets and growing interest in renewable sources of energy worldwide. Global consumption of fuel ethanol grew from 18 billion liters in 2002 to 81 billion liters in 2012 with theglobal trade in this fuel increasing to 7 billion liters in 201210. The African market has a 7 million ton deficit of sugar as shown in table 1 below. The demand for refined and specialty sugars is being driven by a growing middle class, increasing disposable incomes, population growth, and new investments in food and related industries which use white refined sugar in processing. Table 1: Sugar production and consumption in Africa

African Sugar Producers

2009 ‘000 Million Tons





Production 12,074 11,269 10,356 10,336 10,178

Consumption 19,605 19,073 18,443 17,530 17,038

Deficit ( million Tons)

5,591 7,746 8,087 7,194 6,860

Source: FAOSTAT Fourteen sugar producing countries in Africa have attracted significant inward investments in sugar and biofuels. These are Sudan, Ghana, Kenya, Nigeria, Tanzania, Ethiopia, Angola, South Africa, Swaziland, Mozambique, Malawi, Zambia, Algeria and Egypt. There are multiple projects

7 International Sugar Organization year book 2014 8(1997)Hannah & Spence

9Czarnikow “Sugar & Ethanol Projection Report”, June 2015 10Czarnikow“Sugar & Ethanol Projection Report “, June 2015


in several countries, for example, in Angola, two factories with capacities of over 250,000 tonnes sugar are planned, in Ethiopia, seven new factories are scheduled to come online in 201511. From the foregoing we can see that the sugar industry worldwide is facing many changes, with the potential reduction of the EU market, the creation of new products and opportunities and major investments taking place in countries which would naturally compete with Mozambique. Is Mozambican Sugar Competitive? Mozambique has ideal conditions for sugar production. It has a stable political environment, with economic growth projections of over 8% per year. The country has a population of 23.9 million people12, total land area of 48 million hectares, of which 36 million is arable land. The land under sugarcane is about 41,000 hectares13. The government is committed to reducing poverty and attaining food security meaning that agriculture is one of its key priorities. As noted above Mozambique’s commitment to developing the sugar industry as a major employer and investor in rural areas has resulted in the development of four sugar mills. In addition to employing over 37,000 people, and thus supporting approximately 150,000 individuals, the sugar industry provides social services in rural areas such as water, electricity, healthcare, education, roads, capacity building and technology transfer. In addition to existing investments there is a potential for as additional investment of USD $ 740 million by TSB, part of South Africa’s RCL food group in Massingir Agro industrial (MAI). The company already owns three mills in South Africa producing about 30% of South Africa’s sugar output (700,000 metric tons) and 300,000 metric tons of animal feed14.If the investment goes ahead it will be the single largest sugar project in the country, covering 37,000 hectares, and which when fully operational will contribute 400,000 metric tons of sugar15 The sugar industry is therefore of great importance to the economy with sugar being the second largest agricultural export after tobacco, in an industry which produced over 423,062 metric tons of sugar and 140,000 metric tons of molasses16 in 2014.

11 International Sugar Journal 12

IMF “World Economic Outlook Database,” September 2011 13

GAIN sugar annual report 2011 14

MAI Feasibility study 2014 15 The TSB (MAI) sugar project is expected to come on stream in 2017, preliminary yield indicators show

between 120-140 tons ha, which translates to 3,700,000 metric tons of sugarcane. Processing efficiency of

8.5 tons of cane to tons of sugar will yield 435,294 metric tons of sugar. 16 CEPAGRI


Figure 1: Sugar production levels by factory

SOURCE: CEPAGRI, 2014 The initial goal of the government when it took the decision to rehabilitate the sector was to create rural employment and revitalize industry. In order to do so it provided a number of concessions including a VAT exemption and subsequently established a reference price, which has recently been revised. Initially these decisions were taken to give the industry time to develop, grow and become competitive based on a domestic market and exports. Sugar consumption in Mozambique is between 185,000 and 200,000 metric tons of brown sugar per year. There is low per capita consumption (7.7kg per capita per annum), compared to South Africa, (31kg per capita) and Brazil (57kg per capita)17. See Figure 2 below.The local demand for white sugar is about 20,000 metric tons and the majority is imported from South Africa. The demand for industrial sugar is between 30,000 and 50,000 metric tons18 and demand is expected to grow at a rate of 4% with new investments into industries utilizing sugar in food. The industry has not invested in refining and has to refine raw sugar in South Africa at a fee of US $80 per metric ton. About 10,000 metric tons of Mozambique’s raw sugar is exported to South Africa for refining then re-imported back for use by the Coca-Cola Company. Most food processing companies based in Mozambique are unable to procure specialty sugar from the local mills for their product formulation. Their requirements for specific and standardized quality specialty sugar present both challenges and opportunities for the industry.

17FAOSTATS. 18CEPAGRI, Ministry of Agriculture, APAMO. Based on industry estimates, analysis and forecasts


Figure 2: Per capita consumption of sugar in selected countries.

Source: FAOSTAT The diagram below shows the different business models operated by sugar industries in the region. These models influence the industry cost structure, supply of cane, governance structures, negotiating mechanisms and the socio-political aspects associated with the sugar industry. In South Africa, small holder and commercial farmers supply 93% of the cane to the sugar companies and the nucleus estates supply 7%. Out of that 93%, about 1,300 commercial farmers supply 80% and over 20,000 smallholders supply about 20% of the cane to the mills.19 The national average yield is 42 tons of cane per hectare and revenue is shared 63% growers and 37% millers. In Kenya 92% of the cane is supplied by about 250,000 smallholder producers and 8% by millers. The average national yields are 62 tons per hectare.20 The large number of smallholder producers with average 2.3 hectares creates an inefficient cane supply model, lacking in scale, with high administrative cost structures. In Zambia the millers supply 60% of the cane and out growers supply 40%, the national average yields are 106 tons per hectare while revenue is shared 51% with millers and 49% with growers. This sugarcane supply model provides mechanisms for integrating smallholder sugarcane producers into the value chain.

19 South Africa Sugar association, website accessed 15 August, 2015. 3.30 pm 20

Kenya Sugar Board, Industry report, 2014


Figure 3: Cane production comparative business model

•PRIVATE MILLERS SUPPLY 60%

•OUTGROWER FARMERS 40%

•AVG YIELDS : 106 Ton/Ha

•BENEFIT RATIO: 59% MILLERS 41% GROWERS

•SMALLHOLDER FARMERS SUPPLY 92%


•AVG. YIELDS 63 Ton/Ha•BENEFIT RATIO : SUCROSE FORMULA TO BE IMPLEMENTED



• AVG. YIELDS 42 Ton/Ha

•BENEFIT RATIO: 63% MILLERS 37% GROWERS



• AVG. YIELDS 75 Ton/Ha

•BENEFIT RATIO:UNDER REVIEW Mozambique South Africa

ZambiaKenya

9

Sugar Cane Production Business Model & Comparative Yields For Selected Economies

Sources: IDRC, KSB, SASA Ministry of agriculture

Mozambique., Mozambique’s cane supply model is controlled by the sugar companies who supply over 80% of the cane to themselves. Out grower schemes comprising about 4,000 smallholder farmers supply 20% of the sugar cane to the millers. The national average yield is 75 tons per hectare, with potential to reach 100 tons per hectare. The companies are vertically integrated and own both the cane fields and the processing mills. They also operate on a large commercial scale that allows for mechanization and irrigation. Mozambique’s cane supply model is therefore controlled by the millers and has the scale necessary to deliver better cost structures and higher yields, making the sector competitive in the region. The sugar companies have market power and are able to pursue internal sugar pricing without having to negotiate with the smaller producers who supply less than 20% of the sugarcane to them. In South Africa and Kenya where the business model is different, smallholder producers supply over 80% of the sugarcane to the millers and have strong farmers’ organizations that manage and represent them during sugar pricing negotiations. These countries have developed a benefit sharing sucrose based formula, which pays farmers on the basis of sucrose content for the sugar produced and processed including additional payments for derivatives such as energy, molasses, and ethanol. The three important parameters for measuring sugar industry competitiveness involve sugar production yields per ton per hectare. Higher tonnage per hectare is an indication of better agronomic efficiencies once the sugar is produced, and it is moved to the factory for extraction. The lower the tons of cane to tons of sugar (TC/TS) ratio the more efficient the mill is in extracting the sucrose content. Usually a higher TC/TS ratio is an indication of processing inefficiencies, which could be attributed to obsolete machines, frequent breakdowns, and labor issues. The availability of extended sunshine, irrigation and cane varieties can shorten the cane maturity cycle. The shorter the cycle the faster a return on cane investment. The table below shows that Mozambique potentially has more favorable conditions than its regional competitors.


Table 2 Comparative analysis of industry efficiency

Country Processing Efficiency tons of Cane/Tons of Sugar TC/TS

Average Cane Maturity Period

Agricultural Efficiency tons of cane per hectare

Mozambique 9 10 months 71.8

Swaziland 8.4 12 months 105

Kenya 10.9 18 months 63.4

Zambia 8.1 18 months 106.25

South Africa 8.35 16 months 42.46

SOURCE: USDA, GAIN REPORT 2011. Therefore on the basis of actual and potential yields and industry business model, Mozambique’s sugar industry should be competitive and should not require protection. However as table 2 below shows, the Government of Mozambique issued a sugar price reference decree in 2001, and another in January 2008 establishing reference prices of US $347.18 per metric ton for raw brown sugar and US $388.09 per metric ton for white refined sugar. The latest decree was issued in July 2015 establishing a price of US$806 / metric ton for raw brown and US $932 / metric ton for white refined sugar21. The need for reference pricing raises questions as to the competitiveness of Mozambique’s sugar sector. There are also concerns about the data used to calculate the cost of production of sugar in Mozambique. Recent studies by LMC International show Mozambique as being a low cost producer of sugar at a cost of less than US $400 per metric ton. The cost indicated by sugar industry in negotiations for the reference price is US $632 per metric ton22. Table: 3 Sugar reference prices in Mozambique

21

Proposal by APAMO to GOM on sugar pricing 22

CEPAGRI

2001 US $/ MT

2008 US $ MT

2015 US $/MT

World Market Prices

% Increase of reference

price

Reference Price for Raw Brown Sugar

385 347.18 806 250 109%

Reference Price for White Refined Sugar

450 388.09 932 350 107%


Source: CEPAGRI The indicators are very favorable for the competitiveness of Mozambique’s sugar industry and include all year round sunshine which promotes faster growth of sugarcane relative to other countries, good fertile soils, river sources for irrigation, and low cost of leasing land amongst others factors. Mozambique and Brazil rank high in terms of competitiveness as shown in table 4 below. Table 4: Sugar Industry Competitiveness Rankings

Country Ranking

Egypt 77

Brazil 71

Mozambique 71

India 69

Thailand 64

Australia 62

Swaziland 62

South Africa 61

Kenya 61

Malawi 61

Zambia 60

Source: Author analysis, SLEIPA Since both the agricultural environment and business models of the industry appear favorable the most likely explanation for the lack of competitiveness of the industry and thus the need for reference pricing lies in the business environment. Key constraints impact on Mozambique’s competitiveness, including high cost of transportation and logistics, poor road and rail infrastructure, high cost of energy, low skill sets, and overall unfavorable business environment. The Infrastructure including road, rail, ports, airports, and electricity generation are critical for improving Mozambique’s agricultural competitiveness by linking agricultural products to markets. Despite Mozambique’s strategic geographical location many companies are obliged to set up their own infrastructure like electric lines, irrigation systems, storage facilities, and roads. Mozambique’s sugar industry has invested in a world class sugar exporting terminal and warehousing facilities with capacity to handle 400,000 metric tons23 of sugar. Sugar from Swaziland, Malawi, Zimbabwe, Zambia and South Africa is currently being exported and imported through this facility. Other countries in Africa with similar facilities include Durban bulk sugar terminal, and Mauritius bulk sugar terminal. The National Sugar Distribution Agency (DNA) is charged with the mandate of coordinating sugar industry logistics

23

National Sugar Distribution Agency of Mozambique report, 2012


including import, export, warehousing, and distribution. However despite this, the cost of transportation by rail from Maputo to Johannesburg is US $0.027 USD per ton per kilometer, from Maputo to Harare US $0.056 per ton per kilometer and from Nacala to Lilongwe US $0.064 per ton per kilometer. The turnaround time to clear goods at the ports of Maputo and Beira compares unfavorably with other global logistic destinations24. The business environment includes policy, legal, institutional, and regulatory conditions that govern the sugar industry including investments and infrastructure. Some of the key constrains that have been identified as undermining Mozambique’s competitiveness in sugar include shallow financial markets that make it difficult to structure long-term financing; inability to structure debt instruments for financing capital intensive projects; lack of fair competition; unstable domestic policy environment that undermines free market dynamics; lengthy process of acquiring land; inability to use land as collateral; best practice for accessing communal land; community compensation process and negotiations. A number of investments in both sugar and biofuels in Mozambique have been frustrated by the constraints raised above. The experiences of countries like Brazil, Thailand and Mauritius in agribusiness development and promotion show that a number of factors are critical in determining the extent to which the private sector in agro-industry will contribute to poverty reduction. These include the macroeconomic environment, the land tenure system, and the willingness and capacity of the Government to invest some revenue it derives from the sugar industry in the provision of basic social services in the rural areas25. Social considerations may drive not only decisions to protect an industry but also its lack of competitiveness. The sugar industry in Mozambique has created over 30,000 jobs rather than mechanizing26. The sector has developed 6 schools and 3 hospitals. Over 16,378 students have benefited through education; 61,750 beneficiaries through health programs, the sector has developed 7 water projects, with over 4,250 families benefiting, and it has also invested in roads, with over 83,093 beneficiaries from improved road access. These social benefits form important considerations for supporting the sugar sector.

Policy Approaches Governments use various forms of policy instruments including variable duties, quantitative restrictions, and reference price support measures to regulate sugar imports in their respective economies, in order to secure the interests of domestic sugar industries, and ensure social benefits, jobs and livelihoods in those rural communities involved in sugar production. In July 2015 the Government of Mozambique, in consultation with the sugar industry, decided to increase the sugar reference price by 109% for raw sugar to US $806 per metric ton, and 107% for white refined sugar to US $932 per metric ton with these measures taking immediate effect27. Mozambique uses the reference price as a protection mechanism. The reference price is a policy tool used to regulate the prices of sugar imports into Mozambique and is triggered when there are increased volumes of cheap imported sugar in the domestic market selling at lower

24

N, Meeuns (2009) NEA transport research training, “Mozambique Trade & Transport Facilitation Audit” 25

World Bank, FAO, 2009, “Agribusiness for Africa’s, prosperity”, UNIDO, May 2011 26

CEPAGRI 27

Ministry of Agriculture, Mozambique, APAMO


prices than locally produced sugar. The process entails sugar industry submissions to government showing evidence of injury or potential injury to the sector. The submission will recommend the reference price which is effective for protecting the domestic market by introducing price parity between imported sugar and locally produced sugar. Figure 4:World market sugar prices Source: Czarnikow Consulting 2014

The sugar reference price is therefore a policy response mechanism that the Government uses to regulate the domestic sugar market in Mozambique to prevent the market from being flooded by imported sugar which is priced below that produced locally. The reference price involves technical calculations that take into account the cost of producing one ton of sugar in Mozambique. The sugar industry internal cost structure and business model for sugarcane supply will influence this price. However ex-factory price is not a true measure of industry competitiveness as sugar industries in general are known to apply high markups to retain profits on their balance sheet28. Industry value chain studies are recommended in order to determine the costs, and confirm the distribution of revenues to various actors in the chain. In Mozambique this type of study was not conducted prior to establishing the reference price. Table 5 below shows comparative analysis and trends of selected sugar producing countries, including Zambia, Kenya, Tanzania, Mozambique and South Africa. The analysis confirms Kenya as a high cost producer, in contract to Zambia and Mozambique which are known to be low cost sugar producers.29 Table 5: Ex- Factory Prices of Sugar for Selected Countries

Year Kenya

US $ Metric Ton

South Africa

US $ Metric Ton

Tanzania

US $ Metric Ton

Zambia

US $ Metric Ton

Mozambique

US $ Metric Ton

2012 1162.0 683.1 950 910 639

28

.Brian, G John, N, George, o. Stellah, K.Thando “Study of competition in the regional sugar sector case,

Kenya, Tanzania, Zambia presented at Pre-ICN Conference”, April 2014

29

Trade & Industry Policy secretariat at SADC South Africa, 2000


SOURCE: KSB, APAMO, CEPAGRI, SASA, SUDECO. The ex-factory prices are based on industry data and calculations sourced from various sugar industry agencies. The contradictions between the ex-factory prices and production prices point to gaps that exist in the quality of sugar industry data used for economic and industrial policy development. It suggests a need for governments to invest in strong institutions with capacity to conduct technical research and manage industrial data for effective policy decision making. The following case studies provide examples of two different approaches to the sugar industry. In comparing the cases of Mauritius and Kenya it is worth noting that Mozambique’s sugar industry has used its strategic location to invest in a modern sugar export terminal and infrastructure, and in strong commercial linkages. Like Mauritius it also benefited from the EU Sugar Protocol, so much so that it has exported over 1 million tons of raw sugar to the EU estimated at US $ 450 Million30.

Case Study Mauritius Mauritius was amongst the first countries to join the ACP-EU sugar protocol in 1975, and subsequently developed strong institutions to manage its sugar business. Mauritius is one of the ACP countries that took maximum advantage of the preferential trade agreement and exported raw sugar to EU at highly remunerative prices. Mauritius enjoyed the largest share of the EU sugar quota of 523,838 metric tons (2006) 31 out of 1.3 million metric ton allocated to ACP sugar suppliers under the preferential trading arrangement and created a powerful lobby to defend its quota. The country invested in a sugar terminal, created the Mauritius Sugar Syndicate and built up competitiveness in exports markets. The country established strong sugar lobbying groups in key markets, including the UK and US. Mauritius was among the largest beneficiary of the EU sugar arrangement controlling allocated quota of 491,000 metric tons of sugar representing about 36% of the ACP-EU sugar quota. (Mauritius has however supplied as high as 523,000 Metric tons of sugar to EU in 2006 due to contractual defaults by other members states.) Over the lifetime of the sugar protocol Mauritius managed to accumulate benefits of about Euros 4.0 billion32 in net transfers, which were passed through the Mauritius Sugar Syndicate. Mauritius used the wealth created in the sugar sector to invest in other productive sectors including tourism, textile manufacturing, offshore financial services, export and logistics with great success. Mauritius weaned itself off an economic dependency on sugar as a result of key Government and private sector agencies working together to coordinate an industrial policy, to build the technical capacity of public and private agencies to deal with industrial policy analysis, international trade and regional negotiations, to ensure that competitiveness studies and analysis were undertaken, industrial and market Intelligence gathered, cost reducing technologies introduced, human capital and managerial expertise developed. The country effectively pursued a horizontal approach in its industrial development strategy. The Mauritius sugar industry case demonstrates the possibility of achieving broad economic

31

International Sugar Organization ( 2014) “ The EU Sugar Markets post 2017”, pg 12 32

SADRIN Trade &policy in Mauritius Impact on livelihoods of farmers and workers


growth through a balanced industrial policy using horizontal approaches to diversify away from a sugar based economy. Table 6: Results of Mauritius Sugar Industry diversification strategy

Sugar was clear winner for Mauritius and protection was phased out gradually

Pursed strong, growth oriented development path, shifted from vertical to horizontal approach for strategic development of its industrial policies and creation of new economic growth centers.

Worked to develop strong public and private sector institutions, and governance structures

Leveraged sugar industry to diversify economy

Liberal trade regime (focused on competitiveness)

Created a favorable and predictable regulatory environment to attract FDI

Very strong commercial alliances: exploited preferential trading arrangements for sugar (EU)

Major investment in governance (Ibrahim index: Mauritius was rated 1st. 2014)

GDP per capita: US $500 (1970) – US $6,000 (2010)

Life expectancy: 62 years (1970) – 73 years (2008)

Poverty levels: 11% (1992) – 2% (2010)

Highly diversified economy: Textiles, tourism, financial services, logistics and telecommunications

Source: Author

Case Study Kenya Kenya joined the ACP-EU sugar protocol one year before Mozambique and was allocated a 10,000 metric ton quota. Kenya managed to supply a few shipments, but thereafter defaulted on the commercial agreements and did not invest in strong institutions and infrastructure to stay competitive in the EU market. Instead the Kenyan sugar market became more uncompetitive and unsustainable as a result of high import tariffs and strong protection leading to market failure. Both Kenya and Mozambique had access to strategic ports for shipping out sugar, but Kenya did not invest in bulk terminal facilities for sugar export, and also failed to create a competitive industry environment, or gather market intelligence to support the sugar export program. In the meantime the Kenyan sugar industry with over 250,000 smallholder farmers supporting population of about 5,000,000 people,33 who depended on the sector for their livelihood, was experiencing structural problems due to high costs of production, obsolete sugar mills and declining yields. Kenya could not compete with low costs sugar producers in COMESA and SADC, and became a destination for cheap sugar from the world market. Kenya sought protection from COMESA and was given 4 year protection under the COMESA safeguard measures, with quantitative restrictions to control the volume of sugar that was entering the Kenyan market. The safeguard was renewed for an additional 8 years after subsequent requests from Kenya, until finally COMESA refused further extensions, since the country has not made structural changes to improve its industrial competitiveness, including privatizing government owned mills, adoption 33

Kenya Sugar Board


of sucrose based payment systems, and economic diversification as outlined in the COMESA extension conditionality. The COMESA protection measures had effectively become political instruments for managing the socio-economic interests of Kenya’s sugar industry. The net effect of this policy led to a rapid buildup of costs, industry complacency, corruption, sugar cartels, high consumer prices of sugar, and an uncompetitive business environment. Eventually this led to the collapse of the leading private sector miller, and Government bailout of the sector. See table 6 below. Table 7: Tariffs& Non-Tariff Barriers used to protect the sugar industry in Kenya

Source: Kenya sugar Board

Table 8: Results of Kenya’s sugar industry Long term protection measures

Productivity decline in Kenya sugar sector: deficit of 250,000 metric tons

Consumers price of sugar up by 300%

Lay-off of 300 management staff

Government bailout US $98 million, Government debt write- off US $ 330 Million for insolvent sugar companies.

Loss of profits US $47 million -Mumias Sugar Company

Loss of livelihoods for *250,000 dependents

Loss of income and social benefits for* 50,000smallholder sugar producers

Loss of business for retail traders

Food insecurity concerns and increase in poverty

Loss of social benefits and high political costs

Measure /Barrier Charges

Import declaration 2% C.I.F

VAT 16%

Sugar Development Levy 4%

Clearing & Forwarding Charges US $ 15

Drop Off Charges Per Container US $ 64.45

Terminal Handling Charges US $ 90

Warf age Container US $ 60

Clearing Agencies fees US $ 80

Transport Costs US $ 160

Quantitative Restrictions Sugar Imports- COMESA Safeguard Measures

Over 5 decrees and 12 years protection


As the two cases illustrate protection is driven not only by market factors but also by investor bargaining power. The sugar industry is very capital intensive process, requiring huge capital inflows. New projects take between 5 to 7 years to come on stream. Investors will therefore require incentives and guarantees from governments to secure their investments. The guarantees may take the form of price support mechanisms, market protection, and tax holidays. However protecting a sugar industry is a costly affair, to the government, business communities, consumers, society and the economy in general. There must be diligence in balancing competitiveness with protection in order to maximize on the social, economic, political and environmental benefits from the sector. The case studies of Kenya and Mauritius provide Mozambique with different industrial policy pathways pursed by the two sugar economies, where Kenya due to its heavy protectionist measures ended in disaster and Mauritius achieved tremendous economic growth and improvement in human development indicators by pursuing a more sustainable balanced industrial policy. Kenya lacked strategy and vision, and failed to develop strong institutions and industrial policy. As result the sugar industry collapsed creating a political dilemma with high attendant costs. The estimated losses currently documented are as follows: loss of profits US $ 47 million; USD$ 330 million debt write off by Government of Kenya (GOK) to support 6 insolvent companies, (5 government owned and 1 private sector) US $ 94 million bail-out to Mumias sugar company. The losses associated with social benefits, livelihoods, loss of income, staff layoffs, and business linkages is yet to be established. The diagram below illustrates the impact of protection on different stakeholders and how they end up paying for a failed sugar economy. Figure 5: Costs of long run protection measures

Business

Breakdown in supply chain and business linkages

Disincentive in Investments and Efficiencies Loss of Profits

Consumers

Subsidise Industry Inefficencies by paying high prices for sugar

Government

Debt Write Offs for Insolvent sugar mills

Industry bail out using tax payers funds

Loss of revenue, corporate tax, VAT

Economy

Loss of FDI Growth suffers

Society

Disruption in social benefits, education, health, housing,

Loss of livelihoods, PovertylLevels increase

Political Implications


That being said, strong synergies exist between agribusiness, agricultural performance and poverty reduction in Africa34. Focus on value addition in agribusinesses such as sugar is therefore central to existing strategies for economic diversification, structural transformation, and technological upgrading of African economies35. Trade policy is hotly debated both in the context of protection against extra-Africa imports and regulations relating to intra-regional trade. Governments use various policy instruments including common external tariffs at regional level and variable duty instruments at country level to manage trade and industrial policies. Regional integration provides an potentially important instrument for achieving full economies of scale both in the production of agro-industrial products, such as sugar and ethanol for larger markets, (SADC, COMESA, EAC) and in the provision of key infrastructure services, such as rail, roads, air transport for cargo and passenger, electricity, gas, water, and ICT. Regional integration can facilitate harmonization in critical areas, such as policies, trade, financial services, research and development, as well as product standards. Mozambique is in a very strong position to pursue regional trade and industrial policies that support common utilization of its strategic infrastructure assets including railways, ports, handling and storage facilities (sugar terminal). However arriving at a defensible cost benefit analysis of the sugar sector which enables us to balance the cost of protection versus the benefits potentially conferred is complex due to difficulty of finding credible data for analysis. The sugar sector due to the multifunctional roles that it plays in the economy is considered highly strategic for economic, social and rural development. There is need for further study to value and monetize costs and benefits related to the sugar sector in Mozambique, for effective policy making. What next for Mozambique’s sugar industry The study confirms that the sugar sector has both the competitive and comparative advantages of being low cost global sugar producer. However, there are critical areas that it must address, including improving the business environment, addressing the high cost of transport and logistics, investments in robust development oriented industrial policy, technology upgrades and modernization of selected sugar factories for higher efficiencies. There is also a need for training in technical skill sets, access to industrial intelligence, improved data quality and data gathering for policy decision making. There is need for diversification into new growth sectors including ethanol sugar refining, and co-generation of electricity by the mills. There is a need to build up the internal capacities of government institutions to address technical aspects of the sugar and related industries, including strengthening industry coordination mechanisms, regional and international trade negotiations, technical studies, evaluations and advisory services on sugar, establishing strong commercial linkages at regional and international levels to exploit trading opportunities. The country should strengthen the coordination, representation and negotiating capacities of smallholder sugar producers. Key agencies that could benefit from capacity strengthening include, CTA, CEPAGRI, and other government departments handling sugar. Although the revitalization of the sugar industry in Mozambique is considered a success story, due to its significant economic social, environmental and developmental benefits, there is a need to deepen the understanding of the industry’s dynamics, the value chain actors, the

34 World Bank, 2007 35 UNIDO “Agribusiness for Africa’s Prosperity” pg47


internal costing structure, evaluation and monetization of social and developmental benefits associated with the sector, for the facilitation of the strategic management and policy decision making process. DNA is extremely strategic for the sector and should align its mandate and operations, not only with the current realities of the industry, but also for the future. The net sugar transfers from EU trade and other markets that pass-through DNA should be invested in value addition activities, new growth centers, including investments in refining capacities of sugar, ethanol storage and transportation systems. Mozambique should pursue synergies, collaborations, and opportunities through regional trading blocs, including SADC, SACU, COMESA, and EAC for joint development of common infrastructure for sugar and biofuel, refining, storage, transportation and markets. A study should also be undertaken to understand the specialty markets for sugar, ethanol and derivatives in Africa. The EAC sugar market is comprised of Kenya, Uganda, Tanzania, Rwanda and Burundi, and sugar production is estimated at 1,088,530 Metric tons, against the consumption of 1,546,598 Metric tons, leading to a deficit of 590,300 metric tons. The average sugar imports to EAC countries from 2005-2014 were 386,929 metric tons and average exports for the same period was 169,728 metric tons.36 Mozambique has the opportunity to supply to this market. The SADC member countries include Angola, Botswana, Lesotho, Mozambique, Malawi, Swaziland and South Africa. Under the EU sugar reforms, the ACP- EU sugar protocol is expected to transition into Economic Partnership Agreements (EPAs).The countries that have currently signed the EPAs include, Mozambique, Botswana, Lesotho and Malawi. South Africa is the leading producers and Supplier of Sugar in SADC. Approximately, 60% of South Africa’s 2.2 million metric tons of sugar production is marketed in SACU37 (South Africa, Swaziland, Lesotho, and Namibia). Mozambique is not a member of SACU and its surplus sugar would have to access this market with tariffs. Between 2008 and 2010 over 171,883 MT of sugar was exported to Mozambique from South Africa. Considering the small size of Mozambique’s domestic sugar market, (about 200,000 metric tons of sugar per year) it is likely that this sugar could create potential market distortions. There are opportunities in the regional ethanol markets which Mozambique can exploit in addition to sugar. Africa is emerging as the next frontier for preferential trade in specialty sugars post EU sugar reform. Africa’s sugar specialty markets presents the best pathways for Mozambique’s sugar and derivatives post EU sugar reforms. SACU ethanol blending regulations once in place would create a huge market and opportunity for Mozambique. That can be unlocked by pursuing synergies, collaborations, and opportunities through regional trading blocs. Mozambique has the potential to be competitive but several factors still need to be addressed. It is recommended that the government work to reduce costs of transport and logistics, improve industrial intelligence and standardization of quality, processes and technology and modernize equipment. There is a need to address cost build-up in the sugar industry and urgently improve the business environment in Mozambique.

36 East Africa Standard news article August, 26, 2015 report based on study by East African Community (EAC) “Comprehensive study of sugar industry EAC technical Assistance FTA negotiations” 37

Ministry of Agriculture, Forestry, & Fisheries of South Africa, “Profile of South Africa Sugar market Value chain, pg, 3 , 2011.


There should be a clear phase-out plan to transition industry into a sustainable and competitive situation. Current vertical policy (“sugar as a winner”) should be shifted towards a horizontal policy. Mozambique should take the Mauritian route and avoid the Kenyan route. The Government views the current pricing policy (reference price) as a necessary yet temporary measure however; here there is a need for in-depth analysis of industry cost structures in order to ensure long-term sustainability of the sector. It is important to develop a clear strategy and pathway for expansion, diversification, and marketing options for surplus sugar projections of about 700,000 to 900,000 metric tons arising from new green-field investments in the sector. Industrial policy coordination mechanisms must be improved. The following agencies will need to work together for effective coordination of industrial policy: DNA, CEPAGRI, CTA, CPI, APAMO, Ministry of Finance and Economy (Customs), Ministry of Agriculture, National Institute of Statistics, Ministry of Trade and Industry, Ministry of Transport and Communications, Ministry of Energy, with support from key development partners. There is need to build up the technical capacity of these agencies to deal with industrial policy analysis, international trade and regional negotiations, competitive studies and analysis, industrial and market intelligence amongst other competencies. The government needs to capacity build public service with the right skills, better tools for policy analysis and strategic management, enhanced coordination at the country and regional level. Mozambique possesses a world-class sugar logistics facility and should leverage its strategic geographic location to become a sugar logistics hub for the region. In order to achieve this goal, the following critical areas need to be addressed: investment in modern cargo handling facilities, cranes, bonded warehouses; investments in terminals to complement the sugar sector and diversify through horizontal strategy; replicate the world-class facilitates found in Maputo across other ports of the country (Beira, Nacala); invest in ethanol export terminal and infrastructure for regional use exports to EU, Asia & African regional markets to exploit new opportunities in biofuels. Mozambique should pursue a careful balance between competitiveness, industrial policy and protection of its sugar sector. It is important to craft robust value addition and industrial policies based on horizontal economic models, improve the business environment, invest in new infrastructure and logistics, and improve industry coordination mechanisms, in order to consolidate the industry’s gains and create a new growth trajectory using sugar as an economic driver for Mozambique.


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Table 9: List of People Interviewed

Table 10 : Sugar Industry Competitiveness Matrix

Name Organization Title

1 Ernesto Max Tonela Ministry of Industry & Trade Minister

2 MateusMatusse Ministry of Industry & Trade National Director of Industry

3 Dr. RaimundoMatule Ministry of Agriculture and Food Security (MASA)

Director of Planning & Cooperation

4 HelioNeves MASA, Center for Promotion of Agriculture CEPAGRI)

Head of Analysis and Information Department

5 Luis Eduardo Sitoe Confederation of Business Associations (CTA)

Executive Director

6 Jaime Comiche UNIDO Head of UNIDO Operations in Mozambique

7 HipolitoHamela Independent Consultant/Global Thinking

Economist

8 SuzanaJoaquimMafuiane Ministry of Industry & Trade Deputy National Director for Trade

COMPETITIVENESS MATRIX FOR SELECTED GLOBAL & REGIONAL SUGAR ECONOMIES

GLOBAL EXPORTERS TOP AFRICA PRODUCERS TOP SOUTH AFRICAN PRODUCERS

Competitive Parameters Mozambique Brazil Thailand Australia India Kenya Egypt Sudan South Africa Malawi Zimbabwe Swaziland

Availability of usable unforested land 5 2 3 5 2 2 1 4 2 3 3 3

Year round Heat & Solar Radiation 5 5 5 5 5 3 5 5 4 5 4 5

Access to Sugar Research Intelligence 3 5 5 5 5 3 5 4 5 5 4 5

Access to Technology & Industrial Intelligence 2 5 5 5 5 3 5 4 5 3 3 3

Ample Rainfall & Irrigation Sources 5 5 4 5 5 3 5 4 3 5 4 3

Low land Leasing Costs 3 3 3 1 4 3 3 4 2 3 3 3

Low Labor Costs 3 3 3 1 4 3 3 2 2 3 3 3

Distance from Main Sugar Area to Port 2 3 3 5 3 3 5 2 4 1 1 1

Sugar terminal Infrastructure for Exports 5 5 5 5 5 2 5 3 3 1 1 1

Local Market for Sugar Deficit 4 1 1 1 3 5 5 1 1 1 1 1

Regional Trade Area Deficit 2 1 5 1 5 5 3 1 1 1 1 1

Duty Free Access to EU 4 1 1 1 1 1 1 1 1 3 4 4

Duty Free Access to US TRQ 4 4 1 1 1 1 1 1 1 3 4 3

SACU Sugar & Ethanol Markets 4 5 1 1 1 4 5 4 5 4 4 4

COMESA Sugar Market & Ethanol Markets 4 5 1 1 1 4 5 4 4 4 4 4

EAC Sugar & Ethanol Market 4 4 1 1 1 4 5 4 4 3 4 4

Economic Growth 5 4 5 3 5 5 5 5 3 3 3 4

Low Crime & Insecurity 4 2 4 5 5 1 4 1 1 4 3 3

Political Stability 5 5 3 5 5 2 3 2 5 3 3 3

Business Environment Climate 2 3 5 5 3 4 3 3 5 3 3 3

Evaluation key 5- Very Positive 4- Positive 3- Neutral 2 - Negative 1- Very Negative

Total Score 71 71 64 62 69 61 77 59 61 61 60 62

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