“Southern Africa produces roughly about three per cent of global supply in terms of sugar. We have some of the most efficient sugar producers in the world, Swaziland being one of them, Malawi being another, producing sugar at roughly between 200 to 300 US dollars per tonne. We have quite competitive companies within Southern Africa,” at Imara Investment Securities analyst Dexter Mahachi told CNBC Africa.
The sugar sector in the continent is however highly regulated, and this could act as a slight deterrent for investors looking to capitalise in the industry.
Mahachi however added that because sugar is an integral part of the global diet, it has been seen as a long-term growth area. West Africa, for example, has a huge demand for sugar.
Local producer Dangote Sugar has taken advantage of the demand and has emerged as one of the largest sugar producers in the region.
“One thing that Dangote has been doing right is the expansion in capacity. They haven’t been afraid to look regionally instead of just looking at supplying their own internal market. Nigeria consumes about 1.25 million tonnes of sugar per annum. Dangote’s capacity is round about 1.44 million tonnes per annum,” Mahachi explained.
“What they’ve been trying to do is to try and export some of their sugar to neighbouring countries such as Ghana, Mali and Senegal, which have shortages in terms of supply.”
Kenya is another major sugar producer in the continent. It’s industry has however been under significant pressure due to the impending end of the Common Market for Eastern and Southern Africa (COMESA).
COMESA has safeguarded Kenya’s sugar industry and its end could have serious implications for the country’s largest sugar producer Mumias.
“I think Mumias is one of those companies that we look at as being in terminal trouble. Part of the problem is their business model. 95 per cent or so of the actual sugar that they mill is supplied by small-scale farmers,” said Mahachi.
“This is a big problem because the cost of production for Mumias is quite high when compared to other sugar producers, such as Illovo [in Malawi]. The Kenyan government has been trying to urge COMESA to give them a little bit more time. I’m not sure whether they’ll be able to restructure the company in time even if they’re given a year. The problems that they have there are rather fundamental.”