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Sugar Wars: Can competition drive Nigeria’s self-sufficiency targets?
Competition in Nigeria's sugar refining space is heating up as the heavy weights are looking to take advantage of the backward integration program to assert their dominance in the space. For the investors, is Nigeria’s sugar industry a worthy investment class? Dare Fajimolu, Chief Research Officer at Blue Vertex joins CNBC Africa for more.
Fri, 09 Apr 2021 14:11:27 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The Nigerian sugar industry faces a supply-demand gap due to low local production levels and a heavy reliance on imported raw sugar, leading to exposure to international price volatility.
- The sugar industry's master plan, focusing on backward integration to promote local sugar production, is underperforming with only 17% of local demand being met domestically.
- The dominance of major players like BUA Group, Dangote Sugar, and Flour Mills of Nigeria in the industry poses challenges in terms of compliance, competition, and capital intensiveness, but also presents opportunities for diversification into sectors like electricity generation and ethanol production.
The sugar industry in Nigeria is facing significant challenges as it strives to achieve self-sufficiency in sugar production. Currently, Nigeria only produces about 17% of the total sugar demand in the country, leading to a supply-demand gap. This overreliance on imported raw sugar exposes the industry to international price fluctuations, with a recent 38% increase in sugar prices affecting production costs. The Nigerian sugar industry's master plan, focusing on backward integration, aims to address these challenges by promoting local sugar production. However, the execution of this plan has been underperforming, with just 17% of local demand being met domestically. Compliance with the objectives of the plan, particularly around the involvement of major industry players, remains a key concern. The industry is dominated by three major players - BUA Group, Dangote Sugar, and Flour Mills of Nigeria, leading to stiff competition and high capital requirements. Despite these challenges, there are opportunities for the industry to diversify into sectors like electricity generation and ethanol production, contributing to Nigeria's overall economic growth. The competition in the sugar refining space is expected to drive efforts towards achieving self-sufficiency and increasing the industry's contribution to the national economy.
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