The entry of a new sugar company on the market is expected to end monopoly in the sugar industry which has been monopolised by Illovo Sugar (Malawi) Limited and spur competition in the industry, a Blantyre-based financial advisory firm Alliance Capital Limited has said.
In its market review for the week ending August 26 2016, Alliance Capital Limited says the coming in of Salima Sugar Company is the right step in the development journey not only because of the economic benefits but also the need and importance of having meaningful competition in every sector.
“In a competitive market, firms strive to produce the highest quality-quality products or provide the best services at the lowest prices possible in order to win consumer acceptance and support.
For instance, in the context of the sugar industry in discussion, failure of Illovo to offer better prices for raw materials is a shift of patronage on the suppliers to the competing firm, Salima Sugar Factory,” reads the report.
The company, however, says that in as much as competition has been ushered into the sugar industry with the new player, there will still be some flaws in the sector that cannot be overlooked.
“Overtime, duopolistic firms tend not to devote their time to improving their products or services because they already have a dominant market. This inturn compels them to focus more on fixing their prices at a point that maximises their profit margins and in a way that is mutually beneficial to the two companies in the duopoly,” it says.
In an earlier interview, Salima Sugar Factory chairperson Shirieersh Betgiri said after the initial 15 000 metric tonnes (MT) output of sugar in the first year, they plan to increase the volume to a maximum of 90 000 tonnes in the next few years.
Malawi government has 40 percent stake in the $90 million (about K64 billion) factory with the remaining shareholding held by two investors. n