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Analysing the Competitive Performance of the Eswatini Sugar Industry

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Analysing the Competitive Performance of the Eswatini Sugar Industry Analysing the competitive performance of the Eswatini sugar industry by Xolisiwe Simelane Thesis presented in partial fulfilment of the requirements for the degree of Master of Science in Food and Nutrition Security at Stellenbosch University Department of Agricultural Economics, Faculty of Agricultural Sciences Supervisor: Prof CJ van Rooyen March 2021 Stellenbosch University https://scholar.sun.ac.za DECLARATION By submitting this thesis electronically, I declare that the entirety of the work contained therein is my own, original work, that I am the sole author thereof (save to the extent explicitly otherwise stated), that reproduction and publication thereof by Stellenbosch University will not infringe any third-party rights and that I have not previously in its entirety or in part submitted it for obtaining any qualification. Date: March 2021 Copyright © 2021 Stellenbosch University All rights reserved ii Stellenbosch University https://scholar.sun.ac.za ABSTRACT The primary objective of this study was to analyse the competitive performance of the Eswatini sugar industry, since 2001, and developing strategic recommendations for improved competitiveness of this industry. A five-step analytical framework was applied based on the Volrath-Porter approach recently followed by Boonzaaier and Van Rooyen (2017), Barr (2019) and Mtshiselwa (2020) for competitiveness analysis in southern African agribusiness. Step 1 of the analytical framework involved defining competitiveness in the context of the Eswatini sugar industry. In this study the term was defined as ‘the ability of sugar industry to be competitive by trading production in domestic and international markets and achieve sustainable business growth whilst striving to earn at least the opportunity cost of resources’ (Freebairn, 1986, Van Rooyen, Esterhuizen & Botha, 2011; Dlikilili & van Rooyen, 2018). This definition provides a base for the analysis and measurement methods used. The second step of the study was the empirical measuring of the competitive performance using the relative trade advantage (RTA) technique (Vollrath, 1991) as a measure of competitiveness. The data used was sourced from two reliable sources viz. FAOSTAT and ITC Trademap from 2001 to 2019. From these measurements trendlines were established and three phases were identified and analysed. Phase 1 shows generally increasing competitiveness with RTA figures (2001-2006) ranging from 1.5 to 2.9 for the FAO and 1.8 to 4.6 for ITC. During phase 2, (2007 - 2012) it showed a fluctuating “bubble type” trend by first increasing until 2009 and declining gradually to 2012. The competitive performance was noted with RTA values for FAO ranging between 3.8 to 3.4 inter alia due to economic meltdown and removal of the preferential trade arrangements benefitting Eswatini. Phase 3 shows recovery and sustained increasing competitiveness from 2013 onwards with rising RTA values of 3.4 to 5.2 for ITC and 2.9 to 4.9 for FAO. The Eswatini sugar industry was also compared with its rivals internationally by measuring the RTA values over time (2001 to 2019) using the ITC data. Average RTA values from the past five years - allowing to compare relative competitiveness of an industry in context of the economy of the respective country - were obtained for the following respective countries: Brazil (5.04), Thailand (4.61), South Africa (3.56), Mozambique (2.09), Kenya (3.01), Malawi (2.03) and Zimbabwe (2.75). Brazil and Thailand showed to be the most competitive as opposed to the other countries. Eswatini (3.82) was found to be generally competitive when compared to its African competitors after South Africa. From these results it was concluded that an in-depth analysis was required to consider the various factors iii Stellenbosch University https://scholar.sun.ac.za impacting on the competitive performance of the Eswatini industry, which was conducted in steps 3 and 4. The third step of the study involved ascertaining factors that influence the competitiveness of the sugar industry. Factors enhancing or constraining the competitive performance of the sugar industry of Eswatini were identified and analysed through qualitative methods by using focus group discussions and interviews with experts and executives along the sugar industry value chain. Through the Eswatini sugar executive survey (ESES), 48 factors influencing the competitiveness of the industry were identified and responses recorded on the Likert-scale (with 1 – constraining; 3 – neutral; and 5 – enhancing). Step 4 of the study grouped the 48 factors influencing the competitive performance of the sugar industry into six Porter Competitive Diamond determinants. In general, the sugar industry rating score indicated four enhancing determinants being the demand conditions (3.54/5), related and supporting industries (3.45/5), government support and policy (3.41/5) and lastly the strategy structure and rivalry (3.36/5). The production and chance factors revealed to constrain the industry with 2.83/5 and 2.42/5 values, respectively. Principal component analysis (PCA) was carried out to identify variations and consensus in the views of respondents with regard to factors identified for each determinant. The results revealed that there were variations in opinions regarding the 48 factors. It is worth mentioning that the PCA results should be considered with care as the sample size was not optimal. The different value chain components/players, grouped into two clusters which were primary producers and agribusiness, were analysed to obtain the variation in views within the chain. It was observed that the producers rated competitiveness performance lower than the agribusiness actors, as such there were differences in views among the respondents along the chain. The last step applied the findings from the previous analysis, which reflected alignment between the producers and the agribusiness. It investigated proposed strategies that could be applied to enhance or sustain the competitiveness of the sugar industry. Industry strategies were formulated in collaboration with industry role players to improve competitive performance of the industry. In view of this, the importance of collaboration between all the value chain actors should be strengthened through information and business intelligence sharing, technological innovations and policy development and coordination between industry and government. New product development also needs attention to counter ‘anti-sugar movements’ and to grow local market demand. It was also proposed that the industry employ risk management strategies that will help to deal with the uncertainty of fluctuations of currencies. Emphasis was put on the role of government for continued negotiations and exploration of new markets for the industry as it contributes immensely to the iv Stellenbosch University https://scholar.sun.ac.za economy. Research on climate change was mentioned to improve competitiveness of the industry in future as it will help mitigate the effects on the sugar cane production. From the analyses and findings of the research, some recommendations were made for further studies to improve the measurement and analysis of competitive performance of the Eswatini sugar industry. This included full value chain analysis, with representative participation of the different functional groupings, to conclude an in-depth investigation on the performance of various role players in the value chain, the linkages between sugar smallholders and the value chain. Also cost benefit application to support economically viable and financially affordable infrastructure development such as irrigation infrastructure and water storage facilities and road and bridges was recommended to expand the scope; and to consider the role of government policy on competitiveness performance. v Stellenbosch University https://scholar.sun.ac.za OPSOMMING Die hoofdoel van hierdie studie was om die mededingendheidsprestasie van die Eswatini-suikerbedryf sedert 2001 te ontleed en strategiese aanbevelings vir die verbeterde mededingendheid van hierdie bedryf te ontwikkel. 'n Vyf-stap analitiese raamwerk is toegepas op grond van die Volrath-Porter- benadering wat onlangs gevolg is deur Boonzaaier en Van Rooyen (2017), Barr (2019) en Mtshiselwa (2020) vir mededingendheidsanalise in Suider-Afrikaanse agribesigheid. Stap 1 van die analitiese raamwerk behels die definisie van mededingendheid in die konteks van die Eswatini-suikerbedryf. In hierdie studie is die term as volg gedefinieer: 'Die vermoë van die suikerbedryf om mededingend te wees deur die produk in plaaslike en internasionale markte te verhandel, volhoubare sakegroei te behaal, en te streef om ten minste die geleentheidskoste van hulpbronne te verhaal' (Freebairn, 1986, Van Rooyen, Esterhuizen & Botha, 2011; Dlikilili & van Rooyen, 2018). Hierdie definisie bied 'n basis vir die studie se analise- en meetmetodes. Die tweede stap van die studie was die empiriese bepaling van die mededingendheidsprestasie deur gebruik te maak van die relatiewe handelsvoordeel (relative trade advantage (RTA)) tegniek (Vollrath, 1991) as 'n maatstaf vir mededingendheid. Die data wat gebruik is, is afkomstig van twee betroubare bronne, nl. FAOSTAT en ITC Trademap van 2001 tot 2019. Uit hierdie data is tendenslyne vasgestel en drie fases is geïdentifiseer en ontleed. Fase 1 toon oor die algemeen toenemende mededingendheid met RTA-syfers (2001-2006) wat wissel van 1.5 tot 2.9 vir die FAO en 1.8 tot 4.6 vir ITC. Gedurende fase 2 (2007-2012) het dit
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