February 15, 2012

Liberalization: When the Competition Hurts

Liberalization of imports of basic foodstuffs, cement and sugar among others, is on track. But it was not until the arrival of other importers so that competition actually benefits consumers.

In the immediate future, nothing is settled yet as new importers are not lining up at the gate of a market as cramped as that of Mauritius.

In August 2011, barely a month after the liberalization of cement market in Mauritius, Lafarge increased its prices by Rs 162.80 to Rs 175 a bag of 50 kg. Rival Holcim, he announced that he kept his prices until the end of 2011. It could do with a pre-order at a fixed price. Lafarge, he had justified the increase because of rising prices on the world market and hacker attacks in the Indian Ocean pushing up the price of freight and insurance, among others.In 2012, the situation reversed: Holcim increased its prices on 1 February 2012, the cover 50 kg to around Rs 189.00, while the competitor's price remains unchanged at Rs 175.00. 

The cement market was liberalized in July in 2011. This opening is made ??in connection with the arrival of two new players, Binani Cement and Star Cement.In 2010, the prospects for investments in real estate were very promising, leading to a projection of an increase in demand of cement. Large public projects démarraient also. Note that Jin Fei's intention to set up his own crushing unit. Liberalization was also intended to allow providers to market various ranges of cement at competitive prices, so consumers benefit. Unfortunately this liberalization has proved to be a real bitter pill, with price increases in series. Domestic demand for cement is estimated at some 650 000 tonnes annually. Before liberalization, the State Trading Corporation imported 50% of annual demand. 


The sugar market, meanwhile, has traditionally been dominated by the Union of Sugar, the only organization that imports and markets sugar on the local market. If in the past, Mauritians consumed sugar produced locally, at a time when domestic production was around 600,000 tons annually, or more recent years, due to a gradual and consistent decline of our production, we use imported sugar, while all of our production is exported. As the price of domestic sales is not controlled, it is decided by the sole importer. 

Thus, the price of sugar has increased by about 27% in January 2011. The Union of Sugar had justified the increase because of rising prices on the world market, but consumer groups were against this increase and had denounced the monopoly of this organization. For them, a liberalization of the sugar market and the competition will be a price drop. This competition has finally arrived. Vishal Jusrut, businessman, has launched the marketing of sugar and proposes the pound at about a rupee less than the price currently on the local market.

Other traders followed suit this month not thereof. The consumer is thus faced with a wide range of sugars and it will be a price war. But the competition will really lower the price of sugar significantly? With a small domestic market, there is no room for multiple vendors. The world price is also rising steadily. To this must be added the cost of packaging and distribution. 

The environmental impact

Is some concern that the liberalization of trade and investment is fundamentally incompatible with the environment. It is increasingly common for polluting companies relocate to developing countries where environmental standards are not as strict as in Europe, for example, and these businesses benefit from more flexible regime in force in those countries. By cons, it is also possible that the arrival of international companies contribute to improving air quality and water by adopting advanced technology, and forcing local competitors to do the same! 

What is liberalization?

Lliberalization is opening up to competition, but also opening the economy to the outside world, and the arrival of foreign investment. It is also the absence of government intervention, and the free determination of prices by market forces. In economics, liberalization is to make free access to an economic activity for different economic agents, public or private. It means ending the monopoly of a government or a company (public or private) on an activity defined by the public authority. The liberalization of an activity does not mean that the price of the service provided to users is set by the market if the public authority retains the right to fix a pricing service independent of production costs for operators. In parallel with the liberalization of a sector, governments can strengthen the regulation and / or regulation, to ensure equitable access to services. 

The benefits of liberalizing

Trade and foreign direct investment (FDI) promote economic growth in developed countries as in developing ones.The volume of world merchandise trade is now very consistent. The case for open markets based on solid foundations. So when individuals and firms specialize and open trade, a country will exploit its comparative advantage. It will draw on its natural resources, human, industrial and financial, use the most efficient and fairest. This policy will benefit businesses and consumers. 

Another basic principle is freedom of greater choice. More open economies have higher levels of private investment, essential for growth and job creation. Foreign investors are generally reluctant to invest in a sector that is not free. This explains the reason for the liberalization of the cement sector. A free market encourages business to innovate, become more competitive and efficient and to optimize its production. Foreign investment is an essential source of technology transfer and management skills. This reinforces the demand for high value-added exports from developed economies. 

The Competition Commission 

The Competition Commission is in favor of the competition because it believes that it benefits consumers. She investigated the cement market in 2010, and issued its report in April 2011. It ruled that government control has been a major obstacle to developing the sector. However, it was hoped that the government expected the arrival of new entrants before liberalizing the market. It had also suggested the establishment of a regulator. She had to raise other concerns: for example, the possibility that lower grade cement is proposed. On sugar, the Commission had begun an investigation. For their part, consumer associations had requested that the sugar market is liberalized so that competition can drive down the price.

Suttyhudeo Tengur, APEC: The real liberalization has not yet occurred 

According Suttyhudeo Tengur , APEC (Association for the Protection of Environment and Consumers), government policy is not very clear in that it is the liberalization of sugar imports. To date, there has always been a protocol for the Union of Sugar has a monopoly in the sugar market. Certainly, one importer, namely Vishal Jusrut of Meerah Ltd, has just launched in the marketing of sugar. However, Suttyhudeo Tengur considers that this company does so at their own risk. However, he salutes the contractor of having dared to break the monopoly of sugar and hopes that competition will lower the price of sugar. Tengur also concerned that the price the consumer pays for its sugar includes a tax which pays the pensions of former dockers. However, the sugar we eat in Mauritius is not produced locally, so this tax should be removed. "

The government must find other sources, for example by reducing waste and by closing some inefficient parastatal body" he exclaims. On the cement market, Tengur declares that true liberalization has not occurred. Instead, consumers have seen an increase in the price. He suspected collusion between the two main suppliers. He thinks that the arrival of Binani Cement will cause a real competition. However, Binani being challenged in court by current competitors, it appeals to the Supreme Court to have the matter heard as soon as possible. 

Jhugroo Yusuf, the PKI: We support the liberalization of 

The Institute for Consumer Protection (ICP) advocates liberalization of markets. According to Yusuf Jhugroo, a free market is in the interest of the consumer. It has a large selection and can influence the market by its actions, based on price and sourcing of the one offering the best price and service. But he deplores the absence of a "Consumer Education" in Mauritius, which limits the consumer's rights and notes that the price of cement shows a rise despite the falling dollar and the euro.


In the inverse of the liberalization, there is protectionism. Some countries are trying somehow to protect industries and workers against imports by erecting trade barriers. In general, countries pay a high price the use of protectionism as it increases the price of imports and locally produced goods, which restricts the range of consumer choice. 

It increases the cost of the change in postponing, weakening exporters by making them less competitive and leads almost invariably to greater difficulties in the long run. Protectionism is also performed for other reasons. In Mauritius, for example, any government, itself, through the STC, Fuel and Gas Appliances. Prices are so determined to protect consumers. Possible liberalization of fuel market may result in a competition that lowers prices. But it can also be quite the opposite, as we saw with the case of cement! 

Binani Cement 

Binani Cement Factory (Mauritius) Limited is a subsidiary of Binani Cement Factory LLC, Dubai. This company will install a crushing plant and packing of cement in Fort George, with a capacity of one million tons per year, on a plot with an area of 6.5 hectares. The investment will be approximately $ 15 million. This project is part of the global expansion of Binani, who also wants to use Mauritius as a platform to export cement to the SADC and COMESA. The company is committed to respecting the environment through its environmental practices. 

Star Cement 

Another cement project, the Star Cement, a consortium MCFI / Eta Star of Dubai has been submitted to the Ministry of Industry in February 2010 . This project has yet to be realized. Star is also present in Bahrain, Bangladesh and Sudan.

Import Permit 

An "import permit" is not required to import sugar. However, the importer must comply with the requirements of the Department of Health and that of Agro-Industry. The sugar must have the necessary certifications by a governmental authority of the country of origin. The market is open to new entrants.


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