Fate of Kenyan sugar sector with Cabinet

July 16, 2010
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, NAIROBI, Kenya, Jul 16 – The fate of the sugar sector in the country now rests with the Cabinet which is yet to approve the reforms to be undertaken in five sugar factories even as the deadline for the protection of the industry fast approaches.

Privatisation Commission Chief Executive Officer Solomon Kitungu told Capital Business that they are still awaiting a response from the Cabinet on a paper on how to restructure the sugar mills, 18 months to the expiry of the safeguard measures given by COMESA for Kenya to put the industry in order.

“I cannot talk much about it because we are still waiting to hear the proposals that the cabinet will make regarding the process,” Mr Kitungu said.

The process to privatise the Nzoia, Miwani, Sony, Chemilil and Muhoroni companies started seven years ago and was initially supposed to have been completed in 2007.

However, Kenya delayed in the implementation of fundamental changes to ensure that the sector is competitive and asked for more time to comply. In November 2007, COMESA granted it a four year extension and gave it a set of conditions meant to reform its sector and ensure that it can withstand an influx of cheap sugar from the COMESA member states.

As part of the new deal, Kenya was also allowed to import 200,000 Metric Tonnes of table and industrial sugar per year to bridge its deficit and meet a consumption demand of about 700,000 metric tones annually.

But the pace at which the government has continued with the restructuring efforts have been sluggish heightening fears that the sector and in effect the economy will be crippled once the market is fully liberalised in 2012.

In January this year, former Agriculture Minister William Ruto had assured that the privatisation of the factories which would see the government sell 51 percent of the millers to strategic investors who would inject professionalism and efficiency, would be completed by June. The programme outlined by Mr Ruto showed that 30 percent of the sugar companies would be sold to farmers with the remainder being sold to o the public through an Initial Public Offer.

This was projected to happen once the government cleans up the books of the factories that are laden with debts amounting to Sh47 billion.

This has not happened. COMESA itself has expressed concerns on whether the country will manage to meet its conditions before the deadline. A team of the bloc’s officials visited the country late last year and had recommended the restructuring of at least two factories before June if the intervention measures were to have any impact on the sector.

Industry players have warned that failure by the government to execute those reforms in time would not only open up the sector to competition but also affect the livelihoods of the six million households who depend directly and indirectly on the sector. Stiff competition would also see the small millers succumb and close down with only their strong counterparts surviving.

There appears to be no sense of urgency on the government side although Finance Permanent Secretary Joseph Kinyua said the government intends to fast track the process.

“We have a privatisation program and we are giving priority to the sugar companies because we know that our sugar farmers will have to face competition without enjoying any protection by way of duty,” he said.

And in what appears to be a contradiction, Finance Permanent Secretary Joseph Kinyua said cabinet had already approved the program and presented to parliament and then forwarded to the Kitungu-led commission to fine tune.

“It (programme) is now with the Privatisation Commission that is working on the specific details or the modalities of how the process is going to be carried out. So we expect some of that to be complete by the end of this calendar year and others in first half of next year,” he pointed out.

Further, the PS disclosed that there is also an effort to develop varieties of sugarcane that mature fast and are high yielding to enable farmers to be competitive.

“The Ministry of Agriculture working together with the Kenya Agricultural Research Institute is also carrying out research in order to ensure they have high yielding seeds which would enable them to bring the prices to competitive levels,” he added.

With this back and forth assertions from the parties involved continuing only time will tell what will happen to the local sector with 169, 420 hectares under sugarcane and the farmers. Whichever way it goes, the only beneficiary however will be the consumer who will have a choice to buy the sweet commodity at affordable rates.

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