Can Private Investors Really Break Kenya’s Sugar Curse?
Kenya’s sugar industry is a sector under siege. If it is not facing threat from an expiring COMESA treaty, politicians from the sugarcane growing regions are causing havoc by instigating farmers against factory management over unpaid dues.
After years of waiting the Kenyan government last week announced that it was going to sell five state-owned sugar companies to private investors. It also wrote-off $603 million in debt for the five factories based in the western part of the country.
In the next nine to 12 months, the government will sell stakes in Chemelil Sugar Company, Nzoia Sugar Company Ltd, South Nyanza Sugar Company Ltd, Muhoroni Sugar Company Ltd and Miwani Sugar Company.
“Government reached the decision of bailing them out completely so that the firms would look attractive to investors,” Ventures Africa quoted Henry Obwocha, the chairman of the Privatization Commission, saying.
“The government planned to sell 51 percent stakes in the companies to a ‘strategic partner,’ and a further 24 percent to both growers and employees.”
The five account for 10 percent of the amount of sugar produced locally. The east African nation requires about 600,000 tons of sugar every year to meet local demand.
But will selling these companies to private investors solve their problems or just move the inevitable collapse to another person?
The problem with Kenyan sugar companies starts in the field, where the crop take nearly twice the time it does in Mauritius, Zambia and Malawi to be harvested. This is mainly due to over dependence on rainfall to irrigate the plantations.
It is also three times expensive to produce sugar in Kenya than in these other markets. Domestic production costs are as high as $900 per ton of refined sugar, way above the $300 per ton by other regional countries.
According to analysts the factories are also over concentrated in a small region making them compete for out grower farm land.
“The problem with the mills is that there are too many in an area producing sugarcane and they’re basically fighting over feedstock,” Edward George, head of group research at Ecobank, told AFKInsider in December last year.
To protect local companies the Kenyan government as on a number of times asked COMESA, a regional trade bloc, to extend the expiry of a treaty that would allow member countries to export sugar to other countries.
This mean even if ownership of these companies are taken over by private investors, the government will still have to keep the COMESA treaty in place to give them time to streamline management and make the factories efficient. This might take quite a long time.