Kenya reluctant to seek Comesa shield, opts for rehabilitation of sugar factories
Tuesday July 21 2020
Kenya is reluctant to seek extension of safeguards that protect the country from importation of cheap sugar from the Common Market for Eastern and Southern Africa (Comesa).
The EastAfrican has learnt that with only seven months to the expiry of the safeguards, Kenya has realised that having lobbied for an extension twice in the past, securing another could be a tall order and that the country cannot peg the survival of the sugar industry on protection from competition.
"Kenya has not applied for an extension of the safeguards. If it will to do so, it must present the request at the meeting of the Comesa Trade and Customs Committee, which brings together technical experts from all member states," Mwangi Gakunga of the Comesa secretariat told The EastAfrican.
The safeguards allow Kenya to limit duty-free imports from Comesa countries to a maximum of 350,000 metric tonnes annually because the country is unable to compete with other member states on a duty-free quota free terms.
The government has, therefore, resolved to lease the factories hoping to turnaround the companies, which have collapsed under the weight of years of mismanagement, corruption and influx of cheap imports.
The Agriculture and Food Authority (AFA) is looking for investors to enter into long-term leases for Chemilil, Nzoia and South Nyanza sugar companies alongside Miwani and Muhoroni sugar companies, both of which are under receivership.
"The objective is to facilitate turnaround of these companies to profitability through modernisation and efficient management, which will in turn enhance competitiveness in Kenya, the East African Community, Comesa and the global sugar market," said Anthony Muriithi, AFA director general in a public statement.
To make the factories attractive to investors, the government has restructured their balance sheets including writing off massive debts, tax waivers and penalties amounting to a staggering $572.5 million.
The leasing of the companies, which the government argues is a form of privatisation, comes after the country banned the importation of raw cane and brown sugar — the latter has rendered local mills uncompetitive due to a significant surge in imports from Uganda.
Early this month, Agriculture Cabinet Secretary Peter Munya said that unscrupulous businessmen and traders were taking advantage of the Covid-19 curfew to smuggle raw cane and brown sugar into the country through the Busia border.
Also, millers who had also obtained temporary permits to import raw cane from Uganda from September to December last year, were also illegally still importing the raw cane.
"The country may soon be faced with a sugar glut occasioned by this increased importation and an eventual collapse of the industry," said Mr Munya in press statement on July 2.
In its report, the Sugar Task Force recommended among other, establishment of production zones for particular mills and merging of some underperforming ones to attract investors.
Dr Emmanuel Manyasa, economist and country manager Twaweza East Africa, said that leasing is just a "painkiller" for an industry faced with high production costs, uneconomic dependence on smallscale farmers and whose fortunes are bound to be hit by the expiry of the Comesa safeguards.
"Privatisation failed because investors know the industry is controlled by sugar barons and they cannot make money. Even leasing is not sustainable until we deal with the cartels," he told The EastAfrican.
Kenya's sugar production cost is estimated at more than $600 per metric tonne, twice that of other key sugar-producing Comesa countries, making the country an attractive export market.
According to Dr Manyasa, Kenya might fail to seek for an extension considering that Article 61 of the Comesa treaty stipulates the country must proof it has taken the necessary and reasonable steps to overcome or correct the imbalances for which safeguard measures are being applied.
"Removal of the Comesa safeguards will kill the industry totally," said Dr Manyasa.