Ugandan companies seeking to sell their sugar in Kenya will be subjected to stringent rules under the Comesa Treaty, a move that is aimed at shielding Kenyan firms from unfair competition, a recent agreement to ease issuance of permits notwithstanding.

The EastAfrican has learnt that, in the recent bilateral talks led by Kenya’s President Uhuru Kenyatta and his Ugandan counterpart Yoweri Museveni in Kampala, Kenya agreed to issue sugar permits to Ugandan traders to export the commodity to Kenya within a shorter period but strictly under import quotas and only when there is a deficit in the destination country.

The agreement on sugar was a solution to one of several trade disputes between the two countries contained in the framework on issues for consideration by the two presidents, which The EastAfrican has seen. The 17 issues were tackled by technocrats from the two countries ahead of the leaders’ meeting.

READ: Kenya, Uganda to resolve trade rows

Other areas of dispute include Kenyan beef exports to Uganda, compensation of Ugandan traders for the loss they suffered in the 2007/2008 post-election violence, export of Ugandan maize to Kenya, auctioning of Ugandan goods at the port of Mombasa and the ownership of Migingo Island.

It was agreed that Kenya will expedite the issuance of permits to Ugandan traders but sugar imports from the country will observe the safeguard regulations set by the Common Market for Eastern and Southern Africa (Comesa).

Interestingly, the agreement has generated political heat in Kenya, with the opposition, led by Cord leader Raila Odinga, and legislators from the sugar belt accusing President Kenyatta of failing to put the country’s interests first.

The opposition sees the move as a ploy by influential business people to bring sugar into Kenya outside the import window and says this will kill local millers, who are struggling to stay afloat.

Frustrate regional trade

But President Kenyatta accused his critics of trying to frustrate regional trade, arguing that allowing regulated imports from Uganda would help to balance trade between the two neighbouring countries. Kenya exports goods worth $700 million to Uganda and imports $180 million’s worth of merchandise from the landlocked country.

According to Kenya’s Foreign Affairs and International Trade Cabinet Secretary Amina Mohamed, the sugar regime in the entire Comesa region is regulated by the Comesa Treaty and the rules have not changed.

“Our ministers have been all over the region ensuring that we have safeguards protecting the country from sugar dumping,” said Ms Mohamed. “Those safeguards have not been removed.

“They are there to ensure that our sugar industry does not suffer.”

She said Kenya will continue limiting the sugar imports from Uganda.

Saulo Busolo, a former Kenya Sugar Board chairman, said this was a good move but only if the Kenyan government did more to revive the industry.

“The deficit in Kenya can only be met through imports,” said Mr Busolo, adding that this was important so as to bring sugar prices down as Kenya is a high-cost producer.

Kenya consumes 900,000 metric tonnes of sugar per year against an annual output of 600,000 tonnes. Uganda, on the other hand, produced 438,360 tonnes of sugar last year against a demand of 403,874 tonnes. It is projected to produce 508,500 tonnes this year against a consumption of 420,966, according to the Uganda Sugar Manufacturers Association.

Uganda is looking for new markets for its exports after the conflict in South Sudan, its main export market, reduced demand for products.

READ: Win for Museveni as Kenya cedes sugar regulation

Kenya had in October 2012 banned sugar imports from Uganda on suspicion that duty-free sugar was being dumped into the country, repackaged and sold in the region disguised as a local product.

This followed Uganda’s request in 2011 for an exemption to the 100 per cent common external tariff under the East Africa Customs Management Act to fill a deficit. The request was granted on condition that the sugar would only be consumed in Uganda. If re-exported to other East African Community countries, however, a levy of 100 per cent would be charged by the Kenya Revenue Authority.

Strong lobbying by the USMA, which included President Museveni threatening retaliation, saw the ban lifted and import permits introduced. The manufacturers have since being crying foul that the permits were taking as long as three months to process under a quota system.

Uganda has managed to transform itself from a sugar-deficit country to a surplus producer in a decade following the privatisation of its sugar mills.

Cutting corners

While cutting corners to evade taxes and smuggle the commodity is common, Kenya is a high-cost sugar producer because of its small-scale growing model. Small-scale farmers produce more than 95 per cent of an output, expected to stagnate at 525,000 tonnes per year, according to BMI Research, a Fitch Group company.

The cost of production per tonne is $570, according to the Food and Agriculture Organisation, compared with an average of $350 in Comesa. The yield per acre is 68 tonnes against a global average of 78 tonnes, 126 tonnes in Egypt and more than 118 tonnes in Ethiopia, Senegal and Malawi.  

“Until we accept that we have a sugar deficit and agree to let sugar in to fill the deficit, sugar prices will never go down,” said Mr Busolo, adding that regulation of imports would not achieve much until smuggling is tackled.

He added: “This is happening in Kismayu and the government is yet to act. There is a lot of illegally imported sugar here which is repackaged and sold in our market.”

Mr Busolo added that the government has to come out strongly to control this.

The East African Treaty Common External Tariff established a 100 per cent tax on sensitive products coming from outside the EAC countries. These are mainly agro-processed products such as sugar, milk, meat and wheat. But there is also a provision that stipulates that, in case of an emergency, a member state can request a waiver on this measure.

Early this year, the EAC Council of Ministers permitted Tanzania to import 100,000 tonnes of sugar at 50 per cent duty instead of 100 per cent between April and June while Rwanda was cleared to import 70,000 tonnes at 25 per cent for one year.

During the period of stay of application of CET, sugar from Rwanda and Tanzania will attract CET rates when exported to other partner states.

The Council also imposed other conditions aimed at protecting the sugar industries of other EAC economies including Kenya, Uganda and Burundi.