An
important meeting was held in Kisumu this past week to discuss the
privatisation of the sugar industries in Nyanza and Western Kenya in the
very near future.
The convener of this 'consultative forum' was Agriculture CS Willy Bett, accompanied by Privatisation Commission chairman Henry Obwocha. We, as governors, had held an earlier meeting with CS Bett in late last year, when various players also attended.In that meeting, we urged the Department of Agriculture to take note of two major issues before raising the agenda of privatisation. These issues are: One, the constitutional provisions regarding handling issues of land and agricultural assets and liabilities, where the national and county governments are interested parties; and two, preparing an entity to be attractive to investors for capital injection in the pre-history of privatisation.
We must all be aware that Kenya has gone through many experiences with privatisation since the Bretton Woods institutions imposed the Structural Adjustment Programmes on us in the 1980s. It was then assumed that the biggest problem facing African economies was the overindulgence of the state in running the economy. Thus, in a country such as Mozambique, for example, it was not unusual to find the government owning barber shops, supermarkets, car rentals, banks, shipping lines and schools.
Things were not as bad as that in Kenya. But we still had our fair share of the bloated public sector. A general call was made for the state to quit doubling in running enterprises, in favour of the private sector. Hence, privatisation quickly became a panacea for many of our woes of poverty and underdevelopment. Thus, Kenya, like many other African countries, swallowed the privatisation pill lock, stock and barrel, but somehow the sugar industries missed out in the treatment.
But privatisation has not always brought good news to Kenyans, and some initial good news soon degenerated into major disappointments several years down the line. In 1996, for example, the Kenyan government realised that the national carrier, Kenya Airways, was running at a big loss. Its debts had risen to Sh6.5 billion.
The government decided it needed to invite some capital injection into the airline to stimulate productivity and eventually wipe out the debt. But those interested in buying equity in the airline could only play ball once the government had paid off the huge debt that was weighing down the airline. So, the government came to Parliament with a proposal that it be granted Sh6.5 billion from the Treasury to pay off the KQ debt so that strategic partners such as KLM would inject capital into the ailing airline.
Parliament approved the proposal on condition that the government promised that within five years KQ would be in a position to
pay taxes to the Treasury, which would more than recover the bailout grant. Kenya Airways did not disappoint. Almost everywhere, it was quoted as an example of successful privatisation.
Wind the clock forward to the year 2015. The management of KQ has engaged in an expansionist programme that has set the company back several years, with an annual debt of Sh27 billion and no known plan on how to get out of the bottomless hole.
The Senate Select Committee comes in, chaired by myself, and we find out that the expansionist Mawingo Project is not the only problem bringing down the national carrier. Other business devils sit right inside the management and Board of KQ doing business with the company, under-selling tickets, selling planes to KQ through offshore companies at uneconomic prices, etc. In other words, KQ has not been saved by privatisation as long as bureaucratic corruption, which frequently brings down state-owned enterprises, is tolerated and nurtured in this privatised company.
Hence, in thinking about privatising our sugar industries, we must take into full account the political and economic context in which this privatisation is being proposed. Will we, after privatisation as things stand today, get enterprises that will be efficiently and transparently run, productive by all measure, profitable to farmers and workers and positively contributing to the economy of our counties? The answer is probably no. And why?
First, on the face of it, these sugar industries are not ready to be privatised: They are hopelessly indebted, mechanically unsound and the management systems need retooling before they are privatised as going concerns. Secondly, the context in which they are currently operating jeopardises their efficient and productive operation.
For example, the removal of zoning by the national government has created chaos and indiscipline in cane availability. In the pre-history of privatisation, zoning must be reinstated while farmers are organised into bloc farming to improve economies of scale in agricultural practices and management.
In our earlier meeting with the minister on November 16 last year we had carefully enumerated what needed to be done by the government to make the factories attractive for capital investment from the private sector, which is what privatisation really is. I have cited some of these above.
But much more important is to come out with an agreed reform agenda between the county and national governments, which will make the sugar industry a going concern whether privatised or not. After all, Mumias Sugar Company was presumably privatised but it is currently in an economic ICU. We don't want the other factories to follow suit. Nor do we want another Kenya Airways story.
The decision during this recent meeting — to delay privatisation until the context in which the factories are operating is properly sorted out — is in the best interest of all parties concerned. When we did our research in the 1990s on experiences with privatisation in Kenya, we confirmed that the context in which it takes place matters. This book, published in 2000 by Academy Science Publishers in Nairobi and titled The Context of Privatization in Kenya is available online through Amazon. It shows very clearly that lots of things can go wrong, even when the best professionals using the best techniques are hired to privatise a firm if such professionals don't take into full account contextual variables.
In this regard, let us all err on the side of caution by ascertaining first and foremost that the industries are prepared to be going concerns before they are thrown into the open market for privatization. In other words we are all for privatization but only after the issues that have made the industries perform poorly are addressed.
These factors of poor performance will not, by their very nature, be cured by privatisation. They must first and foremost be cured by good public policy and practice in the pre-history of privatisation. This is something that can be done since the issues are known. Who doesn't know that when farmers are not paid several times whenever they deliver their cane to the factory they are likely to be discouraged?
Do we really need to privatise the factories to deal with this problem? I doubt it. And that is why I insist that in the pre-history of privatisation we have a lot of homework to do to make our sugar industry a going concern. Let us not procrastinate. Let us just do it and do it fast.