BITTER SWEET

Corruption, not Uganda, ails Kenya's sugar industry

In Summary

• The cyclical nature of sugar production in Kenya is such that at one time there is either too much or too little cane/sugar in stock to mitigate the risk of flooding the local market.

• Cane farmers could be said to be no worse off than slaves to the mills.

Sugarcane cutters at a farm in Migori county
Sugarcane cutters at a farm in Migori county
Image: FILE

Imported sugar has been the spurious claim of the political class and the state-owned millers to hide their complicity in destroying the sugar industry in Kenya.

As early as the 1960s, Charles Frank's study of the Sugar Industry in East Africa noted that the region as a whole was a net importer of sugar. This observation remains true to date. In 2014, Rwanda and Tanzania applied for a stay of application of the East African Customs Union's Common External Tariffs to import sugar to avert a sugar shortage.

Kenya did so last year. Uganda is an exception to this scenario.

However, that does not mean a deficit country cannot export. Before Everything but Arms (EPA) scheme, the European Union had arrangements with the African, Caribbean and Pacific (ACP) countries whereby the latter exported specified quotas of sugar to the former at preferential prices. The ACP countries were not necessarily sugar self-sufficient. But the Protocol enabled the ACP countries to earn valuable forex for their needs. Another case is Mauritius, which used to export all her local sugar production and import cheap sugar from the international market for local consumption.

Mumias, Chemelil and Sony Sugar companies are local beneficiaries of sugar exports under the EU-ACP Sugar Protocol. Hence, the argument that Uganda cannot export sugar to Kenya is a red herring! The better question to ask is why should Kenya import sugar given her potential to be self-reliant?

Sugar imports have been a difficult policy agenda in Kenya for two reasons.

One, the industry was neither ready to implement Comesa Free Trade Area in 2002 nor is it ready to do so now. This is notwithstanding several four years and two years extendable Comesa safeguard measures to protect it from competition. Two, Rules of Origin complains that alleged Comesa sugar hails from third countries such as Brazil.

Of concern here is that while Tanzania is not a member of Comesa, Uganda, which is, has not signed the Comesa FTA. These two countries are, for example, claimed to be transhipment centres for non-Comesa sugar, some of which is said to find its way into Kenya on the basis of East African Customs Union. But why sugar imports and what sugars?

The cyclical nature of sugar production in Kenya is such that at one time there is either too much or too little cane/sugar in stock to mitigate the risk of flooding the local market to the detriment of local millers who produce raw sugars only.

The Sugar Directorate has in place annually registered importers issued at a fee and annually renewable licenses. The latter operate through consignment specific reshipment approval permits obtained on application to import specific quantities.

In the case of industrial sugar not manufactured locally, a gazetted consuming importer applies to the National Treasury for approval under the Duty Remission Scheme.

Sugar in Kenya thus enjoys a protected internal market since 2002. It's inaccessible to neighbouring country members of the EACU.

In this regard, Kenyan-Ugandan sugar stakeholders met in Kampala in 2013 and resolved to align sugar imports regulations to the EAC Trade Protocol and further incorporate the sugar trade regime into the single customs territory. These resolutions lie at the heart of the current row over the so-called deal signed by Presidents Yoweri Museveni and Uhuru Kenyatta for Uganda to sell sugar to Kenya.

Kenyan sugar mills, especially state-owned have been accused of mismanagement. Poor management is complicated by a lowly paid disgruntled labour force claimed to misappropriate factory and farmers property, a demotivated management and Board structure totally unprepared to run the industry efficiently.

SUGAR IMPORTS

Unable to improve productivity and efficiency to satisfy domestic demand, state mills' Boards of Directors and managers have perennially whipped up sugar imports as their excuse for the industry's problems and operational misperformance. For instance, farmers’ cane is unharvested for long periods and when harvested, farmers are not paid in time. Bad husbandry practices cause chaos in supply of canes. Add to these persistent factory breakdowns that lead to low downtime such malpractices must surely make the fixed costs astronomical yet costs may not be the cure for Kenya’s ailing sugar industry.

The government has pumped in Sh21 billion in grants for infrastructural sugar roads and bridges and sugar research as well as soft loans at five per cent interest for cane development and annual factory maintenance.

The outgrower institutions are equally beneficiaries of cane development loans at the same interest rates besides infrastructure grants. Then there are the persistent farmers' arrears grants. These grants and loans were previously channelled through Sugar Development Fund at Kenya Sugar Board. They are now part of Commodity Fund at Agriculture, Fisheries and Food Authority. If management has largely made sugar mills a burden to the taxpayer, the cane farmers’ organisations at the other end look like a symptom of debility in the industry. Comprised of sugar factory, agriculture ministry, and provincial administration ex-officials more than cane farmers, outgrower institutions are as much mismanagers of farmers as their sugar company counterparts mismanage the mill plant.

The arming contract, for example, is drawn and administered by the factory without input from farmers. Despite farmers producing 98 per cent of cane, mills control all farming activities and transport at costly rates.

Cane farmers could be said to be no worse off than slaves to the mills, hence low cane productivity may be the outcome of farmers low bargaining position against mills. In the absence of interacting with farmers, the Sugar Draft regulations to give teeth to the Sugar Act in the governance of cane farming activities never got gazetted by successive ministers of agriculture

TECHNOLOGY

The sugar industry is not one with highly complicated technology, requiring highly skilled technocrats, scientists and engineers. Yet the costs of operations are highly dependent on the managerial talent. The coordination and planning of the work is extremely important in order to obtain efficient utilization of the labour force and machinery and equipment, especially with regard to harvesting and transport.

In essence, the millers' and outgrowers Boards and managers have not demonstrated their economic value to the industry. Reports accounting for sugar mills' and cane outgrower institutions mismanagement have been made to relevant government institutions as Ethics and Anti-Corruption Authority, Inspector of State Corporations, Efficiency Monitoring Unit, National Security Intelligence, Central Investigation Department of Police, Public Investment and Agriculture Committees of Parliament and the Ministry of Agriculture for redress.

Invariably, the government has been reluctant to take action despite the ruining of the livelihoods of those dependent on the sugar sub-sector. Why has the government been unwilling to sack the entirety of Boards of Directors and Management in the parastatal sugar sector?

It appears like state-owned mills are run as welfare operations for the government constituents and not commercial ventures. Boards and managers are, in fact, friends of politicians who influenced their appointment in the first place. This argument does not entertain the possibility that politicians have been a crucial element in the mess.

The programme of sugar imports is such that when it was originally formulated in 2003,the intentions of its advocates bears little resemblance to the purposes to which it was put a decade later. At the time, anti-market mechanism was to protect the cane farmer. Today protection and a restricted import policy have failed to secure farmers welfare but still, sugar imports remain the irresistible and pathological edifice upon which the political class interferes in everything in the industry.

POLITICAL CONNECTIONS

State mills benefit from political connections through politically channelled Sugar Development Loans, managerial tenures and other regulatory benefits such as security from anti-corruption agencies. Mill managers have forged personal ties with lawmakers and the Executive. Politicians, on the other hand, extract benefits from mills' management, which expand employment to garner votes for politicians besides doling out generous campaign contributions.

To recoup the costs spent on politicians, mill managers expect politicians to intervene in executive bureaucratic procedures (obtaining licenses for example) to bend rules and regulations in their favour.

The consequence ultimately leads to weakening of state institutions tasked with regulation of the industry. How does one explain the various amendments to the sugar imports and exports regulations by successive ministers of Agriculture?

Indeed early this decade, Kilimo House took over import clearance from Kenya Sugar Board. Since then the industry is yet to recover from negative sugar pricing! Could such governmental bureaucratic malpractices be the reason why the government appears unable to explain what has occurred in the sugar sub-sector and what it is doing about it?

Such then is the context for equating sugar with rent-seeking activities of which sugar imports demonstrate the relationship between politicians and the sugar industry.

When quantitative restrictions are imposed upon and constrain sugar imports, an import license and permit are valuable commodities. These restrictions, rampant in the sugar import regime of recent times in Kenya, have given rise to rents of a variety of forms and people often compete for them sometimes such competition is perfectly legal. In other instances, rent-seeking takes forms such as bribery, corruption, smuggling and black markets.

Extensive corruption in Kenya’s sugar industry, and in particular its import sector is no secret even to the Ethics and Anti Corruption Commission who in fact have own commissioned study detailing the vice. But bureaucratic and political complicity within the sugar regulatory regime are said to collude in looking aside in the wake of unregulated and uncustomed sugar passing through the Somali port of Kismayo into Kenya. For example a while back it was claimed that illegal immigrants from Somali smuggle more than 15,000 bags of sugar daily through the porous Kenya border with Somali. Allegedly 'Baraxat' (bribe in Somalia) to government officials in northeastern Kenya including police, Kenya Revenue Authority, provincial administration, Kenya Bureau of Standards paves the way in transit of illicit sugar to its destination in Kenya.

Now are the imports from Uganda the greatest risk to the sugar industry in Kenya? My answer is no. The dire situation in which the sugar industry finds itself can be said to be due to the incompetence of Boards of Directors and management and not due to imports, weather, cane shortage, so-called poaching etc.

Cane grower in Webuye