As the expiration date with the Common Market for Eastern and Southern Africa (COMESA) draws near, Kenya is reluctant to seek extension of safeguards that protect it from the importation of cheap sugar.
“Kenya has not applied for an extension of the safeguards. If it will 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.
With only seven months to the expiration of the safeguards, Kenyan authorities are of the opinion that securing another safeguard could be a tall order and that the country cannot peg the survival of the sugar industry on protection from competition.
Having lobbied for an extension twice in the past, the safeguards allow Kenya to limit duty-free imports from COMESA countries to a maximum of 350,000 metric tonnes annually.
Kenya is unable to compete with other member states on duty-free quota free terms. This made the government resolve to a decision of leasing the factories, with hopes to turnaround companies which have collapsed due to mismanagement, corruption and influx of cheap imports.
Leasing of the companies, which the government claims is a form of privatisation, comes after the country banned the importation of raw cane and brown sugar. The ban left local mills uncompetitive due to a significant surge in imports from Uganda.
This made authorities at the Agriculture and Food Authority (AFA) to seek investors that will 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.
According to Anthony Muriithi, AFA director general, “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.”
By so doing, the government has restructured their balance sheets-including writing off massive debts, tax waivers and penalties amounting to a staggering $572.5 million.
But leasing of these factories brings consequences, as raw cane and brown sugar are smuggled into the country at night through the Busia border. Smuggling has become a major problem, as businessmen and traders take advantage of the curfew set in place by the government to curb the spread of the novel coronavirus.
It was also discovered that millers who obtained temporary permits to import raw cane from Uganda within the set period (September to December last year), were still involved in the illegal importation of raw cane.
The Sugar Task Force recommended the establishment of production zones for particular mills alongside the merging of some underperforming areas 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 small scale farmers and whose fortunes are bound to be hit by the expiry of the Comesa safeguards.”
Kenya sugar annual report shows that 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.
Dr Manyasa, opines that Kenya might fail to seek an extension, considering Article 61 of the Comesa treaty. The treaty states that the country must prove it has taken the necessary and reasonable steps to overcome or correct the imbalances for which safeguard measures are being applied.
At this point, removal of the Comesa safeguards might not be a wise decision, as the country is faced with the lack of transparency in leasing and operation of these factories. In reviving the sugar industry, the government needs to abide by the treaty, correct any imbalance in the sugar industry, and ensure safeguard measures are being applied.