The bleak future of Kenya’s sugar industry - CNBC Africa

The bleak future of Kenya’s sugar industry

East Africa

by Elayne Wangalwa 0

Kenya’s sugar industry is under threat as the country’s final extension of sugar import safeguards comes to an end.

As it stands, the East African country has exhausted the reprieve limit set by Common Market for Eastern and Southern Africa (COMESA) which gives a market access at zero-rate tariff to goods from member states. According to reports, the sugar directorate officials have begun to lobby the COMESA secretariat for yet another extension despite exceeding the maximum allowable safeguard duration of 10 years.

East Africa’s biggest economy received a one-year extension to delay duty-free sugar imports from COMESA member states till the end of February 2015, after failing to guide the sector towards competitiveness through privatisation and establishment of cane estates. Kenya plans to complete reforms in its sugar industry. However, state-owned sugar companies - Chemelil Sugar Company, Nzoia Sugar Company Ltd, South Nyanza Sugar Company Ltd, Muhoroni Sugar Company Ltd and Miwani Sugar Company - are yet to be privatised to enhance efficiency of the sugar sector.

(READ MORE: Kenya sugar industry under pressure)

Kenya sought to privatise all its sugar mills, infrastructure development and diversifying the millers into Ethanol distillation and power co-generation before the expiry of the safeguards in February 2015.

The government applied for protection of the sector by way of a safeguard under Article 61 of the COMESA Treaty in 2003 to run till 2008 so that sugar imports from COMESA are subject to customs duties. Since then, the safeguards have been extended.

Under the Comesa safeguard Kenya is allowed to limit the entry of imported sugar to 350,000 tons needed to meet the annual production deficit.

Kenya produces about 600,000 tonnes annually but not enough for its market. The country’s potential demand is approximately 800,000 tons leaving a net deficit to be filled by imports. The East African country has been importing sugar from COMESA countries as it is allowed to cap sugar imports from the 19 countries.

The Kenya Sugar Board (KSB), the industry regulator, estimates the cost of producing a tonne of sugar in the country is higher than other Comesa countries’ production costs.