The Kenyan government has written off 381 million dollars owed by state-owned sugar mill companies.
This initiative was undertaken by the government to ease its planned privatisation process as it is expected to sell a 75 per cent stake in five sugar companies. This write-off is expected to be implemented within 12 months.
According to Kenneth Okwaro, Director African Centre for People Institution and Society, The government is following the recommendation of COMESA (Common Market for Eastern and Southern Africa) which stipulated the privatisation route for sugar mills. This came after the government requested quotas to stay the same and non-tariff barriers.
Okwaro shared with CNBC Africa that some of the sugar companies are in “tatters” and have been in operation for a long time. “If one of the issues why they were rundown was debt than for an investor, once that debt baggage has been taken away, it means the value comes back to where you’d like to invest in.”
On the backdrop of poor corporate governance, Okwaro said privatisation should be part of a broader framework for mending the cracks. “The biggest problem in the Kenyan market is inefficient management, which would be sorted if we brought in corporate governance and private sector people to run them properly, “he highlighted.
One of the major obstacles that is causing manufacturing in Kenya to be uncompetitive is production before the sugar even gets to the mill, said Okwaro. “It takes 50 000 Kenyan shillings to produce a ton of sugar in Kenya, it takes less than half of that in Tanzania. The cost of production is greater in Kenya because of tax.”
Okwaro noted that for the sugar produced in Kenya, 24 per cent of the revenue is taxed. However, all the COMESA countries have managed to escape those taxes. Okwaro cited other resources like tea, coffee and maize on which there is a tax imposition.
“The tax regime is a problem the parliamentary committee has already asked the government to reconsider reducing or reworking some of the taxes.”
With Uganda manufacturing sugar at a much cheaper production price, the need for Kenya to up its competitiveness rests not only on tax reforms but developing basic infrastructure that aids the value chain.
Okwaro cautioned that investors interested in the agribusiness need to employ a lot of patience in the process as well as waiting for the industry to get back to what it used to be.