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Tracking East Africa commodity markets
In Kenya, three state owned sugar mills are headed into a crisis following dissolution of boards of management in July last year. The boards were disbanded to give room for the leasing process and hand over the management to private entities, the delayed handover continues to threaten operations of the struggling companies. Moreover, this year, Kenya is set to import 90,000 tonnes of sugar from Uganda and the remaining 160,000 tonnes from other countries after exhausting its Comesa import quota for 2020. Nick Kwolek, Founder of Kwolco joins CNBC Africa for more.
Tue, 19 Jan 2021 15:08:37 GMT
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AI Generated Summary
- Kenya faces a transformation in its sugar sector with the dissolution of boards of management in state-owned mills, impacting operations and opening doors for private management.
- Recent improvements in Kenyan sugar production have reduced deficits, with the country nearing self-sufficiency and preparing for increased sugar imports from Uganda.
- Global commodity trends, fueled by the COVID-19 pandemic, are influencing the regional sugar market, with rising prices expected to impact consumers and industry players.
Kenya's sugar sector is undergoing a significant transformation, with three state-owned sugar mills facing a crisis following the dissolution of boards of management in July last year. The move was aimed at paving the way for the leasing process and transferring management to private entities. However, the delay in this handover process continues to threaten the operations of these struggling companies. Kenya, which is set to import 90,000 tonnes of sugar from Uganda and an additional 160,000 tonnes from other countries after exhausting its Comesa import quota for 2020, is facing challenges and opportunities in its sugar market. Nick Kwolek, Founder of Kwolco, shared insights on the current state of the sugar industry in East Africa during an interview with CNBC Africa.
Last year, tensions arose between Kenya and Uganda due to significant sugar production in both countries and disagreements over imports. Kenya opted to source sugar from the wider Comesa region instead of Uganda, importing only 28,000 tonnes from Uganda compared to previous years. However, with expectations of increased imports this year, it seems that relations are improving, paving the way for a more cooperative sugar trade environment.
Despite concerns about widening deficits in Kenya's local sugar market, recent improvements in sugar production have been observed. Kenya experienced its second-best sugar production year in history, reaching 604,000 tonnes by the end of last year. While the domestic consumption of brown sugar in Kenya ranges from 850,000 to 900,000 tonnes, the production gap has significantly decreased. Favorable weather conditions have also contributed to expectations of a successful crop this year. With Uganda emerging as a major sugar importer into Kenya, the dynamics of the regional sugar market are evolving.
Addressing potential impacts on sugar imports due to the exhaustion of the Comesa import quota, it is believed that the safeguards in place until 2023 will not hinder the import process. While concerns persist regarding the dissolution of boards of management in Kenyan sugar companies, particularly Sony, Gemini, and Zoya, the transfer of management to private millers has helped mitigate the effects of this transition. Private millers in Kenya produced over 84% of the country's sugar last year, stepping in to meet demand effectively. However, there are significant prospects for increased self-sufficiency if state-owned mills are brought back to peak operational capacity.
The ongoing process of shifting management from state-owned entities to the private sector has been long-anticipated, with discussions dating back 14 years. The growing trust in the government's policies and the conducive investment climate have encouraged private entities to invest in reviving these sugar companies. Despite delays in the transition, there is optimism that this strategic shift will yield positive outcomes and enhance the competitiveness of Kenya's sugar industry.
Looking ahead, the outlook for the commodity market in the region and globally showcases the influence of global factors such as the COVID-19 pandemic. With governments injecting liquidity into economies worldwide, commodities have emerged as a favored investment option. The rise in commodity prices, including sugar, amid talks of a new commodity super cycle indicates a shift in investor preferences. This trend is expected to impact commodity prices regionally, affecting staples like wheat, maize, oil, and sugar, ultimately influencing consumer costs.
In conclusion, Kenya's sugar sector is navigating through a period of change and challenges, with import dynamics, management transitions, and global commodity trends shaping its trajectory. As the industry adapts to evolving market conditions, the role of private sector investment and governmental policies will be pivotal in determining the sector's growth and sustainability in the coming years.
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