Plans by Kenya to complete reforms in its sugar industry through the privatization of its five sugar mills are on course.
(READ MORE: Kenya sugar farming turns sour as import curbs fail)
In the next nine to 12 months, the government intends to sell its stake in Chemelil Sugar Company, Nzoia Sugar Company Ltd, South Nyanza Sugar Company Ltd, Muhoroni Sugar Company Ltd and Miwani Sugar Company.
The privatisation of the companies will inject more capital, diversify and make the industry more competitive.
East African investors will have the chance to buy shares of the five companies through an initial public offering. Fifty one per cent of the shares from each firm are expected to be sold to strategic investors and the proceeds will fund the recovery and upgrading of the sugar firms.
About 24 per cent will be sold to employees and farmers on a contractual basis. The remaining quarter is expected to be sold to the public in a date yet to be announced.
Speaking to CNBC Africa in regards to Kenya’s sugar sector, Rich Management CEO, Aly Khan Satchu said, “Privatisation has a very strong catalytic and positive effect and I think the government should embrace more privatisation as I think the South African government is about to do.”
“As a government, you cannot ring hundreds of businesses, you have to narrow it down to 10 at most. Go and sell shares to the public and make sure you sell at a good price so people can make profits.”
The East African country is also seeking to diversify the millers into Ethanol distillation and power co-generation. Through the privatization of the millers, the government expects the competitiveness of the sector to be able to address the country’s current sugar deficit and high cost of production.
The Kenya Sugar Board (KSB), the industry regulator, estimates the cost of producing a ton of sugar in the country is higher than other Common Market for Eastern and Southern Africa (Comesa) countries’ production costs because of its reliance on small holder production and low capacity utilisation in factories.
Kenya’s domestic production is around 550,000 metric tons, however the country’s potential demand is approximately 800,000 tons leaving a net deficit to be filled by imports.
“Our cost of sugar production is quite high and these firms have not been well run. So I think in this situation, the government is saying ‘look we are open to suggestions but please come and take a look’. I would reach out to countries like Brazil, talk to companies over there and say come and have a look and see how you can help,” Satchu said.