Last week Raila
Odinga planned a series of public rallies in sugar growing western Kenya to
protest easing the access to the Kenyan market for Ugandan sugar.
Kenyan authorities have been restricting sugar imports from
Uganda. They argue that our factories are not producing sugar surplus to our
requirements therefore we must be importing sugar for onward sale in Kenya.
Knowing our people, you would not discount the Kenyan authorities' fears, but they have sent three different teams form their finance ministry, bureau of standards and revenue authority to verify our claims that we are producing more than we can consume and have confirmed the veracity of these claims for themselves....
Last year Uganda produced 438,000 tons of sugar against
local demand of 320,000 tons. This year it is projected that our sugar mills
will throw off 500,000 tons, while demand will come in at 360,000 tons.
Kenya’s sugar industry is failing to keep up with its
population’s demand producing about 500,000 tons, short by 300,000 tons of
national demand. The sector dominated by government controlled millers.
That there is probably at the heart of the Kenya sugar
industry’s problems.
Mumias Sugar is currently shut down for regular maintenance
works but industry sources believe they have had to shut down for lack of
enough cane to crush. By the time they shut down in July the factory, the
biggest in east Africa, was only crushing between 2,000 to 5,000 tons of cane
day compared to its potential of 7,000 tons.
This was mainly because farmers had gone unpaid since last
year to the tune of kshs500m (sh17b) and had opted to supply other mills in the
area.
The mill has been steadily run down since the previous managers
Booker Tate, were shown the door in 2002. Things came to a head when a forensic
audit pointed to mismanagement and corruption. To illustrate the latter the
reported a one billion shillings (sh35b) hole in the accounts.
Kenya has been getting extensions from the COMESA to stay an
opening of the market to sugar from the trading block, pleading that they
needed time to restructure the industry so they could be competitive against
regional sugar producers.
It costs at least twice as much to
produce sugar in Kenya (at $500 a tonne) as it does in neighbouring Tanzania
and Uganda, as well as significant exporters Zambia, Swaziland and Egypt,
according to industry experts.
"Among the reforms of the sector was the total privatisation of the state controlled mills to allow private capital in and greater efficiency, unfortunately politics has got in the way of this development and so the industry has been bleeding...
As our own experience shows, it is
easy to mobilise against privatisation of state enterprises and the
liberalisation of sectors that were previously dominated by state backed
marketing monopolies.
When such companies are privatised
the new owners normally take an axe to any excesses in spending, especially by
reorganising the workforce. The reorganisation of the workforce often begins
with laying off excess workers before replacing them with more efficient
workers as production increases.
Oftentimes in older state
enterprises workers have been hanging on thanks to some godfather in government
and rarely pulling their weight in terms of contributing to the company’s
profitability.
Such “draconian” measures can
become unpopular politically and throw a spanner in the works.
Staying privatisation of companies
and general liberalisation of economies is an attempt to avoid short term pain
to the detriment of a company or economy’s long term prospects.
In Uganda we do not need much convincing or economics theory to prove the veracity of this claim. Opening the economy to the free market caused pain in the initial stages but the net effect has been positive – higher productivity, greater product variety, improved work environments and more revenues for the treasury...
I shudder to think if we had let
the populists win the economic argument what Uganda would look like today. We
would probably still be waiting for telephone and power connections for months,
lining up for everyday commodities and generally suffer little choice in every
economic decision we had to make.
The trouble with economics is that
you cannot run controlled experiments.
But events as are now wracking the
Kenyan sugar industry will serve as good case studies when viewed against the
largely liberalised Ugandan sugar sector of why not opening up a sector to
private initiative is a bad idea.
