Doubts about Uganda's ability to sell cheap sugar to Kenya hard to dispel

In his recent visit to Uganda, President Uhuru Kenyatta is reported to have signed a trade agreement with his host, Uganda’s President Yoweri Museveni, allowing the importation of sugar from Uganda to Kenya. The CORD leader, former Prime Minister Raila Amolo Odinga, questioned this agreement, arguing that at a time when Mumias Sugar Mills— and indeed all other sugar factories — is on its knees requiring a bail out by the government, it would be counterproductive to allow into the market “cheap sugar” from Uganda rather than seek to revive our own industries, making them efficient and competitive within the COMESA market. President Kenyatta, on his part, retorted that rather than import the “cheap sugar” from Brazil, he would rather get it from his brothers and sisters across the border in Uganda. The million dollar question is: Is Uganda currently in a position to export “cheap sugar” to Kenya? Let us look at the facts.

According to Uganda government’s official figures, the total projected production of sugar in Uganda in the year 2014/2015 is 447,000 metric tonnes. The projected consumption, on the other hand, is 420,966 metric tonnes; leaving a surplus of 26,034 metric tonnes. These figures, however, were projections at the beginning of the financial year. An article by Nicholas Kalungi in Uganda’s “Daily Monitor” on August 12, 2015, stated as follows: “Unless local sugar production capacity is increased, consumers will continue paying high prices for the commodity. This comes after the operational sugar companies such as Lugazi, Kakira and Kinyara—among others—failed to meet the 2012 sugar production forecast.”

It was in 2011/2012 when Uganda was hit by the worst sugar shortage in its recent history, with a kilo of sugar at the retail level going for Uganda shillings 15,000 (Sh430). According to Everest Kayondo, the chairman of the Kampala City Traders Association (KACITA), “the high price of sugar to consumers in Uganda is a reflection of the actual market situation.Sugar can cost anywhere between Ushs 2,200 (Sh63) to Ushs.4,500 (Sh130) per kilo.” When exported to Kenya the landed cost across the border minus Ugandan taxes will, of course, reduce the import price depending on the extent to which Uganda will factor in all their costs of production plus the profit they must necessarily make in selling the commodity to Kenya.

According to a study by the Competition Authority of Kenya (CAK), Kenya remains a high cost producer even within the East Africa region. The cost is $1,250 (Sh106,250) per tonne, more than double the global average of $500 per tonne. The Kenya Sugar Board estimates the production cost per tonne in Swaziland to be $275, Egypt to be $270 and Malawi to be $210. Although the cost of production in Uganda is not readily available, it cannot be very far from that of Kenya. In any case, notwithstanding a new sugar mill established by the Alam Group of Companies in 2011 which should have increased production by this year by 60,000 metric tonnes annually, a deficit of 46,649 metric tonnes recorded in 2013 will just about to be covered by this increase to meet local per capital consumption of 10.5 per cent

So, where is Uganda getting the extra sugar to export to Kenya? If we ignore the price at which this sugar will be bought by Kenya, we still have to deal with the issue of availability. The Kenya Sugar Board has constantly complained about the negative impact on our economy of sugar smuggling into Kenya. Indeed, sugar smuggling is a disease that afflicts all the East African economies, making it extremely difficult for domestic sugar production to be streamlined so as to meet the enormous demand at prices which are competitive in the international market. The more sugar barons— usually powerful individuals within the state (or their clients) — make insane profits from smuggling cheap sugar into our East African markets, the more the state neglects necessary and vital reforms in the sugar sector. That I guess is why the former Prime Minister smelt a rat in the Uganda sugar deal.

To clear the air, bare facts must be laid on the table. It may be very well the case that with the coming into being of Alam sugar factory in Uganda and the implementation of the Uganda National Sugar Policy, costs of production may be expected to drastically fall by next year, making Uganda the cheapest sugar producer in the region. Kenya must then make a strategic decision. Since we produce only 520,000 metric tonnes of sugar per year while we need 740,000 metric tonnes, we could as well import the deficit from our neighbour.

But the Uganda sugar must then be cheaper than the Egyptian or Malawi one; both members of COMESA. Or, what other trade agreement is going to supersede the COMESA one? On the other hand Uganda could as well do what Mumias Sugar Company was doing; importing Brazilian sugar and putting it into Mumias levelled packages! Only this time Uganda will put the Brazilian sugar into the packages of any of its 15 licensed factories, and then sell it to Kenya as Ugandan sugar. The facts discussed above may as well point to this direction.

Skepticism, as it were, is not bad; it makes us look before we leap. Maybe there are some facts the President wasn’t made aware of; maybe not. But facts are stubborn. If we don’t reconcile with them in time, they may come to haunt us much later.

I am all for East African integration. Indeed Uganda is our biggest trading partner today, and we must not only sustain this but deepen it further through arrangements beneficial to both partners. My suggestion is that the East African Community countries should plan their economies synchronically so that where they complement each other further sinews of cooperation are tightened.

If, in the long run, Uganda and Sudan have the comparative advantage in banana production, then they should lead in this, adding value to this product and dominating the Community market. Likewise the comparative advantage that other members have should be identified and promoted. But we cannot grow if we are all producing the same thing expecting to export it to our neighbours. Let us plan and choose better.