Resolve Kwale Sugar woes to unlock foreign capital

Kwale Internation Sugar Company Ltd on February 7, 2019. [File, Standard]

Aliko Dangote has spent the last year delivering a single message across the continent: “The only way to attract foreign investments or investors is by having successful local investments.

Domestic investors actually attract foreign investors. If you don’t make it attractive for local investors to invest, no foreigner will invest.” 

On the southern coast of Kenya, one of those investments is waiting to be treated as such. Kwale International Sugar Company Limited (KISCOL) was structured with credible promoters: the Pabari Group of Kenya and Omnicane Limited of Mauritius. The financiers include KCB Bank, Stanbic Bank, Co-operative Bank, Trade and Development Bank (TDB), Mauritius Commercial Bank (MCB), and SBM Bank of Mauritius.

The strategic partnership with Omnicane brings operating discipline in sugar production, irrigation engineering, and agro-industrial management. The technical team is drawn from Kenya, India, and Ethiopia. The technology includes a modern 3,300 tonnes-of-cane-per-day factory, expandable to 5,000 TCD, coupled to an 18MW bagasse-fired cogeneration plant, served by dams, boreholes, and water pans feeding sub-surface drip irrigation.

KISCOL introduced fast-maturing cane varieties. Cane that takes up to 18 months to mature in the western sugar belt reaches the mill in roughly 12 months here. At full design capacity, the project would close almost 100,000 metric tonnes of Kenya’s annual sugar deficit, close to 10 per cent of the gap Kenya fills with imports. 

The land question at Kwale did not begin with KISCOL. The estate sits on 42,000 acres that previously hosted the Madhvani sugar operation. When the project was being re-conceived as KISCOL, the structure agreed with the Government of Kenya was that 15,000 acres would be transferred to KISCOL for the nucleus estate, and the remaining 27,000 acres would be allocated to local occupants under a resettlement plan, with each household receiving a 5.5-acre outgrower package: three acres for cane, two acres for subsistence farming, and half an acre for a homestead. 

The resettlement never materialised. The 27,000 acres earmarked for outgrower households were not transferred. The 5.5-acre packages were not issued. The community remained where it had always been, including on the 15,000 acres allocated to KISCOL.

This led to years of litigation and land access between the Company and the community. In litigation arising directly from the non-implementation of the resettlement plan, KISCOL has been awarded approximately KES 24 billion against the Government for breach of contract. 

The dispute turns on the non-implementation of a resettlement plan that the State itself designed and committed to. An early, decisive government intervention to settle the 27,000-acre community plan on the terms originally agreed would have unlocked the 15,000-acre nucleus estate and the full operating capacity of the factory.

That intervention would have delivered thousands of titled smallholder farmers integrated into a modern cane value chain; a fully operational mill closing a tenth of the national sugar deficit; an 18MW renewable plant feeding the grid; a coastal county hosting one of the largest private agro-industrial employers; a healthier loan book for the banks; and a tax base built around a single working investment. 

President William Ruto has positioned Kenya as a destination for transformative investment. Resolving the Kwale impasse on the terms originally agreed would unlock a project that closes nearly 10 per cent of the country’s sugar deficit.

It would convert a Sh24 billion adverse judgment into a working industrial asset. It would be a signal: the visible, decisive resolution of an investment Kenya has already attracted, on the terms the State itself agreed. Foreign capital, as Dangote keeps reminding the continent, follows that signal. 

KISCOL was built on the assumption that if a project did everything right on the inputs, it could control promoters, financiers, partners, people, technology, agronomy, and the country would meet it halfway on implementation certainty.

Sugar in Kwale was to be a demonstration that Kenya can host a complete, integrated, modern agro-industrial project. That demonstration is still recoverable. It requires State intervention that was agreed at the beginning. If domestic investment is the doorway through which foreign investment walks, then Kwale is that doorway. 

-The writer is a Mechanical Engineer