The Treasury’s plan to inject Sh2.3 billion into Mumias Sugar Company to save the firm from collapse should be a wake-up call for all stakeholders. These include board of directors of all the country’s sugar millers, Government officials, cane farmers and local politicians.
This is because there is reason to believe that injection of money into firms in the sub-sector without requiring them to demonstrate how they have put their houses in order, could end up as an exercise in futility. It is hard to imagine how a company, or sector, that cannot generate profits in a protected market environment, will do so when that protection is swept aside.
Analysts agree that Kenya’s entire sugar industry will be under threat once the country opens its doors to the Common Market for East and Southern Africa (Comesa) next month. The reasons for the threat are as plain as day follows night; uncompetitive local production regime.
Of course, the situation can be reversed provided the county and national governments are willing to invest the huge amounts of money and other resources required.
The first step would be for the government to finance a thorough research of the sub-sector with a view to ascertaining whether growing sugarcane would still be the best option after considering other land-use alternatives. The research might show, for example, that growing fast maturing horticultural crops and rearing dairy cattle would be cheaper and more viable alternatives. But in the event that a decision is made to continue with sugarcane growing it is plausible to conclude that this would require the construction of massive irrigation works in the growing areas that would ensure every farmer gets enough water for the purpose. The introduction of fast-maturing cane varieties that take between 11 and 12 months to mature would also be necessary because the current ones that take between 16 to 18 months are partly to blame for the country’s uncompetitiveness.
The cane varieties introduced would also need to have a sugar content equivalent, if not more, than those grown in the competing countries. At present those grown in countries like Sudan have twice the sugar content of those grown by small-scale local farmers.
Yet another area that would call for an overhaul is the actual cost of cane production. To address this, there would be need to carry out a detailed soil analysis of individual farms to determine the nutrients the soil needs to produce the cane of the required quality and at the right time.
The need for the analysis is borne out by recent research which found out that soils in Western Kenya have low crop yields because they have high alkaline levels. Recent soil testing in Trans-Nzoia could be an eye-opener to what ails agriculture in many parts of the country, not just the sugar growing areas. The tests revealed that most farms in Kiminini, Chepchoina, Waitaluk and Makutano areas have a Potency for Hydrogen (PH) of lower than five. The high soil acidity was attributed to high rainfall in the area, growing of one crop and too much use of acidic fertilisers. These results show that subsidizing fertiliser prices –as the government wants to do--may not be the answer to the sugarcane growers’ problems.
Deep financial crisis
After comprehensively addressing the cane production issues, the next step would be to take a closer look at the technical and governance issues that were, obviously, behind the problems facing Mumias Sugar Company.
An audit of the machinery used on the entire value-chain would be necessary because there is reason to believe that little has been spent to keep up with the industry trends. Indeed, the greatest concern is that unless the older factories are rehabilitated fast, the competition that will drive them out of business may not even come from outside the country but may emerge from the newly established local firms that are expected to give foreign competitors a run for their money.
But, after all is said and done, the success of the sub-sector will be determined by how aggressively the government addresses the governance issues that have plagued it over the years. Filling boardrooms with political appointees who are, often, candidates who failed to win elections is obviously the worst way possible. This is because the appointed individuals have little incentive to deliver on their mandate considering their eyes are fixed on the election time-table and not on the company’s bottom line. The fact that these bosses are rarely held accountable because their appointments are rewards for services they are deemed to have rendered to the ruling elite means that their interests are personal; looking after number one.
This means that the senior employees these board members are supposed to oversee quickly learn how to manipulate the management systems and processes to make money for themselves and their bosses.
The much-touted privatisation of the sugar firms is not a viable solution either because few private sector companies have the deep pockets required to do what needs to be done to turn-around the sub sector while even fewer are willing to take a long-term view.
The more likely result of privatizing the firms, as they are, would be that they would be bought by companies and individuals whose interest would be in selling off their assets. That would mean the over 500,000 workers and the six million people who derive their livelihood from the sub-sector would be thrown into deep financial crisis.
The country would also lose over Sh12 billion the sub-sector generates annually. This means time for simplistic solutions is over and the country should gird itself for a rough ride.