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Millers hassled as State ups sugar imports quota

Business Daily Africa, Nairobi

Millers hassled as State ups sugar imports quota

By Allan Odhiambo

25 February 2008 - Sugar sector players have finally agreed on a raft of radical proposals aimed at boosting the competitiveness of the ailing industry ahead of full liberalisation in 2012.

The roll-out of the reform programme began last Friday with the publication of a legal notice on new tariff concessions for trade with Africa’s largest trading bloc.

Through the notice, Treasury approved a new tariff arrangement that will guide trade in sugar between Kenya and the Common Market for Eastern and Southern Africa (Comesa) between March 1, 2008 and end of February next year.

The structure, which is in line with the demands that Comesa made on Kenya while renewing the special safeguards for trade in sugar, will see 220,000 tonnes enter the local market duty free.

Any consignments above this quota will attract an automatic duty of 100 per cent.

“The new tariff concessions mark the start of a reform journey agreed with Comesa last year,” Dr Richard Sindiga, who heads the Comesa desk at the Trade and Industry ministry said. Under the previous arrangement, the volume of duty-free sugar entering Kenya from the Comesa member states was capped at 200,000 tonnes annually.

Additional imports attracted duty charges at the rate of 110 per cent.

These quotas and tariff bands were part of the preferential safeguards that Comesa granted Kenya to enable the local sugar industry to boost its competitiveness in readiness for a fully liberalised market.

Kenya last year made a successful application for an extension of the safeguards, saying its sugar industry was not ready to compete in a free market.

A special inspection team from the Comesa secretariat, that toured Kenya in mid 2007 confirmed Kenya’s concerns and in its report recommended a further four-year moratorium but with a raft of radical measures to guide the “do-or-die” programme.

The recommendations of the team were all adopted by the Comesa top organ and Kenya as part of the deal granting the extension. Key among the recommendations, was that the quota covered under the Comesa safeguard be enlarged gradually beginning March 2008, and the tariff applied on import quantities above the quotas declines each successive year of application until 2012.

This means that beginning 2008, the new safeguard quota of 220,000 tonnes would be successively increased by 40 tonnes over the next three year before being cleared off by 2012-meaning there will be no safeguard.

On the other hand, the tariff charged above the safeguard quota would be successively reduced by 30 percentage points starting March this year before being fizzled out by the end of the four years.

Analysts said this strategy is meant to wean the local industry for tougher challenges in a free market driven fundamentals of demand and supply. The high cost of production and inept management are among factors that have been blamed for the rot in the sugar industry.

Besides the tariff/quota arrangement, Comesa also requires that the Government adopts a privatisation plan for the sugar industry and grants approval for privatisation of publicly owned sugar millers within the first 24 months of the safeguard extension.

So far Mumias Sugar Company remains the only success story of State divestiture with the state having downloaded additional stakes to just 18 per cent two years ago.

Miwani and Muhoroni Sugar Companies are also in the pipeline for a hand over to private hands after successful bidding by various groups of private investors late last year.

“Everything is on course and we’re looking up to something soon when they’ll be handed to the successful bidders,” Mr Kipng’etich Bett, a receiver manager who coordinated the privatisation of the two Nyando district based firms, told the Business Daily.

The two firms were initially scheduled to be in private hands by February this year but a spat between the Kenya Sugar Board (KSB) and Treasury over the management of the privatisation process slowed it down.

The Comesa secretariat further demands that the Government adopts an energy policy aimed at promoting co-generation and other forms of bio-fuel energy production that would contribute to making the sugar sector more competitive.

“Research on high sucrose and early maturing cane varieties should continue and the KSB should fund the Kenya Research Foundation adequately and should also spearhead the adaptation and application of research findings by cane growers.

“The sugar industry changes the cane pricing formula from one based on cane to one based on sucrose content of the cane delivered,” a ruling granting Kenya the further four-year moratorium reads.

The industry is also required to change the cane pricing formula from one based on tonnage to one based on sucrose content.

There are also recommendations that more resources be channelled to the sub-sector for infrastructure development and that the country would be placed on periodic performance reviews to monitor the progress of reforms implementation.