Comesa gets tough over sugar import rules

A regional trading bloc has written to the Kenyan government asking it to relax the tough screening of sugar imports or grapple with sanctions.

The Common Market for East and South Africa (Comesa), through the Ministry of Trade, is asking for a review of the current sugar import licensing procedures.

This follows complaints from member states — Uganda, Malawi and Egypt — to the bloc’s secretariat that the procedures were too restrictive.

Kenya risks lifting of Comesa sugar import safeguard before March 2014 deadline if it flouts the rules.

“There have been some very serious complaints. Comesa has clearly indicated that our import-licensing procedures pose a Non-Tariff Barrier (NTB) to trade,” said Ministry of Trade permanent secretary, Mr Abdulrazaq Ali.

The letter was authored late last year at a time when the Kenya Sugar Board (KSB), the industry regulator, was taking a tough stance against sugar importers from Uganda and Tanzania.

KSB had withdrawn the licences of several Tanzanian and Ugandan traders whom it suspected of bypassing tax laws and dumping sugar in Kenya duty free. The ban was lifted shortly before Christmas following the creation of a joint East African secretariat to investigate the matter.

Spirit of free trade

Comesa now says the tough measures taken in December last year and Kenya’s laws that require all sugar importers to pay hefty fees for licences are in contravention of the spirit of the Free Trade Area (FTA).

The regional economic body argues that Kenya ought to monitor and verify its sugar imports without taking such measures.

With the establishment of the Comesa Free Trade Area in 2000, Kenya became part of a large, open regional market in which goods were to be subjected to neither quotas nor tariffs.

Fearing that sugar imports from the bloc would hurt the local industry, Kenya sought safeguards that would limit the amount of the product coming in from the region.

The safety net was meant to give the local sugar industry adequate time to increase efficiency and become competitive in order to face cheaper imports from Egyptian, South African and Malawian industries.

The safeguards have since been renewed four times with the latest provision expiring in March 2014. The Comesa secretariat now says this could change if Kenya does not play within the rules. “They have the power to do this,” said Mr Ali.

Essentially, the ultimatum puts Kenya in a tight spot. Relaxing import rules could lead to an increase in illicit imports by unscrupulous traders importing outside the trading bloc but channelling it to Kenya through a Comesa member country.

Contacted by Smart Company, KSB officials said they had no knowledge of any such letter to the Kenyan government. They said their licensing procedures were integral to the body’s role as an industry regulator.

“I have heard nothing of any complaints from Comesa. We are a regulator and ours is a facilitative role. I want to assure you that we do not use the licensing procedures to restrict imports. We have always licensed qualified firms and we will continue to do so,” said board chief executive, Ms Rosemary M’Kok.

Remain open

Data shows that a total of 98 importers were licensed in the 2011/2012 fiscal year, 45 to import refined white sugar while 53 dealt in brown or mill white sugar imports. In the current year, 2012/2013, the number has fallen to 81 importers. KSB says that registration remains open all-year-round for new applicants.

Sugar import licence rules were first introduced in 2008 by the then Minister for Agriculture, Mr William Ruto.

There was widespread speculation that the rules, which at the time required licensing for each consignment of sugar imports and auctioning of import rights, would brook sanctions from Comesa.

Despite later amendments making them less severe in its 2011 and 2012 reviews of the Kenyan sugar industry, the United States Department of Agriculture (USDA) highlighted the process of acquiring sugar import permits and the associated Sh100,000 fee as a major non-tariff in the sector.

“Kenya restricts sugar-market access through high tariffs and non-tariff barriers,” the USDA said.

Some industry players who strongly support KSB claim that without the strict import procedures, exporters will take advantage of a relatively more open market to peddle sugar imported from non-Comesa countries.

“Traders in these other countries are not playing by the rules. They will try to sell sugar to Kenya that they have not produced locally. Most of the sugar is from Brazil,” said South Nyanza (SONY) Sugar Company’s managing director, Mr Paul Odola.

Data from KSB shows that in 2012 sugar imports from Comesa more than doubled to 90,404 tonnes up from 37,258 tonnes reported in the previous year.

The imports were boosted by sugar from Egypt and Uganda. Ironically, both are net importers of the product who should, logically, have no surplus of their own to export.

Even with that import to Kenya, it did not exhaust Comesa import quota of 340,000 tonnes in 2012. By November, Comesa imports accounted for a paltry 26 per cent of total imports. Majority of the imports over 200,000 tonnes of sugar came from non-Comesa states.

“We are yet to import enough sugar to meet the quota. Even if we remove these licences, and if we can closely monitor the origin of the sugar, it is highly possible that local companies will still be able to hold their own,” said Mr Ali.

Nevertheless, the row emerging over KSB’s licensing procedures may soon become moot as the sugar industry steps off the edge of momentous changes.

On January 14, the president pronounced the death sentence on KSB and other agricultural regulators when he signed into law the Agriculture, Livestock, Fisheries and Food Authority (ALFA) Act.

Review of their validity

The law proposes the streamlining of agriculture in the country by nullifying authorities and bodies that are currently tasked with regulating the sector and vesting their power on one authority. Once the new government takes over after the March 4 General Election, bodies such as KSB will be facing a review of their validity, and eventually, the axe.

The Act had faced stiff opposition from farmers and the board itself arguing that the move would throw a wrench into programmes on improvement of the sugar industry that the board is currently implementing.

Welcome or not, an overhaul of the regulation of the sugar industry might also have an impact on the rapid modernisation which sugar companies are going through in order to hold on their own once the sugar safeguards expire next year.

While granting the safeguards on sugar imports, Comesa outlined a roadmap that Kenyan companies were to follow if they hoped to be competitive in the face of an avalanche of cheaper imports from the region.

Kenya is supposed to privatise all state-owned sugar companies. Further, the millers are supposed to increase productivity by adopting fast-maturing sugarcane varieties and diversifying their products to include ethanol.

Parliament last year gave the go-ahead for privatisation of five sugar companies. Before adjournment early this month, the legislature also approved Sh40 billion debt write off owed by the sugar companies.