Privatisation of sugar firms not the answer; barons will gobble them up

The government still believes that privatisation is the panacea of the problems facing the sugar industry.

On Monday, the Privatisation Commission launched public hearings on the planned privatisation of the five State-owned sugar companies, setting the stage for their sale.

I used to be a supporter of privatisation. As young economists just out of university, we  were all believers in the Washington Consensus: privatisation, liberalisation and deregulation. The mantra at that time was that the government had no business in business.

But experience has over the years turned us into cynics. If you asked me today to describe privatisation, I would say it’s the consequence of the State’s lack of nerve and authority to be held accountable for making difficult, unpalatable decisions.

When I see the government planning to sell a  public company in the name of privatisation, I see an attempt to outsource and transfer responsibility and duties to the private sector. I see laziness.

But the pertinent question we must ask is the following: Where has the idea of selling sugar companies come from and who would want to buy them in their present condition.

I have conspiracy theory.  I suspect that the idea of selling sugar companies is as a result of lobbying in high offices by powerful private sugar millers.

What is my suspicion based on? 

On the fact that privatisation as a policy has not been a high priority in the agenda of President Uhuru Kenyatta’s administration.

Early in the administration, we were all made to believe that President Kenyatta had decided to move the country beyond the post-Washington Consensus path when he appointed a task force on parastatal reform.

The plan was to create a new Government Investment Corporation which would approach parastatal reforms differently.

But as a matter of fact, the privatisation programme was more or less suspended.

I think the private millers and their allies in government have manoeuvred to bring back privatization on the agenda.

They have been minting billions from the current confusion in the sugar industry, and have calculated that if they can snap up the State-owned sugar firms, they will be in total control of the market.

Mark you, all private sugar mills in Uganda and Kenya are owned by members of the Asian community. You have a case where one influential player owns mills in Kakamega County, Homa Bay, and across the border in Uganda.

When they tell you that sugar production in Western Kenya is not profitable, they are merely repeating a myth. How can sugar be unprofitable when nearly six new mills have sprouted up in Western Kenya in the last 10 years?

Or should we take it that the private mills that have mushroomed are motivated by philanthropy?

I think these private millers and their close allies and partners within the cartels which control the sugar supply chain are the albatross hanging on the neck of the poor sugar farmer in Western Kenya.

They are why the farmer makes huge losses while traders and private millers make big profits.

In truth, the advent of this new crop of private millers has only added to the confusion in the industry.

They have mastered the art of hiding statistics and massaging numbers, so much so that even getting true and accurate statistics   on sugar production costs   is a big problem.

Private millers exaggerate production costs so as to hide what ought to go to farmers. Indeed, the last   production cost study for sugar was conducted several years ago.

In the past, there existed a cost and pricing committee comprising millers and growers. The powerful private millers lobbied it out of existence.

Today, the Kenya Revenue Authority suspects that these private millers are engaged in massive transfer pricing tax evasion and opaque transactions with related parties.

If the government is serious about restructuring the industry, let it invite international investors with proven experience in running profitable sugar businesses and with deep domain knowledge of the international marketplace.

The local private miller cannot be part of the solution to the problems assailing the sugar industry.

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