Small Enterprise

Fertiliser firm eyes growth with Sh3 billion plant

(Left) The MEA fertiliser blending factory in
(Left) The MEA fertiliser blending factory in Nakuru and (right) the company's director Titus Gitau during an interview at his Nairobi office. PHOTO | SALATON NJAU  

If there is one man who has grown accustomed to the government’s perennial and unfulfilled promise to build a fertiliser factory in Kenya since the 1970s, it must be Lee Ngugi.

The former banker is the founder and chairman of MEA Limited, a family-owned company whose net worth is in the billions of shillings.

The 36-year-old firm was still in its nascent years when the government first announced plans to build a fertiliser plant in Mombasa. This promise, and many more given since then, remain unmet — a scenario that has unwittingly helped Nakuru-based MEA live up to its name, which is Kiswahili for grow.

And grow it has. The firm has an annual production capacity of 300,000 tonnes of fertiliser which it sells locally and exports the surplus to Rwanda, Tanzania, Malawi, Uganda and Burundi, among other markets.

MEA blends nitrogen, phosphorus and potassium (NPK) fertiliser from value-added raw materials (urea, potash and phosphate) shipped in from Europe, Saudi Arabia, Russia, Canada and Morocco.

Cash reserves

The firm is set to receive a Sh1 billion loan from the International Finance Corporation (IFC) to fund a Sh3 billion fertiliser plant (the first of two in the pipeline) which it plans to start building in October.

“IFC will provide some of the financing and the Sh2 billion balance will come from internal cash reserves,” said Titus Gitau, Mea’s executive director.

When the Business Daily visited the company’s headquarters at West End Towers in Nairobi last Friday, Mr Ngugi declined to be interviewed, directing all queries to Mr Gitau, his 47-year-old son.

“Let Titus handle everything. We share the same DNA,” the septuagenarian said, revealing the confidence he has in his children who hold key positions in the business he has painstakingly built. Mr Ngugi’s two daughters, Jane Mawenu and Susan Omino, are independent directors of the company with the latter also serving as its marketing director.

Mea’s history dates back to 1961 when Dutch-based Windmill Fertilisers built a fertiliser blending factory in Nakuru. London-based Mackenzie bought a minority stake in the company.

Kenya’s fertiliser industry was at the time firmly controlled by the government through price controls and import licensing. Over time, the government monopoly gave the Kenya Fertiliser Association a 75 per cent market share and forced many competitors (mainly foreigners) out of business.

Mr Ngugi, who used to work at Grindlays Bank (renamed Kenya Commercial Bank after Independence), however, still found the business favourable enough to venture into. “Before going into the fertiliser business, my father used to work as a local agent for a French company which was importing sugar into the country,” Mr Gitau told Enterprise.

“After trading in sugar for a while, he decided to try out another commodity. He settled on fertiliser despite the prevailing business environment.”

His break came when Mea Limited, like many other peer companies, was declared insolvent and the budding businessman used a bank loan to buy out the firm’s foreign shareholders.

The government, through hand-picked agents, would import fertiliser and the likes of Mea would then blend and re-package it for sale. When the fertiliser industry was liberalised in the early 1990s, MEA began importing the product on its own, setting the company on a path of sustained growth.

Despite its success, Mr Gitau said, the company has overcome enormous challenges over the years. The main challenge today, he explained, is the government’s fertiliser subsidy programme through which the state spends up to Sh3 billion annually to provide fertiliser to maize farmers at half the market price.

MEA’s 50-kilogramme bag of NPK fertiliser retails at about Sh3,000 while the government’s subsidised product goes for Sh1,600. The subsidy programme has been extended from maize to crops such as coffee, tea and sugarcane over the past two years.

“It has been hard to compete with the government in the fertiliser business, especially when the subsidy was expanded to cover other crops that were not catered for previously,” he said.

Despite this setback, the company is expanding its business with plans to build at least two factories by the end of 2017.

In talks with two firms

The Sh1 billion loan will go towards building a new factory with an annual production capacity of 100,000 tonnes beginning October.
The facility will enable the company to make fertiliser using ingredients in their original form as opposed to importing value-added ingredients like it currently does.

Mr Gitau said he expects the first batch of fertiliser to roll out of the factory in November 2016.

MEA is also in talks with two Chinese firms — China National Chemical Engineering Company and SINOCHEM — to build a nitrogen fertiliser plant immediately the NPK one is commissioned. The plant, which will be located in Mombasa, is set to be operational in 2017 and will serve Kenya and regional markets like Malawi and Zimbabwe.

MEA, like every other business seeking to grow and expand, has experienced disappointments in the course of its three-decade journey. The firm used to operate a milk factory in Mbarara, Uganda, but was forced to shut it down in the late 1990s during the war in the Democratic Republic of Congo when access to one of their main markets was obstructed.

“We sold off the milk factory to other investors. This decision gave us the freedom to concentrate on growing the fertiliser business,” said Mr Gitau.