advertisement

Opinion & Analysis

Don’t sell sugar firms cheaply to vultures

Government-owned sugar companies are high cost producers. FILE PHOTO | NMG
Government-owned sugar companies are high cost producers. FILE PHOTO | NMG 

Privatisation of sugar companies is back on the agenda. The question we should be asking is the following. Which businessmen would want to throw their money into buying the sugar companies in the conditions they are in today?

Why do we want to sell assets we have spent millions on to greedy merchants and vultures whose only interest is to gobble these companies on the cheap and strip the assets.

Once upon a time, the thinking within government was that privatisation was the panacea for treating the problem of loss-making entities that were a permanent burden on the taxpayers.

This is the wisdom that informed the privatisation policy that started in earnest in the mid- 1980s and over the years peaked with the introduction of a privatisation law and establishment of a fully-fledged Privatisation Commission.

With the advent of the regime of President Uhuru Kenyatta in 2013, an important policy shift occurred. The new thinking is captured in the report of the Presidential Task Force on Parastatals whose recommendations were accepted by the President in November 2013. The dogma that the State must stay out of business was quietly abandoned.

Under the new model, you start by recognising that the government is indeed in business. But also accept that if I am in business, I must operate that business commercially.

The government would create an autonomous body called the Government Investment Corporation (GIC) to play the role of portfolio manager, selling shares in profitable and mature investments and injecting new money in reviving under-capitalised entities.

We wanted to copy successful entities such as Tamasek of Singapore, Public Investment Commission of South Africa and Khazana of Malaysia.
In the case of county governments, the thinking was that we would establish County Investment Corporations.

Although, the process of establishing the GIC is still in progress, we can all see that the new thinking and model is what has more or less been informed the approach that the government has followed in dealing with the problems facing both Kenya Airways and Uchumi Supermarkets.

If you follow this model, the process should run as follows - inject capital in the troubled company, introduce managers with deep domain knowledge and experience in the sector to turn around the entity- and finally- only offload the company to the private sector when you know that the price you will fetch will give good value to the shareholder-namely the taxpayer.

Privatisation is nothing but responsibility evasion by the State. What we are seeing now is but an attempt by the government at outsourcing and transferring responsibility to the private sector.

Why does the government want to sell the sugar companies on the cheap to vultures? Indeed, our sugar companies are all in dire straits. The statistics on the performance of the industry present a bleak picture.

Production and recovery rates by factories have dropped, cane delivered to factories is on a downward trend, while most factories are suffering crippling cash flow problems.

We have recently witnessed a scramble for cane supplies like never before. The number of court cases where companies are accusing each other of poaching cane in their designated zones has risen exponentially.

The support systems and infrastructure for the factories collapsed many years ago with the death of outgrower sugar companies that used to supply fertilizer and provide subsidised transport services to the cane farmers. The sugar development levy that used to be a source of subsidised credit for both farmers and factories was scrapped by the government.

Government-owned sugar companies are high cost producers. We have been warned that if we don’t restructure the companies by bringing costs down, we must kiss local sugar production goodbye when the impending removal of the so-called Comesa safeguards are lifted.

Is privatisation really the medicine for these chronic maladies? The answer is no. Who then is pushing the sugar privatisation agenda?

My suspicion is that it has all to do with the machinations of powerful private sugar millers. Does it surprise that even in the midst of gloom and doom in the industry, local sugar magnates have been on an acquisition spree with sugar factories having changed hands in Western Kenya at a rapid rate. What has been driving the acquisition mania?

If the government is serious about restructuring the industry, let it inject new capital in the companies and bring on board managers with deep domain knowledge of the international marketplace of sugar to run them. Let’s fatten the cow before we sell it.

advertisement