Deputy Head of Public Service Wanyama Musiambo, Inspector General of Police Joseph Boinnet and DCI George Kinoti stand next to contraband sugar that was impounded in Eastleigh on June 17, 2018. PHOTO | FRANCIS NDERITU | NATION MEDIA GROUP
The National Treasury is in the spotlight over a reckless policy move that saw one billion kilogrammes of sugar dumped in the country after it opened doors to barons, brokers and buyers to bring in unlimited quantity of the product duty-free.
The questionable sugar import is enough to sustain the country for 15 months without growing a single cane, or importing from anywhere again.
And since it is duty-free, that means no sugar factory in the country will be able to compete with the imported product because of the significant distortion of prices in the local market.
More interesting, struggling companies such as Sony Sugar had sugar worth Sh2.5 billion imported with their licence.
UNDERVALUED
The company has been going through management crisis and in February, the board sent the managing director on compulsory leave as it investigated alleged theft of sugar worth hundreds of millions of shillings.
Dumping occurs when goods are brought to a local market at prices lower than those in the domestic market.
Already, the Kenya Revenue Authority has caught up with some of those who undervalued their imports and has issued demands amounting to Sh3.4 billion.
While the sugar lawfully entered the country — via a gazette notice — questions are now being raised even within government circles why there was no ceiling on the imports given that Kenya consumes 870 million kilos of sugar every year, of which 600 million kilos are produced by local farmers.
“There are many policy questions that deserve answers. Why did we allow such a huge amount of sugar when we know our consumption capacity?” posed a senior government official.
The losers will be the 250,000 cane farmers who supply the struggling factories with 80 per cent of cane.
JOBS LOST
As a result of that policy, factories which imported raw sugar for processing will ignore the farmers produce, jobs will be lost — and the entire economy of the sugar belt will be in limbo.
Initially, the raw sugar was supposed to be “consigned to a local sugar miller” but it has now emerged that this was overlooked and before Kenyans knew it, sugar worth Sh50 billion had passed by the Mombasa port and stores are now overflowing with the commodity.
“There is sugar in virtually every store you can think about,” a senior government official involved in the crackdown told Nation.
The import was triggered by a severe sugar shortage — real or artificial — which was followed closely by a gazette notice that opened the trap door.
Our investigations reveal that sugar imports up to December 2017 grew threefold, and what was imported was more than the deficit Kenya had.
In 2016, Kenya had imported only 341,444 metric tonnes (341 million kilos) compared to more than one billion kilos, which were imported during the same period last year.
At first, then Cabinet Secretary for Agriculture Willy Bett had said that millers would be allowed to import sugar from abroad and rebrand it in their own packages since the Comesa countries were also a crunch.
POLITICS
Agriculture Food Authority (AFA) director-general Alfred Busolo had told the media that the body had licensed 162 companies to import sugar up to a maximum of 2,000 tonnes per importer. For a country that consumes about 50,000 tonnes of sugar in a month, the expected imports were supposed to be an equivalent of the country’s six-month sugar demand.
Actually, Mr Busolo had in May last year said that Kenya would import 100,000 tonnes. But this is not what happened. On May 12 last year, Treasury Cabinet Secretary Henry Rotich directed that duty shall not be payable on sugar imported from May 11 to 31 August, 2017. By then, there was a national uproar — and it was campaign period — since a two-kilo packet of Mumias brand was retailing at Sh390 while the Sony brand was retailing at Sh380.
In the mad rush to deny the opposition a chance to use sugar as a bait to attract voters, the hasty decision was made.
The first notice followed an Executive Order issued by President Kenyatta declaring famine and drought as a national disaster — which allows state agents to allow duty free imports.
The notice, issued by Mr Rotich exempted from duty “sugar imported by any person, with effect from May 12 and August 31, 2017.”
LOGISTICS
Statistics show that Kenya produces about 600,000 tonnes of sugar a year, compared with annual consumption of 870,000 tonnes. The balance is met via controlled duty-free imports from Comesa and EAC regions.
While AFA had hoped to receive 40,000 tonnes of sugar from the Comesa countries and a further consignment of 60,000 tonnes in two months, the avalanche that followed has bewildered the industry.
As sugar barons lined up to cash in on the window of opportunity, they also put pressure on the Agriculture Cabinet Secretary and Mr Rotich to amend the gazette notice.
Records show that several of the importers complained to CS Bett that they could not bring in their consignments before the set deadline due to “logistical difficulties and low tides”, and therefore sought an extension.
On October 4, another gazette notice was issued to allow in duty free any sugar that was “loaded into a vessel between September 1, 2017 and December 31, 2017, destined to a port in Kenya and consigned to a local sugar miller.”
DUMPED
The blanket letter written to KRA by Mr Rotich approved the release of any consignment as long as the importers provided necessary documents “that may be required for customs clearance.”
Before Kenyans knew it, one billion kilos of sugar worth Sh50 billion had been dumped into the country — mostly from Brazil — the world’s largest producer of sugar.
Brazil has been engaging in trade-distorting subsidies for its sugar sector, which processed 35 million tonnes of sugar in the 2017/18 crop cycle. The majority of the imports is the raw brown sugar — known as VHP (very high polarity) in the market — and which requires further refining into white sugar due to its high polarisation. VHP sugar is defined as being sugar with sucrose content of 99.4 per cent or more.
Some of the unprocessed sugar has found its way into the market and the Kenya Bureau of Standards officials say it contains high levels of lead and copper.
One of the emerging loopholes was where sugar producing countries exploited a legal gap by refining sugar just enough to be considered raw but sufficiently processed to sell to consumers. By lowering the quality of what can be considered refined, they had managed to beat the global sugar systems until the US raised alarm and closed doors on them last year.
COMESA
The bulk of the imported sugar is brown/mill white type which is used in sweetening tea and represent about 89 per cent of the total imports.
Brazil alone accounted for 44 per cent of the imports and only 35 per cent of the sugar was received from the Comesa countries which would have enjoyed the duty-free waiver even without the gazette notice. But the excuse then was that there was no sugar within the Comesa region.
The Treasury has already defended the decision, saying that the East African customs management procedures allowed for a member country to seek out cheaper imports for essential goods to satisfy heightened demand.
“Following the declaration of a disaster in the last year, President Uhuru Kenyatta identified the short supply of two commodities — maize and sugar. I am very surprised by how we have forgotten that in less than one year, we were going into our shops and finding empty shelves. That was the background,” Mr Rotich told a local TV.
POISONOUS
Documents with Nation indicate that 193 companies took advantage of the duty-free waiver and now Kenya is awash with sugar that will no doubt destroy its sugar industry.
Last week, National Assembly Majority leader Aden Duale said he had tabled before the Trade and Agriculture committee names of over 60 importers and a person who brought 185 tonnes of poisonous sugar.
“A report of people who imported sugar that is not fit for human consumption is with a committee of Parliament and their names will be known on Tuesday,” said Mr Duale.
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