When Kenyan president Uhuru Kenyatta arrived in Uganda last week, he DELIVERED A SPEECH bordering on integration of East Africa.
Addressing a fully-packed Ugandan Parliament, Mr Kenyatta said: “Kenya and Uganda as each other’s leading trade and investment partners are at the heart of this integration.”
But behind the cosmetic political talk, Trade ministers from the two countries were busy negotiating a deal that would see Uganda export its ‘cheap’ sugar to Kenya.
This would mark the end – at least not yet – of a diplomatic row over Ugandan sugar crossing into an underserved Kenyan market resulting from inefficient sugar producers.
In his speech, president Kenyatta was silent on this deal. The mention of sugar was also missing in a joint communiqué issued by President Museveni and his counterpart. But the communiqué was heavy on business language, emphasising increased bilateral trade.
Uganda imports goods worth $700m (about Shs2.4 trillion) from Kenya, compared to exports worth $150m (about Shs530b) to Kenya. Therein the statement lies a pointer to the move by Mr Kenyatta to have this trade deficit reduced, at least according to President Museveni.
“...and commended President Kenyatta for implementing initiatives that would contribute to bridging this gap,” the communiqué reads in part.
The carefully worded communiqué only said Uganda National Chamber of Commerce and Industry and Kenya National Chamber of Commerce and Industry had signed a Memorandum of Understanding to promote “common interests.”
Therein, according to sources within the Trade ministry and chamber of commerce, lies the sugar deal, and the unwillingness of officials from both organisations to comment on the issue – at least not just yet, explains how the sugar could have become sour.
The deal would see Uganda finally export sugar to the Kenyan market, something, which Kenyan opposition led by Raila Odinga strongly opposes.
Mr Odinga described the deal as sour, noting that this would “flood the (Kenyan) market with cheap imported sugar.”
Sugar imports in much of Africa are from Brazil, India and China and are relatively cheaper due to government subsidies and lower production costs compared to those in the East African Community.
According to the Uganda Sugar Manufacturers Association (USMA), the world is currently experiencing a “sugar glut and falling prices,” which accordingly has hampered growth of African sugar exporters and producers. “For example, Uganda, Mozambique, Zambia and Malawi are all expected to have a sugar production surplus in 2014/15 but at times trade with partner states like Kenya and Rwanda becomes difficult, as these countries have established tariff and non-tariff barriers in an effort to protect domestic markets and industries against competition from imports even within the EAC trading bloc,” reads the USMA April 2015 annual report.
In Uganda, the government takes a side seat in the sugar production mix, even though it owns minority stakes in Sugar Corporation Uganda (the makers of Lugazi Sugar) and Kinyara Sugar Works, the second and third largest producers of sugar in Uganda, respectively. “Uganda now produces enough sugar for its own direct consumption and it is hoped that in future only industrial sugar and sugar for re-export will need to be imported in the country,” the USMA report notes.
The producers, however, have not thought through that strikes by workers could paralyse operations, considering that at the start of August, nearly three-quarters of the 800 workers at Kinyara Sugar Factory in Masindi went on strike, leaving the company with a shortfall of about 4,000 metric tonnes per day.
Such strikes are not entirely new to the sector, which explains the optimism by producers.
In fact, by 2020, the projection is that production will stand at 641,000 metric tonnes compared to consumption of 547,000 metric tonnes. Much of this production is based on increased capacity of factories and new sugar prospects in places like Amuru.
By the end of 2014, Uganda’s sugar producers had invested $200m (about Shs711b) into expansion and increased production, lowering production inefficiencies includuing cutting on power cost by using ethanol instead of imported diesel.
However, on the other hand, Kenya’s sugar market continues to struggle and the threat of imports from Uganda as criticised “would kill industries in the country”.
The sugar impasse, as it looks now, is still ongoing as it remains a decision driven more by politics than the economics of integration and free movements of goods within the region.
In 2012 Kenya accused Uganda and Tanzania of exporting 26,000 metric tonnes of sugar in the country.
But the Kenya Sugar Board (KSB) and Kenya Revenue Authority (KRA) have been sending mixed signals to the Ugandan sugar exporters.
In 2013, KSB lifted the ban on exports from Kakira Sugar Works and Lugazi Sugar Works, issuing the two with sugar permits, notwithstanding that a month later, KRA blocked sugar exports into Kenya claiming it was “being imported, repackaged and re-exported.”
In 2011, Uganda produced 266,910 metric tonnes of sugar, down from 297,000 metric tonnes in 2010 creating a sugar shortage in the country. Prices then shot up with a kilogramme of the commodity averaging at Shs10,000.
However, in 2012, production rebounded to 297,732 metric tonnes, but the market continued to be starved as consumption exceeded production.
During this time, government relaxed sugar import rules allowing in more than 72,829 metric tonnes some of which was re-exported.
It is around this time that Kenya accused Uganda of dumping imported and repackaged sugar in the country.
Uganda exported sugar worth 54,082 metric tonnes earning $81m (about Shs287b) in 2011, $122m (about Shs433b) in 2012 and $84m (about Shs298b) in 2013. Most of this sugar was exported to DR Congo and South Sudan.
Available data indicates Uganda is for a third year in row expected to have a surplus with projection indicating that the country will produce 508,500 metric tonnes against projected consumption of around 360,000 metric tonnes, meaning that there will be 148,500 metric tonnes surplus, according to Mr Jim Mwine Kabeho, the Uganda Sugar Manufacturers Association chairman.