It gives a political economy analysis of the sugar sector in Kenya, which has been pervaded by many problems, including corruption and poor governance.

1. POLITICAL ECONOMY ANALYSIS OF
THE SUGAR SECTOR IN KENYA
Research by Charles Wafula
14TH AUGUST, 2021

2. Outline of the Presentation
 Evolution of Sugar Sector in Kenya
 Post-independence Context of Sugar Sector in Kenya
 Sugar Sector Investments in Kenya (1963 – 2021)
 History of Reforms in the Sugar Sector
 Assessment of the Political Economy of the Sugar Sector
 Where do we go from here?
 Uganda’s Case
 Sign-out

3. Evolution of Sugar Sector in Kenya
 Sugar was introduced in Kenya at Kibos in 1902 by Indian
settlers who used it to manufacture jaggery (Sukari Nguru).
 Before independence, the sugar industry in Kenya was
dominated by private entrepreneurs.
 Large-scale production and processing started with the
establishment of Miwani Sugar Mills in 1922, and expanded
with the addition of Associated Sugar Mills at Ramisi in 1927.
 After independence, the Kenya Government started playing a
central role in the ownership and management of the sugar
industry

4. Post-independence Context of Sugarcane
Sector (1)
 Sessional Paper No.10 on Africa Socialism and its
Application to Planning in Kenya (1965) set the foundation for
government investments (or the lack, thereof) in different parts
of the country
 Fashioned the government as the main actor in the
developmentalist state that would spearhead the africanization
of the economy.
 Divided up the country into a hierarchy of six agro-ecological
zones.
 AEZs are land units defined on the basis of combinations of
soil, landform and climatic characteristics.

5. Post-independence Context of Sugarcane
Sector (2)
 Zone 1 was the former White Highlands, where tea and coffee,
the country’s main export crops, were grown. This was the
“highest potential area”. Mainly covered Central Kenya and
parts of central Rift Valley.
 Zone 6, the arid country of the north where “nothing” grew, was
the area with the lowest potential in terms of agriculture, but
with high potential in livestock.
 Western Kenya was classified as Zone 2, and that was one
of the basis for the government’s investment in Sugar as one of
the main cash crops, to spur the region’s economic growth.

6. Sugar Sector Investments in Kenya, 1963 – 2021
(1)
Factory Name Ownership Year of
Establishment
Muhoroni GoK 1966
Chemelil GoK 1968
Mumias GoK (Under
receivership
now)
1973
Nzoia GoK 1978
South Nyanza (SONY) GoK 1979

7. Sugar Sector Investments in Kenya, 1963 – 2021
(2)
Factory Name Ownership Year of Establishment
West Kenya Rai Family 1981
Soin Karthigairaj Santhanam 2006
Kibos Sukwinder Singh 2007
Busia Sugar Company Ali Ahmed Taib 2008
Kisii Sugar Kanoria Group 2009
Butali Karthigairaj Santhanam 2011
Transmara Alteo Group (Mauritius) 2011
Sukari Rai Family 2012
Kwale International Sugar Co. Omnicane (Mauritius) +
Pabari Investments (Kenya)
2015

8. History of Reforms in the Sugar Sector (1)
 Policies on sugar production from the early 1900s up to
independence in 1963 were based on colonial law, which
dictated that only Asians were allowed to grow sugar.
 The policy reforms of the Swynerton Plan (1955) which allowed
Africans to grow certain cash crops did not affect sugar
 The first regulatory agency in the sector, Kenya Sugar Authority
(KSA) was established in 1973.
 The DDFRD Plans of Western and Nyanza districts articulated
various policies that the government intended to implement in
the sugar sector

9. History of Reforms in the Sugar Sector (2)
 Greater liberalization of sugar importation in the early 2000s changed
the domestic dynamics and management of contraband sugar.
 Kenya Sugar Board (2010) The Kenya Sugar Industry Value Chain
Analysis: Analysis of the Production and Marketing Costs for
Sugarcane and Sugar Related Products.
 Kenya Anti-Corruption Commission (2010) Review of the Policy,
Legal and Regulatory Framework for the Sugar Sub-Sector in Kenya.
A Case Study of Governance Controversies Affecting the Sub-Sector.
Nairobi, Republic of Kenya.
 Kenya National Assembly (2015) Parliamentary Report of the
Departmental Committee on Agriculture, Livestock and Co-
Operatives on the Crisis Facing the sugar industry in Kenya. Kenya
National Assembly, Eleventh Parliament (3rd Session-2015), Nairobi.

10. History of Reforms in the Sugar Sector (3)
 Government of Kenya (2018) The Crops (Sugar) (General)
Regulations, 2018. Government Printer, Nairobi.
 Sugar Amendment Bill (2019) – Still stuck in the National Assembly
since 2019, and has been overtaken by time since a number of the
proposals contained in it have been changed significantly
 Ministry of Agriculture, Livestock, Fisheries and Irrigation (2019),
Agricultural Transformation and Growth Strategy (ASTGS) 2019-
2029. Republic of Kenya
 In 2020, HE Uhuru Kenyatta appointed a Taskforce to conduct an
extensive analysis of what ails the sugar industry and provide
recommendations on how the government can effectively revive the
sector.

11. Key Recommendations of the Presidential
Taskforce Report on the Sugar Sector (2020)
 Privatization of the 5 state owned sugar mills.
 Enactment of the Sugar Act to repeal the Sugar Act (2001)
 Reintroduction of Sugar Development Levy (4%).
 Gazettement of the Sugar Sector Regulations (especially
Import Rules)
 Amendment of the AFA Act and Crops Act to align with the
2010 Constitution
 Review of Taxation Regime in the Sector to boost investor
confidence
 Compliance with the COMESA Regulations, which have been
adjusted variously to give Kenya’s sugar industry a lifeline.

12. What is Political Economic Analysis?
‘Political economy analysis is concerned
with the interaction of political and
economic processes in a society: the
distribution of power and wealth between
different groups and individuals, and the
processes that create, sustain and
transform these relationships over time.’ -

13. Levels of Political Economic Analysis
Level Definition
Macro-level
country analysis
To enhance general sensitivity to country
context and understanding of the broad political-economy
environment.
Sector-level
analysis
To identify specific barriers and opportunities within
particular sectors
Problem-
driven/Issue-
level analysis
Geared to understanding and resolving a particular
problem at the project level, or in relation to specific policy
issue e.g. growth or public financial management reform.

14. Political Economy Analysis Frameworks –
Macro level
Framework Source Details
Drivers of
Change
DFID The key question addressed by DoC is how policy and institutional
reforms
that benefit poor people emerge and endure, or why in many cases they
are
blocked. The aim is to identify what factors (the drivers of change) will
create
incentives for change over the short, medium and long-term. The
approach considers the dynamic interaction between FOUR sets of
factors: Structures, Institutions, Agents and Incentives
Strategic
Governance
and
Corruption
Analysis
(SGACA)
Netherlands’
Ministry of
Foreign
Affairs.
This encourages a deeper understanding of local country context,
capturing some of the more intangible and informal processes that affect
local governance and corruption.
Power
Analysis
SIDA A multidisciplinary approach that explores the relationship between
democracy, poverty reduction and informal political processes.

15. Political Economy Analysis – Sector &
Issue Level
 Who are the key players (state and non-state actors)?
 What are the key areas or issues within the sector that we want to focus
on?
 Which groups have the capacity to act and make their voices heard? What
issues are the groups organising around (e.g. gender equality)?
 What are the power dynamics among these players?
 How do gender norms reinforce power relations?
 What are their networks and interests?
 Who are the reformists and anti-reformists and what are their motivations?
 What are the key formal and informal institutions influencing their
behaviour?
 How do decisions-making processes actually work?
 Are we being realistic about assumptions and objectives?
 What are possible entry points and the key political risks?

16. Political Economy Analysis – Macro Level
(1)
 Sugar prices have a large impact on the welfare of Kenyan
households.
 The KIHBS (2016) found that 89% of households in Kenya
purchase sugar more than any other good
 For a 20 percent decrease in sugar prices, poor households
would experience gains equivalent to 1 percent of income, with a
decline of poverty of 1.5 percent. It is the poor who have the
most to gain here:
 The average ex-factory price of sugar in Kenya is about US$800
per tonne, which compares poorly with world market price of
US$280 per tonne. This means that Kenyan consumers pay too

17. Political Economy Analysis – Macro Level
(2)
 Kenya is a land-poor country. Only 1/3 of the land is arable. So,
with such a limitation, should all the space we dedicate to
sugarcane farming justifiable?
 If the land under sugarcane could be made as productive as
other sectors like tea, it would generate approx. $1.3 billion (
Sh.130 billion) annually, compared to US$ 180 million (KSh. 1.8
billion) worth of sugar currently.
 By misallocating resources in production of sugar, Western
Kenya is losing approx. KSh 100 billion worth of agricultural
productivity.

18. Political Economy Analysis – Macro Level
(3)
 Sugarcane production in Kenya declined by 41.2 per cent from
639.7 thousand tonnes in 2016 to 376.1 thousand tonnes in
2017
 Area under cane increased by 24% from 159,288 hectares in
2010 to 197,438 hectares in 2019.
 In 2019, production stood at 440,935 tonnes against a
consumption of 1,038,717 tonnes, resulting into a 58% deficit.
 Kenya is now a net importer of sugar despite its huge potential

19. Political Economy Analysis – Macro Level
(4)
 The average annual household expenditure on sugar of KSH
1,084 per adult per annum.
 To put this into context, the annual per adult equivalent poverty
lines for rural and urban areas at the time were KSH 18,746
and KSH 34,954, respectively (2019, World Bank)
 So the average household’s sugar expenditure is roughly 3
percent of the urban poverty line and 6 percent of the rural
poverty line. The same level of consumption at current retail
prices would cost approximately KSH 2,147.

20. Political Economy Analysis – Macro Level
(5)
 Up to 350,000 small-scale Kenyan farmers are directly engaged
in & affected by sugar sector. A further 7m are indirectly affected
 Our sugar consumption is at over 1million metric tonnes
annually. We produce between 450,000 – 600,000 metric tonnes
annually. We import between 350,000 – 400,000 metric tonnes
annually. There are two gaps here: Local production and import
bridging.
 56 companies are registered as sugar importers (2020) and the
CS Agriculture has far-reaching powers in issuing/cancelling
licences
 Western Kenya invests in sugarcane varieties that take longer
(18-24 months) to yield compared to the varieties planted in the

21. Status on Recommendation re’
Privatization
 In August 2020, GoK put out an international EoI for longterm
leases on the five state-owned Mills: Chemelil Sugar Company,
Muhoroni Sugar Company (in receivership) Miwani Sugar
Company (in receivership), Nzoia Sugar Company and Sony
Sugar Company Limited.
 These five mills owe the Kenya Sugar Directorate and KRA a
total of KSh 86B+.
 The govt’s strategy is to clean their balance sheets and privatize
them.
 There are three court cases which have stalled progress in the
privatization venture

22. Key Proposals re’ Privatisation by GoK
 The overarching aim is to boost value addition, increase farmers’
incomes and improve competitiveness and service delivery in the
sugar Sector
 The privatisation model is on long-term leases of at least 20 years
under Right of Use (ROU) arrangement
 The Lessees will be expected to re-develop and operate the
factory to meet the government’s objective of higher farmers’
income and increased profitability through the production of
ethanol and generation of power
 The focus for the Lessees is on sugar as the main product and
co-production of ethanol, co-generation of power and value-added
products such as industrial sugar, pharma sugar and sugar cubes.
 Re-enact the Sugar Act to tighten sugar importation licencing
protocols

23. Nexus between COMESA FTA & 254’s Sugar
Sector
 Launched on October 31, 2000 by members of COMESA.
 GoK applied for protection of her sugar sector by way of a
safeguard, under Article 61 of the COMESA Treaty, so that sugar
exports from the common market to Kenya are subject to
customs duties.
 The safeguard was implemented in March 2002 for an initial
period of 12 months and was subsequently renewed by the
Council of Ministers.
 The safeguards finally expired in February 2021, after being
extended 5 times.
 Comesa Council of Ministers granted Kenya a FINAL two-year
extension of the sugar safeguard beginning March 2021 to

24. Political Economy Analysis – Sector & Issue
Level (1)
 Inability of the Kenya Sugar Directorate to enforce the tonnage price
of sugarcane to be paid by millers to cane farmers e.g. the 2017
case of Sony Sugar.
 Obsolete milling machine
 Tax arrears to KRA
 Salary arrears to employees
 Under-utilization of the nucleus sections of the government millers
 Soaring electricity bills
 Conflict between private millers and farmers who oppose ZONING,
while public millers hang onto it as their lifeline. How do we situate
this relative to the fact that Kenya is a free market? (Hon. Martha
Koome’s ruling in 2010)

25. Political Economy Analysis – Sector & Issue
Level (2)
 Production costs determine whether the sugar industry can
compete with duty free and quota free imports from the
COMESA Free Trade Area
 Current production costs – USD 750 - 800 per metric tonne
 Kenya’s production costs at about 36 per cent higher than
import prices from the COMESA exporters.
 High inefficiencies in the sugar value-chain
 Emerging shift of consumer preferences, towards healthier
diets, especially in advanced countries. This means there’s
potential of dumping sugar in LDCs and LMICs like Kenya.

26. Political Economy Analysis – Sector & Issue
Level (3)
 The price per ton is Kshs 85,260 compared to the Cost
Insurance Freight (CIF) for imported sugar which stands at Ksh
60, 117. This is at wholesale level. When this reality is
cascaded downwards to the retail level, the cost of 1Kg of
sugar rises much more.
 Sugar farming is a powerful driver of local politics across the
sugar belt (western flank). What does this mean with proposals
to shift major government investments in sugar sector to the
coastal strip?

27. Political Economy Analysis – Sector & Issue
Level (4)
 Removal of Sugar Levy Fund which meant that the farmers and
millers doesn’t get enough support
 Return the sugar into a food crop, meaning that the cost will be
VAT-exempt
 The production costs of sugar have increased, on average,
from about US$676 per tonne in 2014 to US$1007 per tonne in
2018. This compares poorly with production costs of USD 350
per tonne in Malawi and USD 400 per tonne in Zambia.
 Malign practices by Wholesale and Retail actors
 Lack of extension services to support quality farming practices
by farmers

28. Political Economy Analysis – Sector & Issue
Level (5)
 If we go for land consolidation, what will that mean for the
350,000 small scale sugarcane farmers, in view of private
property rights?
 The sugar industry supports the livelihoods of about six million
Kenyans directly or indirectly, contributing to rural household
economies
 The area under sugarcane in Kenya is about 202,000 ha
(440,000 acres). Is sugarcane farming the best way to invest in
this limited resource?
 How do we solve the protracted challenges pervading the
sector, including low quality sugarcane varieties, poor
agronomic management, high cost of inputs practices, delayed

29. Political Economy Analysis – Sector & Issue
Level (5)
 Land consolidation to limit subdivision has deep political
implications, considering the emotive nature of land-related
debates in Kenya, and the constitutional imperative of the right
to ownership of private property
 Introduction of irrigation schemes also has potential of
introducing resource wars related to land acquisition to set-up
dams, land compensation and adoption of new technologies for
communities addicted to rain-fed agriculture.
 Will the government still adequately safeguard the interests of
small scale farmers after privatisation? Do we have any
example of successful privatization of any agricultural sector in
Kenya?

30. Stakeholder Mapping as a factor of Political
Analysis
 Stakeholder mapping acknowledges that political and economic
processes in a given sector are shaped by specific actors, and
also end up affecting different actors differently.
 Stakeholder mapping considers two key metrics thus: Level of
INFLUENCE and level of IMPACT of given actors, to the political
and economic processes.
 Different actors are treated differently, depending on the clout
they command.
 The sugar sector in Kenya has a large network of stakeholders,
whose interactions are linear in some cases, and intractable in
other cases

31. Key Stakeholders in the Sugar Sector in
Kenya
 Government of Kenya (through Treasury and Ministry of Agriculture). The
Ministry of Agriculture also has the Sugar Directorate, Sugar Research
Institute and Sugarcane Pricing Committee.
 National Federation of Sugarcane Farmers
 Kenya Sugarcane Growers Association
 Kenya Sugar Millers Association (KESMA)
 Kenya Union of Sugar Plantation and Allied Workers (KUSPAW)
 Consumers Federation of Kenya (COFEK)
 Kenya Association of Manufacturers (KAM)
 Kenya Revenue Authority (KRA)
 Outgrower Institutions
 Sugar Arbitration Tribunal
 Wholesale and Retail Chains

32. Stakeholder Analysis using 4R Tool

33. Stakeholder Analysis – Influence & Impact
Matrix
• Periphery
of
Periphery
• Centre of
Periphery
• Periphery
of Centre
• Centre of
Centre
High
Influence
and High
Impact
High
Influence
but Low
Impact
Low
Influence
and Low
Impact
Low
Influence
but High
Impact

34. Treatment of Stakeholders according to their
Impact and Influence

35. Case Study: Quick Facts on Uganda’s Sugar
Surplus
 Uganda has 11 sugar mills producing 510,000 tonnes and the
consumption is 360,000 tonnes per annum. The surplus is
sufficient for export.
 Uganda’s biggest sugar producer remains Kakira Sugar Works
with an annual production of 180,000 tonnes while Kinyara
Sugar Works produces 120,000 tonnes.
 Sugar Corporation of Uganda Limited produces about 100,000
tonnes.
 The surplus, which has now grown to 160,000 tonnes per
annum, is exported within East Africa, Comesa region and DR
Congo.

36. Finally…