Privatisation hasn’t worked wonders with sugar sector

Dar es Salaam. Although Tanzania’s sugar industry was liberalised more than 20 years ago, it is unable to meet customers’ demand.

Sugar Board of Tanzania (SBT) figures show that the country has remained with only four sugar factories whose combined production capacity is less than annual country demand of 520,000 tonnes.

The current sugar factories with their respective years of privatisation in brackets are Kilombero Sugar Company Limited (1990s), Mtibwa Sugar Estates (1990s), TPC Limited (2000s) and Kagera Sugar Limited (2000s).

The country has a sugar deficit of 220,000 tonnes. To bridge the shortfall, the commodity has to be imported.

According to last year’s Rabobank International report, the imports cost the country some Sh211.2 billion ($132 million).

Sugar is consumed directly or used in factories to make various products like drinks, cakes and bread.

There have been some efforts to increase sugar production. Statistics from the ministry of Agriculture, Food Security and Cooperatives show that 230,000 tonnes were produced in 2002/2005. The amount later rose to 270,000 tonnes.

However, between 2005 and 2010, the annual sugar production was at an average of 251,153.5 tonnes. The demand for the commodity was 377,313.5 tonnes in 2009/2010.

“We have relied on the same sugar factories since private investors were allowed to operate,” said the chairman of Tanzania Sugarcane Growers, Dr George Mlingwa.

He said attractions had been few for investors in the sugar industry. Some of the proposed inducements for investors are subsidies to interest rates because banking lending rates of between 18 per cent and 24 per cent are beyond capacity of agricultural investors to repay.

Mr Mkumbo Wazaeli from the Small Industries Development Organisation said some studies had shown that affordable agricultural loans had an interest rate of four to seven percent, depending on the product’s market potential.

“Under these circumstances, a government policy should be established on the amount of subsidy to the interest rate. A subsidy of 50 per cent to the interest rate is recommended,” said Mr Wazaeli.

Dr Mlingwa explained that large-scale investors were major players in the sector because there were no proper policies to motivate small-scale investors in the sugar industry.

To ensure many investors develop interest in the sector, it was proposed that the ministry of Agriculture, Food Security and Cooperatives and that of Industry and Trade promote medium and small-scale sugar factories to raise commodity output.

But that has not materialised. As a result, the country spends foreign currencies on importing the product. This is bad for the country because it reduces its capacity to narrow the gap between imports and exports.

SBT director general Henry Semwaza, told the BusinessWeek: “The government is aimed at attracting more investors in the sugar industry to meet the demand — first for sugar consumed directly and then industrial.”

Despite government’s efforts to attract more investment in the sugar sector, some critics see that expansion of sugar industry requires substantial foreign investment as well as government approval for allocation of more agricultural land, which has sometimes not been the case.

“However, the government has been reluctant to introduce measures that would facilitate large-scale foreign investment, even though investment in sugar estates would contribute to rural development, particularly if it includes outgrowers’ participation,” noted the Rabobank report. Investors have identified obstacles such as the lack of title deeds, the large number of parties involved in the investment process, the lack of urgency and the absence of transparent tax structure for hindering investment in the sugar sector.

It has been established that the government had increased land rental prices fivefold, local taxes and service levies by local and district authorities also rose, besides the rising inputs to the industry.

Some of the issues raised in the Rabobank study were also noted in the World Bank Ease of Doing Business Reports, where Tanzania got a poor ranking in terms of business environment compared with Rwanda, Kenya and Uganda.

While Tanzania was ranked No. 145, Uganda was ranked the 132nd, Kenya was the 129th and Rwanda was ranked No. 32.

Tanzania strove to address the challenges causing poor ranking through starting a road map in 2009. During the year it was ranked the 126th, but, five years now the effort is yet to bear fruit and the country’s ranking has continued deteriorating to 145th in 2014.

But, Rabobank study calls on the government to establish an enabling environment and clear regulations for investment with regards to social and environmental responsibilities.

The government commitments to attract more investors in the sugar industry have started bearing fruit with the recent launch of 11,000 hectares of sugarcane plantations. A sugarcane plant will also be established on the estate.

There are other sugar projects in the pipeline like two large-scale greenfield sugar operations in Morogoro; one near Ruipa with a nucleus estate of 10,000 hectares and another in 62,000 hectares near Mkulazi for sugarcane.

It is advised that there is potential for foreign investment, but much more needs to be done to stimulate foreign investment in the sugar industry. To attract major investments, the government has to create an enabling environment and clear regulations.