Kenya's sugar imports spark diplomatic rift

Bags of sugar imported from Brazil. EAC states have slapped duty on some Kenyan exports (FILE, Standard)

NAIROBI, KENYA: The sugar that was brought into the country last year, and which has since kicked off a storm, now threatens to isolate Kenya from some of her key African trading partners.

Kenya is at odds with her peers in the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa).

First, the imported sweetener might have found its way into the neighbouring countries in form of manufactured products, inflaming a trade war that has threatened to fracture the EAC as Uganda and Tanzania accuse Kenyan manufacturers of foul play.

Manufacturers - either by complicity or in error - used the cheap sugar on their products giving their cakes, sweets and ice cream a pricing edge over their competitors.

Despite the countrywide sweep by State agencies, the East African partners are unconvinced and have insisted on testing the sugar to ascertain its source before talks can commence.

“The matter is being handled by the Council and we have officials from Uganda who are currently carrying out inspections as we await their results,” said a source at the EAC Affairs ministry who was not authorised to speak to the press.

Duty-free

There are also reports that Kenya might have brought in sugar from outside the 19-member Comesa, which should have attracted a levy of 25 per cent. To protect its local producers, Kenya in 2002 negotiated for only 350,000 tonnes of sugar to be imported from Comesa duty-free.

The difference, which attracts 100 per cent duty according to an agreement Kenya struck with Comesa, should also come from the trading bloc.

However, during this period that the Government allowed for duty-free import of the commodity, all the sugar seems to have come from a non-Comesa country, Brazil, inflaming sugar-exporting Comesa members such as Mauritius.

The value of imports from Brazil rose more than six-fold to Sh27.8 billion in 2017, from Sh4.3 billion imported in 2016. 

“The increase in import expenditure from Brazil was on account of a substantial increase in sugar imports,” said the Kenya National Bureau of Statistics (KNBS).

“Kenya should have told other Comesa countries before passing a law to import sugar from the rest of the world because failure to do this caused challenges and we had to step in as the Secretariat to explain their action. The way this law was communicated was not effective,” Francis Mangeni, director in charge of Trade and Customs at Comesa Secretariat, told a weekly publication.

Tanzania has since said it had ended the trade row with Kenya, according to a statement from the Ministry of Trade.

Rogue importers took advantage of the subsidy programme in which the  National Treasury Cabinet Secretary Henry Rotich waived custom duty on table sugar to bring in shiploads of industrial sugar.

Contraband sugar

Officials from Uganda and Tanzania reacted angrily by slapping sweets, chocolates and ice-cream from Kenya with a 25 per cent levy, arguing that some of the confectionery might have been made using duty-free industrial sugar.

Officials from the two states said this gave Kenyan manufacturers an undue advantage over their peers in the region, with the latter’s confectionery made using industrial sugar that was charged a custom duty of 10 per cent duty under the EAC custom management law.

The issue has led to a diplomatic spat that might explain the aggressive crackdown on the so-called contraband sugar by the Government led by Interior Cabinet Secretary Fred Matiang’i.

The controversy has since sucked in some of Kenya’s big manufacturers, including Unilever and fruit juice maker Delmonte, who have found the going tough in the two countries.

Although Government officials and the Kenya Manufacturers Association insisted that local confectionery goods in question were made from industrial sugar brought in by licensed manufacturers and the importation under the 10 per cent duty remission approved by EAC’s Council of Ministers, the two countries read foul play.

State Department of Trade Principal Secretary Dr Chris Kiptoo did not respond to our text messages.

Dr Kennedy Manyala, an economist who specialises on the EAC, said the problem brings to the fore the weakness in EAC’s Common Market Protocol.

“They just have to be honest with each other,” he said, noting that the three countries suspect each other. Dr Manyala however said Tanzania was right to slap Kenyan manufacturers with 25 per cent duty.

Financial Standard has learnt that officials from Uganda and Dar, under the agreement brokered by the EAC Secretariat, are in the country for verification of the origin of the sugar.

Kenyan manufacturers said a solution is about to be reached, bringing to an end an impasse that has sucked in Delmonte.

KAM Chief Executive Phyllis Wakiaga said recently that importation of industrial sugar by local manufacturers was done under an EAC-wide remission scheme available to all manufacturers in the region.

“We are not supposed to pay duty when we sell in the region because our competitors in the region also rely on industrial sugar imported under the same remission scheme,” she said. She said Kenyan manufacturers, just as other manufacturers, paid a 10 per cent duty on industrial sugar they imported. KAM even went on to point out that only Kibos Sugar Refinery was allowed to bring in raw sugar under the zero per cent duty remission. The firm was allowed to bring in 150,000 tonnes of raw sugar by June 30, 2018.

About 115 companies are said to have imported over a million tonnes of duty-free table sugar between July and December last year. However, some of the companies have since been accused of importing, repackaging and selling non-processed sugar to consumers.

Rai Group of Companies Chairman Jaswant Rai, while appearing before a Parliamentary committee, accused Stuntwave Ltd, Grainergy (K) Ltd, The Commodity House Ltd and Hydery (P) Ltd of selling industrial sugar to consumers.

“I, for sure, know…forget one bag….not one kilo went to factory for processing,” claimed Rai, who has been at the centre of the storm.

It is not clear if the non-processed sugar also included industrial sugar. Mr Rai claimed that all of the sugar imported by the said companies in bulk were sold in Mombasa.

If the sugar was brought in as claimed, it is not clear who bought it and for what: consumption or for processing.

On average, Kenya exports about 29,000 tonnes of confectionery, mostly to the region, earning about Sh5.2 billion.

Under the East African Customs Management Act, 2004 a number of Kenyan manufacturers were allowed to import 134,000 tonnes of sugar for industrial use. Refining industrial sugar is expensive, hence the reason to allow duty-free importation of raw sugar by Kibos.

CS Rotich’s gazette notice permitted “any person” to import sugar from May 2017 to August 31, 2017. The window was extended to December 2017, with traders importing over a million tonnes of sugar valued Sh65 billion.

If true that industrial sugar was also brought in duty-free and used to manufacture sweets, ice-cream and chocolate, such products were not supposed to be sold in other EAC countries, or be slapped with a higher tariff.

“In the event that finished products from raw materials under the specific country duty remission are sold in the customs territory (EAC), such goods shall attract duties, levies and other charges provided under the EAC Common External Tariff,” reads the law.

Biggest economies

Exports of confectionery to Uganda in 2016, for which data is available, stood at Sh1.4 billion, with Tanzania at Sh1.4 billion and Rwanda Sh848 million.

Suspicion has for long characterised relations between Kenya and Tanzania, but things have worsened under President John Magufuli. An uneasy calm was achieved in November 2016 when Nairobi and Dar formed a team to iron out issues between the two biggest economies in the region.

However, little progress was made culminating in Magufuli skipping President Kenyatta’s inauguration for the second term.

However on the sidelines of the EAC summit in Kampala in February, the two seemed to have returned to the table - ordering an urgent meeting of their ministers to resolve the trade disputes.

Now, Kenya risks being isolated amidst a fall in export trade volumes.