Amuru is best location for sugar factory – Madhvani

By Dicta Asiimwe

Mayur Madhvani is the Managing Director of Madhvani Group which owns Kakira Sugar Works in Uganda. He spoke to Dicta Asiimwe about plans to expand to Amuru, sugar production in East Africa, and the complex sugar trade between Uganda and Kenya.

Some analysts have blamed shrinking demand for the exit of some of companies operating in Uganda, as a businessman operating in this market, what’s your view of the economy?

The results speak for themselves, Uganda is growing at a very good pace, you have increasing growth rates and our Gross Domestic Product (GDP) is on the rise. We have had some slowdowns but that is expected with an economy that is vibrant, and has links with international markets, their problems will always spill over. It is not as if countries operate in isolation. But as far as the sugar industry is concerned, we are very fortunate that the government has always been positive towards the private sector. The industry in Uganda is privatised and that has improved efficiency, we have a sugar surplus of roughly between 80, 000 and 100,000 tonnes. In Kenya, the government still has a stake in the sugar industry, in Tanzania they are under capacity; they need to increase their capacity. And we hope that the accord for free trade in the East African Community is adhered to, whereby sugar and other goods can be moved freely from country to country. That way we can sell our surplus.

We have been experiencing a lot of problems with our sugar going into Kenya. I think there is a lot of bureaucracy, too much red tape, so it eventually becomes very difficult for us to trade goods across the border, where as Kenyan goods come freely into Uganda. If you want to bring Kenyan goods into Uganda, the milk, or anything else, it comes. If you want to bring goods from Uganda into Kenya, it becomes difficult. That’s not good.

Would the Kenya market absorb the 100,000 tonnes if it was more open?

Yes. Kenya needs 300,000 tonnes of imported sugar this year. So Uganda will only supply a small amount of that. Our request is, please allow Ugandan sugar to come through and then the balance can be bought from everywhere else.  But Kenyans are buying sugar from countries that subsidise its production and that’s not fair. India for instance gives an incentive to sugar manufactures to export; I think it’s about 60 or 70 dollars per tonne and Kenya is buying sugar from there. That’s not fair.

How about the issue of price? Sugar, even in Uganda is quite expensive, Kakira has been here for a fairly long time, and the norm should be that as you grow, economies of scale improve and the prices go down. Why is this not happening?

I think that it’s not fair to say that prices are very high; you know there is a free market in Kenya, there is a free market in Uganda, we produce sugar here and we sell it. Now if we start charging too much, other sugar will start coming in from elsewhere. What we have is a reasonable price, now in order for sugar industries in Kenya and infant Ugandan industry that are to come up, they need to have a certain advantage over countries where sugar is produced cheaper, incentives are given and sugar is dumped into our countries. That’s why you think sugar is cheap. In their own countries, sugar is more expensive, but they send it out, because incentives for exporting are better.  And remember you can export your extra production. In our countries, we feel the price is always a question of demand and supply, but the Kenyan price and Ugandan price are more or less similar.

If it is a question of demand and supply, how come the price of sugar in Uganda has increased from about Sh2800 ($0.8) to shs3500 ($1) over the last three or so months-you just said there’s 100,000 tonne surplus?

The slippage of the shilling has caused all that. If you look at our sugar price in terms of dollars, it’s about the same price. But if you looked at it terms of Ugandan shillings, the price has increased. This happens because we have a lot of foreign loan repayments to make. But eventually as things get better, you will find sugar to be cheaper in Uganda.

Let’s talk about the reason sugar is not going into Kenya. They have argued that sugar that comes from Uganda is actually imported from the countries you referred too, as giving incentives and then it’s re-exported to Kenya for here.  What do you have to say about that?

I think that’s a fallacy. They (Kenya Sugar Board) have been here; they have come to see it. We have very tight controls in Uganda; there is a system under the Uganda Revenue Authority (URA), there is a system where locally manufactured sugar is bagged and stamped, by the National Bureau of Standards, so it is a fallacy, it is wrong to say that. It is actually mischievous. Sugar is produced here from our farmers, our own sugarcane and that is a fact. If they can prove that we have even imported one bag and exported it to Kenya, I would like to see it. At least from the organised sector like Kakira, Kinyara, Lugazi. I don’t know if there is someone in Kampala quietly bagging sugar, but I don’t think so.

What can governments in the EAC do to make Kenya opens up its market?

I think they must stop the licensing, the permits and allow us to just move our sugar across the border. Like an individual today, if you are Ugandan, you just cross into Kenya with your identity card and yet if you want to send Ugandan sugar to Malaba or Busia, it can just go through the border like Kenyan goods are coming here. Our trucks are detained at the border, and then they are detained on the way to Nairobi, and every time it’s the bureaucracy, you have to get a license, it takes us months, there is a lot of frustration. Nobody wants to buy Ugandan sugar because of the frustration, we are not happy.

What plans do you have to improve your efficiency in the production of sugar, so that price reduction decreases the temptation for our neighbours to look elsewhere?

Well, we want to keep our sugar prices at a reasonable level. One of the things, we have done in Kakira is that we also generate electric power; we are generating 51 megawatts, which is one of the largest cogeneration facilities in Africa that’s if we are not the largest, because I think we are bigger than South Africa. And we are going to produce ethyl alcohol, ethanol for blending in fuel; this will balance out things, so that sugar prices can remain very steady.  Because for us it is very important to keep the prices down so that people can afford sugar.

How much would the sugar from India cost if it was imported into the region?

If you bring in the sugar at about $580 per tonne, that’s about the price of our sugar now. But they receive a sugar subsidy.

Don’t manufacturers in the region benefit from the 100% tariff the East Africa Community levies?

Yes, the tariff makes the price of imported sugar more, but the problem is the subsidy they get, may be one day we will also get a subsidy.

Is Uganda the only country in the region experiencing this problem?

Yes; because Uganda is the only one with a surplus.

Is your trade with Rwanda okay?

Rwanda is very much more organised. We are sending sugar to Rwanda; the only thing is that Rwanda is trying to import cheaper sugar also, which we have requested them not to do, because we have our sugar factory there also. So we work closely with them.

Do your expansion plans to open up Amuru sugar in northern Uganda still stand given the challenge of having a limited market?

We feel that Uganda is very well located for the markets in the surrounding countries. One of the things that our Presidents, (Yoweri) Museveni, Uhuru (Kenyatta) and (Paul )Kagame, as well as Salva Kiir of South Sudan and Pierre Nkuruzinza have really tried to do is create a market for our industries. They have tried to build the market for goods produced by each country, Uganda is ideal for sugar because it has good climatic conditions. And geographically Amuru sugar, which we are going to start when we get the green light, is ideally located for northern Uganda, northern Democratic Republic of Congo (DRC) and South Sudan.