Let us admit it. Our sugar industry is a bitter-sweet story. Bitter especially when you look at government-run sugar millers, which are reeling under huge debts brought about by poor management and inefficiencies. Conversely, private millers smile all the way to the bank, as they are profitable and sustainable even in the face of imports.
The recent government bailout of Chemelil Sugar to the tune of Sh300 million to pay farmers’ debt, while a welcome move, is testament to the rot in the sugarcane industry. How a sugar miller accumulates such an amount of debt from cane it has collected from farmers and processed beats logic.
It actually begs the question, where did the sugar milled from these deliveries go? As with Chemelil, other State-owned millers like Mumias, Nzoia and even Muhoroni, are basically struggling to survive. In the recent years, the government has been forced to dig deeper into its coffers to bail out Mumias and Nzoia sugar companies. The Mumias bailout, which runs into billions remains the saddest case study of state failure in running business.
That the new foreign expatriate brought in to turn the miller around had to take off after a year, refusing to even consider renewing the open contract, is telling. The problem at Mumias could actually be bigger than we are made to believe.
Nzoia, on the other hand, appears to be a basket case and not in a hurry to turn around. Are these bailouts good? Yes. Will they work? No! As usual the bailouts for the sugar industry come with no-strings attached. You would expect some tough conditions for bailouts of such magnitude. These would include delivery targets, timelines and a clear audit of how the money is spent.
Yet the bailout story often ends at the cheque presentation. Then after sometime, the miller will be back begging bowl in hand for more. This way bailouts have been reduced to an instrument to cover management failures.
Often the bailouts are used to plug revenue holes to make managers look as if they are delivering value, instead of being channelled to the right places where they will stimulate production and increase cash flow.
When money is set aside to pay farmers, let it be so. That is why the government should develop a watertight bailout package system that must be adhered to by beneficiary all the companies. It is the only way to achieve excellent results. We need these public sugar millers working, and efficiently so, to provide competition to private millers and play a stabilising role especially when it comes to pricing of sugar and cane.
Millers can’t get there by government doling cash while the managers of the factories are looking the other side. As a financier, the government should supervise how the money is spent. The writer is the Managing Editor of Business Today (www.businesstoday.co.ke). He can be reached at [email protected]