Kenya permits investors to sugar firms

The government plans to privatise Sony, Chemelil, Nzoia, Muhoroni and Miwani milling companies as part of attempts to attract capital and private skills to improve the competitiveness of the ailing firms.

"We have published the Sugar Amendment Bill 2011 so that we allow strategic investors to take up at least a 51 percent stake in the state-run sugar firms while protecting the remaining portion for farmers," Romano Kiome, the permanent secretary in the agriculture ministry, told Reuters in an interview.

"The laws technically allow the government to loosen its grip on the sugar firms and allow the private sector to play a role in their day-to-day operations and management."

Investors from Brazil, Mauritius and Turkey have shown interest in bidding for the factories, the government has said.

Critics say Kenya's sugar industry has been held back by high production costs and a lack of credit for inputs, leading to low yields and an annual national sugar deficit of more than 200,000 tonnes.

The ministry proposed last year to reserve a 30 percent stake in the sugar firms for farmers and sell 19 percent in an initial public offering, once the factories are profitable.

The sale of the firms has been delayed by a crowded political calendar as leaders scrap over the implementation of the country's constitution and next year's general election.

Other state-owned companies, including 13 major hotels and two commercial banks, are scheduled to be privatised this year.

"We hope the sell-off goes ahead soon and allows for the injection of fresh capital and expertise in the mills," Kiome said.

Kenya's 2010 sugar output dropped 4.5 percent to 523,522 tonnes due to a weather-induced cane shortage in some zones, the regulator said this year, projecting a 6 percent bounce in 2011.

East Africa's largest economy remains a sugar importer and is struggling to boost output as its consumption continues to outpace production.

In 2010, consumption was 772,731 tonnes, and the regulator projected demand would grow to 794,844 tonnes by 2012.

Kenya produced a record 548,207 tonnes of sugar thanks to better weather and improved installed capacity in 2009.

Copyright Reuters, 2011