Government officials during the Lake Region Economic Bloc (LREB) meeting on privatization of sugar factories, January 19, 2018.[Photo/Ochieng Owili]Governors from the Lake Region Economic Bloc (LREB) held a meeting in Kisumu hotel on Friday over privatization of sugar factories in the region.Below is a statement by Governor Anyang' Nyong'o who was represented by his Deputy Dr Ochieng Owili."REFLECTIONS ON THE PRIVATIZATION OF THE SUGAR FACTORIESHon. Prof. P. Anyang’ Nyong’o – Governor, Kisumu County Prepared for the Meeting on Privatization of Sugar Factories 19th January 2018, Kisumu1. IntroductionI would like to offer my thoughts to fellow Governors, national and county governments as well as other stakeholders, particularly the farmers, regarding the planned privatization of the sugar factories within the Lake Region Economic Bloc (LREB).Privatization of any state corporation is a serious undertaking that requires full consideration and elaborate planning, taking into account various elements that may go wrong to undermine the privatization process or eliminate the value of the exercise altogether.In the case of the sugar factories, we have a lot to think about and do, since the Transition Authority and the Inter-Governmental Technical Committee have not applied themselves fully to this question to propose solutions, perhaps for good reason. Let me suggest to you a number of issues that should preoccupy us at the two levels of government and among the non-state actors. They are:2. Key Issues in the Privatization of Sugar Factories Some of the very basic questions we must address at this stage, include but are not limited to the following:o What will be guiding framework for the privatization process?o Who will be the key actors in that process, and what will their roles be?o How do we prepare the sugar industry for the process, to a good start rather than a false one? This includes the question of how we make the sugar factories, and indeed the industry, attractive to potential private investors. o What are the technical and socio-political elements of a proper privatization process and how do we realize those? Let us consider some of these issues, 2.1. The Conceptual Framework for Privatization This is both the logic and road map for the privatization exercise. It will make a lot of sense to embark on privatizing the sugar mills within a broad context of transfer of assets and liabilities, in land and agriculture, previously under the control of the national government to the County governments. This is in line with Schedule 4 of the constitution. It means that privatization of the sugar mills will be taking place within an established environment of constitutionalism and commitment to strengthen devolution. It should not be a piecemeal or isolated act.The principles of inclusion and public participation become automatic features of the privatization exercise once the firm foundation in the constitution and devolution is established.Let us embark on a privatization exercise with clean hands and a common understanding. 2.2. Actors in the Privatization ProcessStrictly speaking, this process is not the business of the Privatization Commission, at this stage. It is a matter between the County governments (and by extension the Council of Governors) and departments responsible for land and agriculture in the national government. The Senate must be involved, as an oversight body safeguarding the interests of Counties. Other stakeholders, primarily farmers, must also be involved, coming to the table either on their own mobilization or by facilitation of the county and national governments.At the heart of this privatization process is the question of land and transfer of assets within the transition to devolved governance. There are already constitutional guidelines, complete with institutional mandates over these issues. The Privatization Commission does not feature prominently in this design of things. Therefore, the Commission cannot drive the process at this stage. 2.3. Preparing the Sugar Industry for PrivatizationThis is what I call the ‘pre-history’ of privatization. There are at least two ways to look at the preparatory work preceding privatization.First, we need to remove all the political and social obstacles to privatization. Sugarcane farmers and communities in the sugar belt need to be educated about the potential benefits of privatization to them, so that they support the process. Privatization must not be punctuated by grievances, suspicion and mistrust.Secondly, we need to prepare the entire industry for privatization by making it attractive to potential investors. This extends beyond the factories, delving into other constraints in the industry.At the national sugar industry stakeholders’ conference held in Kisumu on 16th and 17th November 2017, we identified key constraints in the sugar industry as follows:Weak Research and Extension Services; Limited adoption of new varieties and new technology; High cost of production; Uneconomic land sizes; Low productivity; Over-reliance on rain-fed production; Low cane supply; Poor infrastructure; Low capacity utilization; Cane poaching; Uncontrolled importation; High debt portfolio and the limitations of a single commodity industry.Most of these problems derive from the lack of regulations in the industry. The solutions we suggested at that highly successful forum, included:1. Adoption of high yield cane varieties and irrigation farming;2. Investment in extension services;3. Provision of subsidized fertilizer to the sugar cane farmers;4. Re-introduction of the Cane Development Levy to facilitate cane research, cane development and infrastructure development;5. Secure a financial facility to restructure the sugar industry debt; 6. Re-introduce zoning and eliminate weighing bridges; 7. Streamline the collection and appropriation of CESS in order to improve infrastructure in the sector; 8. Practice block farming systems; 9. Invest in product diversification from sugar milling; and10. Establish stringent regulation of sugar imports.It is critical that we address these challenges before privatization and work towards finalizing the regulations for the industry.In our villages, when a cow falls seriously sick, we are faced with two options: either take it to the market immediately or treat it to fatten it before sale. It is only the latter option that guarantees the seller a good price at the market. It should be the same for us. Let us fatten the cow before we sell it. It is possible to obtain credit financing, from institutions like the World Bank, the African Development Bank or other such types, to revamp the industry before privatization.Again, it is difficult to see the place and role of the privatization commission in fattening the cow before sale. 2.4. The Socio-Political and Technical Elements of the Privatization ProcessTechnically, we will be concerned about the valuation of assets and liabilities, shareholding arrangements and the overall policy and legal issues. Here, the Privatization Commission will be very helpful.Some of the issues already coming up, even from the technical consultative meeting held on 4th January 2018, such as the land question, cannot be addressed by the Privatization Commission alone. We will need the County governments and the Senate to get involved at this phase too. 3. Conclusion I have argued that we probably do not need to sell off the sugar factories, recognizing that it may be too late to pursue that argument, in the view of many people in this meeting.However, even if there was a communis opinio that the privatization process should go on, there is need to think deeply about it, plan for it and have it grounded in broader commitments to constitutional governance and devolution. Privatization need not be for purposes of mere ‘disposal’ of assets. The potential benefits should be discernible to industry stakeholders, and the drivers of privatization must not lose sight of those benefits expected at the end, even as the process goes on.Ladies and gentlemen, I have shared these thoughts only as a basis upon which we should have deeper reflections and more exhaustive consideration of issues, before the final leap to privatize the sugar factories. HON. PROF. P. ANYANG’ NYONG’OGOVERNOR – KISUMU COUNTY"

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