The World Bank Group and the Competition Authority of Kenya (CAK) have raised fresh concerns over the government’s leasing of four state-owned sugar factories, warning that flaws in the process risk distorting the market further.
The World Bank Group and CAK reckon that the lease of Nzoia, Muhoroni, Sony and Chemelil sugar factories to private operators for 30 years from May 2025, may fail to deliver genuine market discipline if competition issues in both the leasing process and the broader market are not addressed.
This could entrench weak competition in the sector, the joint World Bank-CAK report states, subjecting consumers to even higher prices for the sweetener.
‘The GoK [government] has sought to increase private investment and market discipline through the leasing of state-owned mills, although competition concerns remain in the implementation of leasing processes, both in terms of the leasing processes themselves and the overarching market conditions under which leasing occurred,’ they said in a report.
The report argues that the government’s heavy financial support to State-owned millers over the past decade, including debt write-offs and direct grants, has severely distorted competition, shielding inefficient firms from market forces and preventing more efficient private players from expanding.
The support comprises Sh117 billion debt waiver by the State in 2023, which included loans from the Sugar Development Fund and accumulated taxes and penalties.
A debt of Sh62 billion was wiped off the books of the State-owned sugar factories in 2020 by the predecessor regime of President Uhuru Kenyatta, the report notes.
Further support has come in the form of direct cash injections, the report adds, such as a Sh150 million bonus to Mumias farmers in January 2025 and a Sh166 million non-reimbursable grant to Muhoroni in 2022 to settle arrears to farmers and suppliers.
‘Such transfers from Kenyan taxpayers to state-owned mills create an unlevel playing field between private and state-owned mills, preventing more efficient firms from expanding and putting resources to higher-value use,’ the World Bank and CAK warn.
A key structural concern is that domestic production of sugar remains significantly more expensive than imports- a gap that continues to widen. Domestic ex-factory prices in 2022 and 2023, for example, jumped more than 40 percent annually, faster than cane prices and global trends, according to the report.
‘Benefits from higher prices accrued to millers as opposed to farmers,’ the report states, adding that restrictive trade policies have prevented imports from reducing retail sugar prices.
The government in May leased Nzoia to West Kenya Sugar Company, Chemelil to Kibos Sugar and Allied Industries Ltd, Sony to Busia Sugar Industry Ltd and Muhoroni to West Valley Sugar Company Ltd.
The government argues that the leasing of the four State-owned sugar factories is meant to inject private capital and improve operational efficiencies.
CAK’s director for Competition and Consumer Protection, Amenya Omari, said the authority lacks the legal mandate to safeguard competition during major privatisation programmes – a loophole that exposes the sugar sector to risks of entrenched market dominance.
‘The greatest challenge is the lack of an enabling legal provision that enables the Competition Authority to have a bigger role in the privatisation process,’ Mr Omari said on November 24.
‘It is through competition analysis and public-interest analysis that the Authority is able to assess the potential impact of a privatisation process.’
Concerns over the process of handing over management of the sugar mills to the private sector have also been raised in Parliament.
Lawmakers in June demanded answers on the transparency and fairness of the leasing process, seeking disclosures on the beneficial owners of the winning firms, the criteria used to select them, their qualifications, evidence of public participation, and the financial terms of the 30-year deals.
Agriculture Cabinet Secretary Mutahi Kagwe said in May that the government has retained ownership of all assets tied to the four sugar factories, including land.
Mr Kagwe stated that the assets have been leased to the private firms on an annual basis at prevailing market rates, with all the proceeds channelled to the Kenya Sugar Board to finance cane development programmes and reinvest in communities surrounding the mills.
In his third State of the Nation Address on November 20, President William Ruto said the sector was ‘stabilising,’ citing a 76 percent jump in sugar output to 815,000 tonnes, a 200,000-acre expansion in area under cane, and a drop in imports.
‘To secure this progress, we have leased Nzoia, Muhoroni, Sony, and Chemelil factories to competent private sector operators,’ Dr Ruto said.