Just heard in the news plans by the current government to restart Komenda Sugar Factory. Good. IMANI has the following advice and recommendations.
1. The idea of reviving the Komenda Sugar Factory goes back many decades. Seeing as there was some private sector interest, woefully inadequate though in the asset in 2016, which led to its predictable shut down and given the unemployment situation in the country, it is completely understandable that government would want to reactivate the project.
2. There are however some important risks the government needs to mitigate.
3. The $36m (as of 2014, but now revised to $24m) sourced for the project was hugely inadequate and led to commissioning challenges as we experienced under the NDC against sound advice by IMANI.
4. Since the early 70s several feasibility studies have been carried out. notably by the World Bank, and the expert consensus is that it will take about $90m minimum to do a good job of bringing the factory and plantation/out grower scheme up to scratch.
5. It is will be useful if government shed more light on how it plans to raise more money, otherwise as it stands now the project is under-capitalised, so government needs to start looking for more resources.
6. It will take no less than 1000 hectares of land to produce enough sugar cane to even begin to make this viable. In fact using standard yields suggest a requirement for more than 7000 hectares to meet the planned throughput of the factory.
7. This is significantly higher than the proven arable land available in the project catchment area. Given the irrigation and husbandry challenges in the area, and the significant deterioration of the water profile and soil quality over time, significant time, skills, and resources are needed to bring the agricultural potential of the area up to par.
8. Even in the best of time, sugar cane rarely take less than a year to be ready for harvest. Without a significant ramp-up in efforts, it is unlikely that Komenda or Asutuare can ever produce enough sugar cane to feed the plant.
9. There has to be a contingency plan involving either the import of raw sugar for refining, since sourcing of sugar cane from Latin America may prove expensive due to shipping and logistics costs.
10. But if that were ever to be required, the storage implications need to be assessed well in advance.
11. At current sugar prices, the gross sales projections of $20 million a year (as of 2014) were over-optimistic. It did seem the investors were justifying the under-capitalisation of the business by inflating the cash flow expectations.
12. A superior marketing plan is required to dispose of 46,000 tons of sugar per year (when plant is operating at full capacity) than has so far been produced.
13.In any case, isn’t it about time we evaluated the proper role of government in business. Has government any more interventionist role in in sugar, rice and airlines apart from regulating sensibly?
14. Has any government’s house been in order in this country first before venturing into profitable business? Even then its proper role is to provide opportunities for businesses to flourish independent of government.
15. It must create the right investment atmosphere, with corruption free transparent governance. Coupled with infrastructure that works (transport network, utilities, an education system that meets needs of industry and a working health system that ensures that workers are able to remain healthy enough to earn well and pay taxes so that the government can take care of our persons and property by providing security.
Source: Franklin Cudjoe, IMANI President/ Laudbusiness.com/Ghana