Complete reconfiguration for sugar industry
- Advisors urge sugar price floors, removal of excise tax - Dangote to bid for two sugar plants
In the wake of privatizing state-owned sugar plants and properties, consultants hired to shape the future sugar sector in Ethiopia have urged the government to remove the existing 33 percent excise tax levied on local producers.
In a public consultation with industry players, the Ministry of Finance held on Wednesday with the UK based LMC and locally hired consultants, one of the major suggestions made by the consultants is the removal of an excise tax levied on sugar manufacturers that is said to have undermined the competitiveness of the industry as it prepares to privatize state-owned sugar crushers to both local and international investors.
While suggesting the import excise tax to remain intact, Tewodros Mekonnen (PhD), a private consultant, has aggregated that high factory prices, withholding taxes, VAT and excise taxes are making local sugar producers tremble with volatile global prices. In line with the distorted global prices, Tewodros and Michael Hing, a consultant affiliated with LMC, have suggested excise tax to be removed to help local millers while keeping taxes on imported sugar. According to Tewodros, even with sharp import taxation, imported sugar seems to be competitive in the Ethiopian market. With a 33 percent excise tax, 10 percent sur tax, five percent import duty and 15 percent VAT adding up to form 87 percent tax aggregate tax on imported sugar, it is still sold competitively in the local market, he explained. Tewodros further urged that revenue neutral taxation system should be considered to ensure stable tax revenues.
In addition to the removal of excise tax for local producers, the experts have also proposed the introduction of minimum pricing system to the industry. The minimum price ceiling, both Michael and Tewodros have indicated will help to withstand the impacts of price fluctuations from the international markets. Doing that, the experts claim, will guarantee the gross domestic production of sugar and a proper utilization of land allocated for sugarcane development.
The privatization of the sugar industry has brought up regulatory and policy matters that according to Getahun Walelign, a legal consultant, is to be addressed by a new proclamation which is in the process of being ratified. The new law constitutes the formation of the Ethiopian Sugar Board, an independent regulator, to be constituted by nine board members representing three millers, three out-growers and three private and governmental institutions. The existing Ethiopian Sugar Corporation, a regulator and owner of state-owned sugar crushers, will be reduced to an industry player and will be considered as one of the founding members of the to be Board.
The sugar Board, which is expected to operate under the patronage of the Ministry of Trade and Industry, will have the mandate to license companies and set both minimum and maximum prices of sugar and the like. It will also have an independent tribunal wing for dispute resolution.
In the meantime, the Nigeria-based Dangote Group has become one of the major contenting firms that have shown interests not only to join the Ethiopian sugar industry but to buy existing plants in the upcoming privatization. Addis Alemayehu, representing Dangote Industries in Ethiopia, told The Reporter that at least two plants are under consideration to be acquired by Dangote Group. Addis requested Brook Taye (PhD), senior advisor to the Ministry of Finance, to know the exact timing of the bid for the selling of the six stated-owned sugar plants. Brook indicated that the evaluation process and technical requirements have been settled and sugar policy and new proclamation will be finalized in the coming December. Bid documents will be made available within the first quarter of 2020 to conclude the transfer of six milling plants to private operators.
According to Brook, evaluation process has concluded with promising results, opting not to disclose financial values of the sugar plants. So far, companies from Algeria, Kenya, Mauritius, Qatar, Saudi Arabia, Turkey, the UAE and the like have expressed interest to buy the six sugar plants that have been arranged for sale.
While growing interests are charming the government, local investors have expressed concerns of likely crowding out effects due to the privatization process as it seems that heavyweight industry players are joining the race. Members of the Ethio-Sugar Manufacturing Industry SC, a local firm floating public shares and explicitly expressing interest to acquire two plants-Wonji-Showa and Methara plants, have demanded the government to consider an “affirmative action” for local companies.