$36m can’t revive Komenda sugar factory - IMANI

Think tank, IMANI, says the government of Ghana needs a minimum of $90 million dollars to revive the Komenda sugar factory.

It doubts the $36.5 million joint venture between the governments of Ghana and Indian - meant to revive the defunct factory - would be feasible.

The Indian Government is bearing $35 million of the cost.

President John Mahama broke ground for the factory’s reconstruction on Tuesday. It was constructed by the Nkrumah administration five decades ago and collapsed in the 80s.

The 125-tonne capacity factory – which is expected to process some 1,250 sugarcanes regularly – is projected to create about 1,300 direct jobs for industrial workers and smallholder farmers, as well as spawn an additional 5,000 indirect jobs on the side.

However, an IMANI advisory on the project says lack of funding is likely to be one of five risks that could work against the factory’s revival.

“The $36m sourced for the project is completely unrealistic and will lead to commissioning challenges down the line," IMANI advised.

“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," the think tank said.

The advisory, signed by IMANI President Franklin Cudjoe wondered where and how the Ghanaian government will raise the balance to ensure the project is successfully undertaken.

“…As it stands now, the project is under-capitalised, so government needs to start looking for more resources," the advisory noted.

Also, the group says: “It will take no less than 1000 hectares of land to produce enough sugarcane 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. 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. Even in the best of time, sugarcane rarely takes 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 sugarcane to feed the plant.

“There has to be a contingency plan involving either the import of raw sugar for refining since sourcing of sugarcane from Latin America may prove expensive due to shipping and logistics costs. But if that were ever to be required, the storage implications need to be assessed well in advance,” IMANI said.

It also mentioned that: “At current sugar prices, the gross sales projections of $20 million a year are over-optimistic. Clearly the investors are justifying the under-capitalisation of the business by inflating the cash flow expectations."

“A superior marketing plan is required to dispose of 46,000 tonnes of sugar per year than has so far been produced," it advised.

IMANI’s fifth advice is that:

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? 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. 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.