Effect of Common Market for Eastern and Southern Africa (COMESA) Market Policies on Competitiveness of Sugar Firms in Kenya

The Kenyan economy has for the last decade witnessed major changes in the sugar industry, following the implementation of policies leading to economic liberalization. These changes include removal of import controls, price and foreign exchange controls among many others. These changes have dictated that firms adjust their structures, designs, manufacturing processes, corporate culture and general posture, in order to remain competitive. Despite the long history and its economic significance, the sugar industry is riddled with a myriad of challenges. At the processing level, millers operate way below capacity (currently estimated at 60% of installed capacity) and run inefficient operations. This stems from overall COMESA market policies especially among member countries. The purpose of this study was to examine the effect of Common Market for Eastern and Southern Africa (COMESA) market policies on competitiveness of local sugar firms in Kenya The study was guided by the following specific objectives: to establish effect of tariffs, to examine effect of subsidies, to examine effect of tax incentives and to examine effect of quotas on competitiveness of local sugar firms in Kenya. The research has hypothesized that tariffs, quotas, tax incentives and subsidies affect the competitiveness of sugar processing firms in Kenya. The study was anchored on the Adam Smith's Theory of Absolute Advantage, Ricardian Theory of Competitive Advantage, Mercantilism Theory and Economic Liberalism Theory. This study focused on selected sugar firms mostly in the Western region of Kenya, which has 80 % of the sugar factories in Kenya and a region whose primary cash crop is sugarcane. The study adopted a causal research design to determine the relationship between COMESA market policies and competitiveness sugar processing firms in Kenya. The study findings indicated a joint causal relationship between the independent (COMESA market policies) and dependent variable (competitiveness of local sugar firms). The study results imply that COMESA market policies constraints jointly accounted for 6180% of the competitiveness of local sugar firms. This therefore means that other factors not studied in this research contribute 36.20% to the competitiveness of local sugar firms. It was also concluded that tariffs policy, subsidy policy, tax incentive policy and quota policy significantly affected competitiveness of local sugar firms in Kenya. The study recommends that tariff policy in regard to liberalization should focus on a wider variety of sugar products brought to the country. The imposed tariff policies should be used to encourage the local sugar processing firms and contribute to improvement of regional trade opportunities. There is need for the revision of subsidy policy on the subsidized sugar inputs not to distort the market, firms' sales of citnit2r sugar products and firm's marketing strategies. This will reduce the crowding out especially on the local firm's commercial demand of the sugar products and may reduce the unfair competition between private businesses and subsidized government sugar businesses in the country. Further, tax incentive policy on VAT incentive exemption or adjustment will encourage more of local sugar firms to continue operating in the country and cushion them from the adverse effects of competitive COMESA market environment in regard to the sugar sector.