11 February 2010

Kenya: Maize Scandal - Gravy Train for Greedy Few

Nairobi — It was a gravy train that turned influence peddlers into overnight millionaires. And the National Cereals and Produce Board, according to Mr Philip Kinisu, PricewaterhouseCoopers' lead investigator, was the heart and soul of the scandalous scheme.

In his presentation on Thursday, Mr Kinisu told of how a maize subsidy scheme started with noble intentions was hijacked by buccaneers and a tiny power-broking elite that colluded with their friends in high places to make a killing.

It was the perfect environment for what economists call 'arbitrage': once you got an allocation letter from a high office, you sold the piece of paper to a miller in the secondary market at a handsome profit.

According to the PWC report, the prevailing price for allocations in the secondary market varied widely. There were instances when briefcase traders earned as much as Sh500 for every 90-kilogramme bag of maize. In total, the government spent Sh2 billion to import subsidised maize, but, according to Mr Kinisu, the scheme was badly designed, leaving huge loopholes to be exploited by briefcase traders.

For instance, there was no formal list of millers. And, there was no criteria for ensuring that recipients passed on the subsidy benefits to the consumer. Everyone who felt he had power wrote letters to the CEO of the National Cereals and Produce Board to request maize allocations for their friends and business partners.

Ministers, permanent secretaries, top government officials and MPs all joined the gravy train. During the second part of the presentation on Thursday, a director of PWC, Mr Martin Whitehead, told of how, despite the fact that traders were expressly prohibited from purchasing the subsidised maize, this category hogged a massive 27 per cent of the business.

And, despite the fact that thousands of bags of maize were being poured into the market, the PWC report shows that consumer prices kept rising.

With most of the maize ending up in the hands of a handful of players -- primarily Mombasa Maize Millers Ltd, but also Buzeki Enterprises Ltd, Pembe Flour Mills Ltd, Kitale Industries Ltd and Eldoret Grains Ltd -- the business was captured by a tiny cartel that dictated the terms.

Clearly, the millers were now in a position where they could orchestrate shortages and keep prices at artificially high levels. According to evidence in the PWC report, Mombasa Maize Millers hogged 25 per cent of the subsidised maize business. (MMM Ltd, according to the PWC, is also associated with Kitale Industries Ltd, which captured four per cent of the business).

It has also emerged from the report that, by the time the lucrative business ended, the political clout of the tiny elite that made millions out of the business at the Ministry of Agriculture had increased.

Former Fafi MP Bare Shill, mentioned as one of the traders who received large allocations of maize, was appointed by Agriculture minister William Ruto as a director of the National Cereals and Produce Board. Also appointed to the board by the minister was a director of Mombasa Maize Millers, Mr Mohammed Islam. With regard to procurement, the presentation by the PWC was, in a sense, anti-climactic.

Mr Kinisu said that, contrary to the "version" of the report that had circulated, a contract for 18,000 tonnes of maize issued to a South African company, Afgri Ltd, was varied by a Cabinet decision communicated by Public Service head Francis Muthaura.

Mr Kinisu said that, subsequent to the publication of the report, the PWC had been presented with documentation that contradicted their earlier findings that the variation of the contract had been unilaterally effected by an official in the Office of the Prime Minister, Mr Caroli Omondi. PricewaterhouseCoopers was paid Sh25 million for compiling the report.

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