* Sudan hopes to offset loss of oil to South Sudan
* Sugar firm Kenana plans expansion, double output by 2015
* Analysts sceptical about production expansion plans
By Ulf Laessing
NEAR SOFIYA, Sudan, May 22 (Reuters) - In a hangar-shaped factory hall in central Sudan a dozen workers rush to pack refined white sugar gushing from a funnel into paper bags to be loaded on three trucks parked outside.
Next year, the management at Kenana Sugar Company hopes the plant will be even busier as it plans to boost its output as the African country seeks to increase sugar exports.
Faced with the loss of most oil production after South Sudan seceded in 2011, Sudan has been scrambling to find new sources for state revenues and dollars to pay for imports. Developing its sugar industry is a priority as is searching for gold.
“There is plenty of land suitable for sugar cultivation and also the water is plenty,” says El Zein Mohammed Doush, head of the sugar business unit at Kenana’s main plant located 270 km (170 miles) south of the capital Khartoum.
Boosting sugar production also has political undertones. The sweetener is the most important food ingredient in a country where it is normal to put three spoonfuls in a small glass of tea or orange juice.
The price of sugar is so sensitive in the vast African country it can spark revolutions. A huge spike was one reason for street protests which led to the toppling of late President Jaafar Nimeiri in 1985.
President Omar Hassan al-Bashir has been facing for over a year small protests over a rise in food prices. Annual inflation hit 41.4 percent in April though critics say the real figure is much higher.
Thanks to a capital injection of $500 million from its main Gulf owners Saudi Arabia and Kuwait, Kenana wants to more than double its output to 1 million tonnes in 2015. Its affiliated White Nile Sugar Co eyes a production of 250,000 tonnes from next year.
That would help cover domestic demand of 1.2 million tonnes and leave room for more exports. Currently, all local plants produce between at least 600,000 and 700,000 tonnes in total annually, analysts estimate. By next year, the output could reach between 900,000 and one million tonnes.
Sudan, one of the biggest African sugar producers after Egypt and South Africa, hopes to become a global player by 2020 competing with world leaders such as Brazil.
In all the African country wants to produce 10 million tonnes by 2020 as more plants will go online by then, said Doush. Kenana alone plans two more factories, while the government has now put up for sale four state-owned plants which need modernisation.
Under a deal with Kenana’s Gulf investors, the company is allowed to export up to half of its output, which goes to African neighbours, the Gulf and Europe.
To diversify its products, Kenana also plans to more than triple the output of biofuels, a by-product of sugar production, to 200 million liters by 2015.
“Ninety percent of our ethanol goes to the European Union, France, Holland,” Ahmed Rabih, head of the ethanol business unit said.
Sudan has been in turmoil since the loss of southern oil but the economic situation is expected to improve soon after South Sudan resumes exporting crude through northern facilities.
The International Monetary Fund (IMF) has urged Sudan to use the $2 billion Khartoum expects to make from pipeline fees from South Sudan until 2015 to reform the agriculture sector to boost non-oil exports.
Unlike other Arab countries made up mostly of desert, Sudan is a prime location for food production due to its vast fertile scrubland and easy access to the River Nile water.
“Sudan has everything needed for success, the water, land, human resources,” Sheikh Ibrahim Ben Khalifah, head of the Arab regional center for Entrepreneurship and Investment Training, told a Khartoum food investment forum it co-sponsors on Monday.
But analysts say the sector has been badly managed like the rest of the country, which is widely associated with ethnic wars, corruption and coups.
The Gezira scheme, one of the world’s biggest irrigation projects built by British colonial rulers 100 years ago is a shadow of its former self.
The sugar industry, on the other hand, is in a better shape as it enjoys various subsidies and the main plants are run by Kenana, which is kept flush with Gulf money.
But Mohammed al-Jak, economics professor at the University of Khartoum, said the 2020 target of 10 million tonnes of output was unrealistic. “I think a lack of funding and infrastructure will be big obstacles for even to reach half of this goal.”
The expansion plans also come at a time of an economic downturn coupled with global excess supplies. Raw sugar benchmark futures trade about 16.80 cents per lb, less than half their peak price reached two years ago.
Harry Verhoeven, an expert on Sudanese economy at Oxford University, said Kenana was posting a profit and was one of the most sophisticated firms in Sudan but remained a long way from becoming a global player like sugar firms in Brazil and Turkey.
“Kenana has received billions in subsidies but is not there where it should be. It’s not a big player, a giant,” he said.
He said the government was undermining the sector’s efficiency by controlling the main sugar firms, shielding them from competition and pampering them with subsidies.
Analysts say the market gets distorted because the government is guaranteeing the firms a sugar price almost double their production costs, which opens the door for corruption.
Critics also say the sugar industry makes big profits while the mostly poor Sudanese benefit little from it. Kenana, which has a top-notch canteen and guest house, says it has hired 4,000 unskilled workers who get free medical care.
But with their mud-brick houses and unpaved roads, the villages neighbouring the plant look as poor as the rest of Sudan. They lack running water and families can be seen filling pots from a small lake near the road from the plant to Khartoum. (Editing by James Jukwey)