Pan Paper and the role of agribusiness in rural Africa

Over the past 10 days, I have made visits to two AAC seed company investees in Uganda and Kenya. NASECO (an acronym for the Nalweyo Seed Company) is located near Hoima in Western Uganda and Western Seed Company is in the Kenyan town of Kitale, close to Mt Elgon. Visiting investees is usually an enjoyable experience: the great privilege of my work is to meet and spend time with business owners and managers who are committed to building successful businesses. I was also very happy to have been able to drive to both destinations. Travel writer and novelist Paul Theroux considers driving the least enjoyable and interesting way to see a country, but to me it is infinitely preferable to the endless hanging-around of air travel.

On the way to Kitale, I passed through the small town of Webuye, home to a long established and large business called Pan African Paper Mills, usually abbreviated to Pan Paper. By coincidence, the next day an excellent article appeared in the Daily Nation by Jaindi Kisero, urging action to be taken to save Pan Paper from closure. It came as no surprise to me that Pan Paper is once again in a state of impending closure – it seems to have been struggling for most of the last 15 years. Its problems stem from many causes, the most serious of which is the lack of plantation timber in its immediate vicinity, but which also include high transaction costs, and little protection against paper imports.

Kisero’s argument was based on the critical importance that rural-based agribusiness plays in sustaining rural communities. “If you close down Pan Paper, you hurt the lives of hundreds of thousands”. And he’s right. The social impact of closure would be enormous. My appreciation of agribusiness’s developmental role dates from my experience as the Financial Controller of Tanganyika Wattle Company in the town of Njombe in Tanzania’s southern highlands. Tanwat, as the company was fondly known, had been in operation for almost 50 years. At that time, the business had more than 2,000 employees across its four divisions – the eponymous 10,000 hectare wattle estate and factory, the 600 hectare tea estate and factory, a sawmill, timber treatment plant and 5,000 hectare pine and eucalyptus plantation, and a 2.5 MW dendrothermal (wood-fired) power station. It was a fine example of an integrated rural agribusiness.

As an investment, it is fair to say, Tanwat had not been a great financial success for its shareholder. Though profitable, overall return on capital was low. However, it is no exaggeration to say that its social impact was huge. To put this in context, Njombe was little more than a village when the business was founded in the early 1950s. Since then, it has grown into a busy town with more than 60,000 inhabitants. Njombe’s growth was not entirely due to Tanwat, but the company’s impact – specifically, the $30-40 million in wages and salaries funneled into the local economy over the best part of 50 years; the substantial value of purchases of Tanzanian goods and services; the huge contribution in direct and indirect taxes paid; the delivery of electricity to Njombe and its environs; the foreign exchange earnings over decades of operation; health services delivered through Tanwat’s hospital; and, less quantifiable but no less significant, the transferable skills developed in the workforce – construction skills, engineering knowhow, motor mechanics, office administration, accountancy and, latterly, computer literacy – is undeniable.

So this is the dilemma facing the Government of Kenya. Keep Pan Paper open, subsidise it and allow it to continue to provide livelihoods and opportunities for the town of Webuye and its rural population, or accept market forces and let it go under, with a saving to the exchequer but a big social cost.

There is no easy answer.