An inside job: Kenya’s struggles to stop ethanol smuggling

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Earlier this month, officials from Kenya’s Directorate of Criminal Investigations became involved in a stand-off with police at a roadblock in the Nairobi suburb of Kitengela. It is alleged that the police officers were trying to protect an impounded vehicle full of smuggled ethanol, having been bribed to ensure its safe passage to the black market.

Kenyan readers might say this is nothing new. The country has long been a paradise for ethanol bootleggers, whose activity is thought to cost the national exchequer 30 billion shillings ($49 billion) a year. But the damning allegations of police complicity, which came just days after President Kenyatta pledged a fresh crusade against corruption, must surely mark a turning point.

For years, the bootleggers have followed a simple playbook. First, they export ethanol to Tanzania, taking advantage of Kenya’s low export taxes and a vast gulf in excise duties between the two countries. Then the product is smuggled back into Kenya and ferried to illegal liquor producers, where it is refined into a litany of dangerously potent beverages.

The authorities have certainly tried to stem the flow. The KRA has introduced its own vetting procedure for ethanol traders, and required importers to carry electronic trackers. But Kenya’s porous borders still offer plenty of crossing points for the rule-breakers; Namanga, where the truck at the centre of the recent spat was impounded, is simply one of many. The smugglers’ passage is made even easier by Kenya’s notoriously corrupt police and border agencies, whose low salaries make them particularly malleable. One collaborator, quoted after the Kitengela clash, claimed he earned more than double a junior officer’s entire monthly wage in a single week.

You might expect Kenya’s legitimate producers to be fighting the smugglers, but in fact they’re heavily involved in their dealings. In 2015, six managers at the Mumias Sugar Company, a substantial ethanol producer, were found to have colluded with crooked KRA officials to sneak their product into Uganda and Tanzania. Then, in February, a raid on the monolithic African Spirits Limited yielded dozens of illegal ethanol tanks and led to the plant’s closure. The company’s owner, tycoon Humphrey Kariuki, became the subject of a police manhunt and is now facing a high-profile tax evasion case.

Enough is enough

Analysts suggest that each truck which returns full of illicit ethanol costs Kenya’s taxpayers 3 million shillings, a hugely damaging loss for a country whose public debt has reached dangerous levels. But the damage being done to the nation’s livers is even more alarming. Around four in every 100 deaths in Kenya is linked to alcohol, and many are attributable to illicit brews such as chang’aa, a concoction popular among the ultra-poor whose name literally means “kill me quick.” By failing to curb the ethanol smuggling, Kenya’s authorities are abetting the makers of these bath-tub killers and putting further pressure on a health service which is already buckling.

But what can the authorities really do? Well, they can start by closing down all the illicit production factories. In 2015, a Kenyatta-imposed crackdown brought the closure of 115 operations, yet many unlicensed plants remain open. The KRA and its fellow regulators must close these dodgy plants; what’s more, they must ensure the legal factories are equipped with accurate reporting technology. Had the Mumias factory been fitted with modern, reliable measuring devices, its 2015 scandal may not have happened.

In addition, the authorities must enforce the tax stamp system more widely and more consistently. The technology is certainly available; the KRA launched digital tax stamps, fitted with QR codes, as far back as 2016, and Nairobi was even invited to hold the global Tax Stamp Forum last year,  so strong is its reputation in this area. Yet when it comes to stopping ethanol smugglers, the government simply isn’t using the technology to its fullest potential.

Close at hand

But, to underpin all the necessary changes and improvements, Kenya requires a system to hold it all together. The drama in Kitengela illustrated the disconnect that exists within the country’s regulatory systems, the lack of a central structure which allows all the various parts to function in harmony. If the authorities need any inspiration in devising such a system, they don’t have far to look.

According to the World Bank, Kenya is one of the world’s most progressive countries on tobacco smuggling. Its campaign is built on a comprehensive system of track-and-trace, which allows regulators to follow each product along its journey from factory to consumer. Track-and-trace is a fundamental requirement of the World Health Organization’s global tobacco treaty, but Kenya is one of only a handful of countries to have introduced it. The EU is not due to roll out its own equivalent until May.

Kenya’s version of track and trace is the cornerstone of the country’s Excisable Goods Management System, which was introduced in 2013 to integrate all its previous tobacco efforts. The EGMS provides a central data-point, allowing the authorities to harmonize a range of functions including stock control, tax forecasting and intelligence-gathering. Instead of the old paper stamps, replaced because they were too easy to forge, the system incorporates electronic ones with security features such as holograms, colour shifting and even a special ink.

As well as winning praise from international observers, Kenya’s tobacco strategy has benefited the country’s coffers. In the first two years of the EGMS, tax revenues increased by 20% and legal sales as a percentage of overall transactions rose by nearly 50%. Now the system is being expanded into new areas, such as beer and cosmetics.

Which rather begs the question: why not ethanol as well? For too long, Kenya’s booze smugglers have been allowed to pour through the borders with little restriction, feeding off a complete absence of unity and co-ordination. Kenya already has a ready-made answer to the problem; now, it’s time to put it into practice.