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Kenyan president facing tough decision on price controls

Kenyan President Mwai Kibaki is considering whether to sign a price control bill into law that would allow the government to set prices on basic items such as maize, wheat, cooking oil and petrol.

President Mwai Kibaki

President Mwai Kibaki

Kenya’s parliament approved the measure in June. Supporters argue that dramatic price increases over the past few years have hit the poor particularly hard, but critics say the bill could hurt the poor and the economy more in the long run.

In the Nairobi informal settlement of Kibera, most casual labourers earn a little more than US$3 a day. A two-kilogram bag of maize meal that an average family consumes every two days costs more than a third of that. Maize meal is used to make ugali, a staple food that is especially popular in informal settlements.

Prices for maize, cooking oil, and other basic goods have doubled, and in some cases tripled, over the past seven years.

Analysts cite the weather, the country’s poor infrastructure, corruption and post-election violence as some of the factors contributing to the increases.

“At the very worst, a family has to take a mug of porridge, a family has to take a plate or two of ugali, a family has to take sukamawiki (green vegetables). What we are saying is, that basic requirement to sustain life has to be affordable for everybody,” Nicholas Gumbo, a member of Kenya’s parliament states.

Gumbo seconded the price control bill. It allows the government to set prices for essential goods, and establishes penalties of up to five years in prison for those who purchase or sell these goods at higher prices.

Gumbo says producers and manufacturers are largely to blame for the dramatic price increases. “We do understand that they are in business to make profit. What we are up against is cartels that set up prices that are definitely beyond the reach of the common man,” he said.

Producers argue they cannot be blamed for cost increases of inputs such as fertilisers, electricity and transportation. And they fear the government will not factor in these costs when setting prices.

“Producers who find that they cannot break even under the new prices may move either into other sectors or move out of the country altogether to go and invest elsewhere,” Moses Ikiara said. Ikiara is executive director of the Kenya Institute for Public Policy Research and Analysis. He says, “That is one big risk. Of course, if the people setting the price were able to come with the optimal price, then there would not be a lot of challenges.”

If producers produce less, or stop altogether, the supply of basic commodities will decrease and hurt the poor even more, says Betty Maina, chief executive of the Kenya Manufacturers’ Association. “Hoarding could even be via the main retail chains because in the end, they would like to be able to sell,” she said. “So the idea is that if there is a scarcity in the shops where you sell these goods: it (essential goods) is not available, but if you come and visit me at the back of the shop, yes you will get it, but you will get it for twice the price.”

Ikiara says the development of a common market through the East African Community makes price controls unnecessary in Kenya.

“We would have expected a lot of food to come from surplus countries – Uganda and Tanzania in some cases – to be able to come into Kenya, and when you get now more supply, that would have been able to reduce our supply challenge,” Ikiara said. “That would have been able to bring the prices down.”

He says that as a member of the East African Community, Kenya cannot unilaterally decide to impose price controls without other countries’ consent.

Analysts and industry leaders say one long-term solution is for the government to look at why the costs of producing essential goods are so high.

Then, it can subsidise the cost of fertilisers and other agricultural inputs and lift import duties on scarce goods. They say the government also can institute policies to enable more suppliers to enter the market.

Ikiara says in the short term, he thinks targeted interventions such as food vouchers or food-for-work programmes would help the poor. – VOA

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