Manufacturers across Kenya are up in arms over the Price Control (Essential Goods) (Amendment) Bill, 2024. This Bill, introduced by Senator Tabitha Mutinda, aims to prevent essential goods and services from becoming unaffordable. However, the proposed legislation has sparked debate, especially regarding its potential impact on the economy and existing legal frameworks.

The Bill seeks to amend the Price Control (Essential Goods) Act, 2011, to regulate the prices of essential commodities to secure their availability at reasonable prices for all Kenyans, with a special focus on low-income earners. Contrary to the Act, the Bill sets out a list of essential commodities, including maize, maize flour, wheat, wheat flour, rice, cooking fat, sugar, and prescribed pharmaceutical drugs. 

Additionally, it empowers the cabinet secretary for the National Treasury to declare goods as essential, set price limits, and decide which groups of people these price controls apply to. The Bill also proposes the creation of a Price Control Unit, which would be tasked with enforcing these regulations to ensure fair pricing of essential items. Worth noting is that the Bill provides for financial and tax incentives to be given to manufacturers, farmers, and retailers of these goods.

While they may be introduced with the best intentions to improve social outcomes, price controls present several risks, including:

1. Overlapping mandates and resource allocation

The Bill proposes a new Price Control Unit to oversee pricing, yet Kenya already has agencies, such as the Competition Authority of Kenya (CAK), mandated to regulate market practices under the Competition Act. Creating a separate unit could lead to a duplication of efforts and unnecessary government spending. With Kenya facing budgetary constraints and focusing on austerity measures, these resources could be better allocated to broader economic development programmes rather than duplicating functions already being handled effectively by existing bodies.

2. Discrimination in price application

The Bill gives the National Treasury’s cabinet secretary the power to decide who benefits from minimum and maximum prices, but it does not provide a clear framework for how these decisions will be made. This lack of criteria raises concerns about potential discrimination, as limiting price controls to certain groups excludes others from accessing affordable goods. 

3. Impact on market competition and trade

Price controls can stifle competition by making it difficult for new businesses to enter the market. When the government sets prices, manufacturers might not be able to price their goods based on production costs, discouraging innovation and reducing overall supply. This could also affect Kenya’s international trade relationships, as price-controlled goods may not align with global market prices, impacting the country’s ability to compete in regional and international markets. This disconnect could undermine Kenya’s participation in trade agreements like the East African Community (EAC), affecting both imports and exports.

4. Reduced incentive for quality and production

When prices are capped, manufacturers may face reduced profit margins, especially if production costs rise. This could force businesses to cut corners, reduce the quality of goods, or, in more extreme cases, halt production altogether, leading to shortages. Such shortages often lead to the rise of black markets, where essential goods are sold at higher, uncontrolled prices. This undermines the very goal of the Bill, which is to ensure access to affordable goods.

5. Conflict with existing competition laws

The proposed Bill may conflict with the Competition Act, which seeks to promote healthy competition and prevent monopolistic practices in Kenya’s markets. Price controls artificially manipulate the market by setting predetermined prices, which could interfere with the natural competition dynamics the Act is designed to protect. By disrupting free market mechanisms, the Bill risks violating established legal frameworks meant to safeguard consumer welfare and market fairness.

In conclusion, price controls are widespread across emerging markets and developing economies. Although they are sometimes used as a tool for social policy, price controls run the risk of unintended consequences. While the Price Control (Essential Goods) (Amendment) Bill, 2024, seeks to protect consumers from rising prices, it presents significant risks. Overlapping mandates, potential discrimination, reduced market competition, compromised product quality, and conflicts with existing laws all highlight the need for a more balanced approach. 

Rather than imposing price controls to protect consumers, the government could consider offering tax incentives to the manufacturers of these essential goods.  Alternatively, replacing price controls with expanded and better-targeted social safety nets and a sound regulatory environment can be pro-poor and pro-growth.