Kenyans yet to see fruits of govt efforts to tame skyrocketing commodity prices

  • 18 Apr 2023
  • 4 Mins Read
  • 〜 by Mercy Kamau

Kenyans have decried the high cost of living as the prices of basic food commodities have gone up making it hard for them to sustain themselves.
The government on the other hand has faulted the war in Ukraine as well as climate change saying that measures are being put in place to see this resolved as soon as possible.
Further, the Covid-19 pandemic led to the sabotage of the global supply chain hence the rise in fuel prices. This in return led to the spiral effect spilling to other sectors of the economy thus pushing up the cost of living.
In the past, the government imported sugar from the rest of the world as the COMESA region where Kenya traditionally imports the commodity from was currently experiencing a shortage.
Early this year, Agriculture Principal Secretary Kello Harsama had said there was a maize shortage globally and local importers were going as far as Mozambique, Zambia and South Africa.
On maize, Kenya’s annual maize consumption stood at 52 million 90kg bags but the projected production for 2022 was estimated at 34.1 million bags.
As of February, this year, importers were purchasing a 90kg bag of maize at between Sh4,200 and Sh5,000.
Further, the PS said countries like Ethiopia, Zambia, Malawi, Tanzania and Uganda used to have surplus and ready markets but these countries had also been affected by climate change and they do not have any maize.
“South Africa is the only country with maize stocks remaining in Africa and many countries are now scrambling for commodity South Africa. We are likely to have a challenge with maize arriving in time due to availability in the market,” the PS said.
Maize importation has been a contentious topic in the country with farmers asking the government to freeze any planned shipment.
They argue that the imports will flood the market, lower maize prices and make it impossible for them to recoup the cost spent on production.
On the other hand, oil prices also play a crucial role in the global as well as our national economy. The prices of many products are often tied to oil prices either because of petroleum components or the transportation of goods. Inasmuch, as oil prices increase, inflation often rises, thus harming consumer spending power and eventually hurting gross domestic product economic growth.
Former President Uhuru Kenyatta used fuel subsidies for the same but President William Ruto is against it saying it is unsustainable in the long run.
In June last year for instance, there was the Supplementary Appropriation Bill of 2022 which provided a total of KSh88,822,649,842 for government expenditure on public services among them the fuel stabilisation fund which was allocated KSh49,292,440,866.
The subsidy cost about KSh7.65 billion per month but only reduced the cost of fuel by about KSh10.
These fuel subsidies create dependency for instance some countries like Nigeria, Ecuador, Pakistan, Iran, Zimbabwe, and Lebanon have all suffered political unrest in recent years as they tried to end fuel subsidies.
“The cost of the fuel subsidy could eventually surpass its allocation in the National Budget, thus potentially escalating public debt to unsustainable levels and disrupting the government’s plans to reduce the rate of debt accumulation,” former National Treasury CS Ukur Yatani said in a previous statement.
What are some of the measures the government is taking?
The government has to deploy measures in anticipation to stem the dollar shortage. The government introduced Government-to-Government arrangements. This happened on March 1, 2023, when the government invited bids from foreign government-owned entities for the supply of petroleum products under the G-to-G arrangement.
Kenyans are optimistic that this new arrangement will see prices of fuel products go down, however, the government is non-committal but has promised to deploy more strategies to see that there is efficiency.
In Kenya, petroleum retail prices are controlled through price capping by the Energy and Petroleum Regulatory Authority (EPRA) which is reviewed monthly.
The computation takes into consideration a cost-plus formula. The pump price is therefore a summation of the product cost, actual supply chain costs (storage and distribution), margin, levies, and taxes.
In March this year, President William Ruto assured Kenyans that his government was in the process of importing four million bags of maize. This was one of his short-term plans to ensure that there was enough food in the country. The long-term plan was the provision of fertilisers to farmers at a cheaper price.
“We are in the process of acquiring maize from foreign countries, to help people affected by drought,” the President said.
“We had asked our farmers who stored food commodities to sell them, now my Cabinet has resorted to importing food to help our people,” he added.
As the government makes its plans to revive the economy, it is also its solemn duty to fast-track these processes and ensure they are effectively implemented. It would put the government in a bad light if these strategies do not come to fruition. Kenyans will feel lied to and this might force them to go back to the streets and demonstrate as they did a few weeks ago.
Policy alternatives for the region
Central banks in the region should pursue an accommodative monetary policy stance and allow the exchange rate to depreciate while conducting foreign exchange interventions to smooth disruptive volatility. Further, they also need to relax reserve and capital conservation buffers requirements for banks to boost their daily liquidity needs.
Moreso, the central banks ought to allow commercial banks to restructure outstanding loans of borrowers facing temporary cash f low challenges and increased limits on agents and corporate wallets for digital transactions, among other measures.