Only time can tell whether gov’t efforts to tame biting cost of living and inflation will bear fruits

  • 10 Mar 2023
  • 2 Mins Read
  • 〜 by Anne Ndungu

The cost of living in Kenya has escalated in the past few years due to a combination of factors such as the Covid-19 pandemic, changing weather patterns, drought and increase in the price of fertiliser and other agricultural inputs. Annual inflation in Kenya went above the upper inflation band limit set by the Central Bank of Kenya of 7.5% reaching 9.2%.

Global factors such as Russia’s invasion of Ukraine and the fact that developing markets are not expected to grow much in 2023, will in turn have an impact on emerging markets and will contribute to the increased cost of living. An analysis of food commodities in Kenya shows that the country in 2021 had a trade imbalance in food commodities importing more than it was exporting staple foods. Food importation poses a significant risk in food security as global prices tend to be volatile and access to the products imported is not always assured. 

In addition to global factors, local ones compound the problem too. Population growth, land utilisation and urbanisation and wrong use of fertiliser all exacerbate the problem. In particular, the subdivision of farms due to population growth has affected smallholder farming and the change in land use from agriculture to real estate in counties such as Kiambu, has also had an impact. Kiambu County was once home to many coffee plantations and helped feed Nairobi County but that has changed over time. 

While countries like Ethiopia have policies for the preservation of farmlands, Kenya does not. According to the World Bank, Kenya’s share of arable land is 10.2% while its forest area has decreased to 6.3% making it vulnerable to both climate changes and watershed deterioration.

Other non-agricultural factors are also at play. As at February 2023, the country had only 3.88 months of import cover which is below the desirable level set by the East African Community forex reserves policy of four months due to debt repayments. This is also another reason for the high cost of living. Kenya is currently ranked as being at risk of debt distress. 

The country’s ability to buy dollar denominated goods such as fuel has been severely checked which has led to renewed fuel shortages. Kenya now wants to nationalise fuel importation and is seeking credit facilities from local banks which will issue guarantees of payments. However, these payments will be deferred for six months. In addition, to stem the tide of rising inflation, the Cabinet Secretary for Agriculture, Mr. Mithika Linturi, has been in talks with Pakistan to barter tea for rice as the latter also faces dollar woes. Pakistan is Kenya’s largest buyer of tea and its inability to import tea is bound to severely affect the Mombasa Tea Auction and tea farmers in the country. In addition, the CS has also indicated the government’s intention to import cheap fertiliser from Tanzania.

In the meantime, the Kenya National Trading Corporation has now received Kshs. 24 billion from the Kenya Commercial Bank through a credit guarantee to import 100,000 tonnes of household goods on a duty-free basis. 

These measures are meant to bring down the cost of living but only time will tell.