By Sitati Wasilwa
For the common folk and the underclass of Kenya’s populace, their lives have literally been thrown into chaos following the on-going increase in prices of some of the commodities that are largely consumed by the households. The continuous rise in the prices of such commodities is said to be as a result of a number of factors depending on which side of the political divide you associate with and how knowledgeable you are as far as understanding the Kenyan economy is concerned.
Of course most of the supporters of the current regime and the not-so-insightful individuals relate the price increases to the perceived ‘natural’ forces of demand and supply backing up their arguments with explanations of how the market is adjusting itself naturally to the prevailing economic conditions. On the other hand, the associates of the other side of the political divide and a good number of Kenyans hold the view that perhaps the upward spiral of prices is the outcome of the activities propelled by the robber barons and a systemic failure of the current administration to fulfill its promise of lowering the cost of living for the majority of the Kenyans.
As to whether both political camps are correct or not, is for you to figure out as each is in the business of justifying its rhetoric with ‘facts’ with the end being to gain political mileage. The political class is part of the economic chaos and this will be evident later on in this article. With economic insight, it cannot be disputed whatsoever that the forces of demand and supply are responsible for the current increase in prices of some of the basic commodities. The crux of the matter, however, is the exact nature of these perceived forces of demand and supply in view of the continuous rise in the prices of commodities. Are the forces truly natural as posited by one school of thought as highlighted in the previous paragraph? Or are the forces largely artificial?
With the acknowledgement that depressed rainfall levels in 2016 led to a significant decline in the total yield of maize, sugarcane, rice and wheat, economic wisdom dictates and extensively reveals that the current situation is largely a creation of the proprietors and rent-seekers of the underworld economy. These are the robber barons and the cartels that are alive in the country. In the world, the activities and operations of any society, polity or economy are under the control of the cartels and the interest groups irrespective of whether an entity cherishes and embraces the ideals of capitalism, the values of socialism or a hodge-podge of the two systems.
In his book, Naked Economics, Charles Wheelan an economist and public policy analyst likens the operations of the cartels and interest groups in an economy to the tail wagging the dog. Yes, the tail wagging the dog and not the dog wagging the tail. This illustrates just how powerful the cartels are and such is the case in Kenya. The presence and vibrancy of the cartels in the economy is a strong indication of market failure which calls for government intervention in the economy especially in the production and distribution of the basic commodities including food.
A holistic look at the Kenyan price conundrum leaves a lot to be desired in the general management of the economy and most importantly the implementation of the relevant and existing economic and/or agricultural policies. Reflecting on the maize and sugar “shortage” in the country, a number of fundamental questions and concerns need to be posed and raised at the same time: how effectively and efficiently are the existing agricultural policies being implemented? Is it possible that the political leadership in Kenya tends to ignore the advice given by government agencies as part of the mitigation measures? How efficient is the absorption of funds set aside for the food security programmes and projects? In what way do the cartels outsmart the political leadership? Or is the political leadership in Kenya a conduit for the cartels?
At the inception of the Jubilee administration in March 2013, promises were firmly made on how Kenya would be the foremost food secure country not just in the Eastern African region but the entire continent of Africa. It was at the backdrop of these promises that the idea of irrigating one million acres of arable land was mooted and conceptualized with the outcome being the Galana-Kulalu Food Security Project. Over Kshs.10 billion have been allocated to this project over the last four years but the trickle-down effect is yet to be witnessed by majority of the Kenyans. From my perspective, the below par performance of the Galana-Kulalu Food Security Project is majorly due to two main factors: there is a high possibility that the feasibility studies conducted to ascertain the viability of the Galana-Kulalu project were poorly done at the expense of gaining political capital; secondly, the funds allocated each financial year towards the financing of the project are poorly absorbed due to financial bureaucracy and corruption.
Kenya prides herself in being the most advanced economy in the Eastern Africa region but in a country where affordability of the basic commodities is a preserve of the haves illustrates just how cards are being shuffled under the table. Maize is Kenya’s staple food and any right-thinking citizen would expect that the political leadership would rise to the occasion to cushion the average Kenyan against any shortage that might be experienced. Towards the end of 2016, the National Drought Management Authority (NDMA) issued early warnings on the La Nina effects responsible for the depressed rainfall experienced in most parts of the country. The Executive and Parliament responded by stating that the necessary measures have been put in place to ensure that there is a constant supply of maize. This is hence a situation that the political leadership was well aware of not now but last year.
It is from such information from the NDMA and other agencies that the cartels began positioning themselves strategically; they hatched schemes to create an artificial shortage of maize. In fact, having known that last year’s total production of maize fell in the country from 43 million bags to around 37 million bags, the cartels were smiling all the way as opportunities to import maize were in the offing. It should be noted that Kenya has over the years been importing maize and maize flour from countries such as Uganda, Tanzania and even at one time from Malawi. Acknowledging the principle and concept of comparative advantage in trade between nations, it is comical for a country like Kenya that has a high agricultural potential to be importing a food crop like maize.
Fast forward, the ‘shortage’ of maize apparently forced the government to import maize and this came after the tax exemptions on maize and wheat imports as per the Budget Policy Statement presented by the Cabinet Secretary of The National Treasury in the National Assembly in March this year. Conflicting reports have been issued by some of the senior government officials on just who is importing the maize and the point of origin of the imported maize. Initially, reports issued by the government stated that maize was to be imported from Mexico with the importing entity solely being the government. Later on, it emerged that the maize was to be imported from South Africa by three private companies. Conflicting information and communication is a strong indicator that perhaps things are not adding up and it is from such that you can be able to detect the machinations of the cartels. As a matter of fact, the consignment of maize that has just been imported was apparently ordered late last year by the importing firms.
Turning to sugar, savage politics and economics shaped by the cartels continue to haunt this industry. At the moment, a 2 kg packet of sugar retails at approximately Kshs.400. Still there are some people who believe that the natural forces of demand and supply are fully responsible for the current shortage! The discipline of Economics, however, gives leverage to individuals to present different arguments and belong to different schools of thought hence the commonality of the phrase “on the other hand…” In August 2015, there was a heated debate around the country following the deal signed between the current administration and the Ugandan government to import sugar from Uganda. Kenya’s demand for sugar exceeds the local supply and this necessitates the importation of sugar but the supply deficit has never been chronic. How then is it possible that most of the sugar companies excluding Butali Sugar Mills and West Kenya have been closed for regular maintenance? If so, then what informs such action that is devoid of any form or kind of strategic thinking? Let’s forget about the regular maintenance stuff because it has been happening year in year out. This is the strong hand of the cartels busy at controlling the economy.
The poor performance of the sugar-milling factories seems to be more of a political issue than an economic issue. The sugar industry has been politicized resulting in vague resuscitation programmes such as the common bail-outs from the national government. The sugar industry is under the manacles of the cartels and the latter strongly dictate which sugar-milling company is to be bailed out or not.
Fundamentally, the current economic chaos that is yet to morph into an economic crisis is as a result of an inconsistent political leadership. A consistent political leadership, both at the National Assembly and the Executive, would ensure that the formulated agricultural/economic policies such as the Agricultural Sector Development Strategy and Vision 2030 are implemented as expected and would also viciously fight the cartels. Political leaders and other experts should not be talking about seeking for long-term solutions because there are existing economic blueprints whose implementation is erratic and inconsistent. The cartels in the Kenyan economy fashion the vicious circle of poverty and are sworn enemies of the ideal virtuous circle of prosperity. The tail (cartels) has successfully wagged the dog (Kenya).
The writer is an economist and consultant on research & public policy at Savic Consultants’ Centre for Economic & Public Policy Analysis (CEPPA), Nairobi.