17 September 2011

Kenya: Kibaki Brings Back Price Controls On Maize, Wheat

Photo: Business Daily
A consumer buying flour (file photo): A policy think tank says that the Price Control Bill is not the solution to the problems facing consumers.

President Mwai Kibaki yesterday signed into law the controversial Price Control (Essential Goods) Act, 2011 granting the Minister for Finance the power to declare any good an essential commodity and subsequently set the price at which it should be sold.

The consequence of this is that- more than 20 years after the lifting of price controls-the government will once again be dictating the prices at which essential commodities like sugar and maize flour will be sold to consumers.

The move immediately attracted the wrath of the business community who termed it 'populist' and merely meant to shore up politicians' popularity ahead of the 2012 general elections. "The Price Control Act provides for the regulation of prices of essential commodities in order to secure their availability at reasonable prices and for connected reasons," a statement issued by the Presidential Press Service said. "Under this Act the concerned Minister may from time to time, by order in the gazette, declare any goods to be essential commodities and determine the maximum prices of the commodities in consultation with industry players."

According to the Bill that was initially brought to Parliament by Mathira MP Ephraim Maina wanted the Finance Minister- regardless of any other law or provision-to have the power to set the maximum retail and wholesale prices of essential commodities. These include; maize, maize flour, wheat, wheat flour, rice, cooking fat and oil, sugar, paraffin, diesel and petrol. Fuel prices are already controlled by the Energy Regulatory Commission which sets maximum pump prices every month.

Kenya Private Sector Alliance chairman Patrick Obath said he was disappointed with the passage of the Bill into law. "We see this as a retrogressive move. We have been opposed to it all the way," Obath. "We are really sad that after 20 years of a free market economy we are rolling back the clock." Obath said the country would likely end up with empty shop shelves as retailers may opt to sell their goods elsewhere in the region. "If you put price controls here and I can sell my goods in Tanzania or Uganda, why should I sell my goods here at a low price when I can sell them elsewhere?"he said.

Obath took issue with the way the Bill is crafted particularly the vesting of powers to control powers with the Minister of Finance despite the fact that he should only do so after consultation with industry. "Industry has to be properly defined and if there is no agreement (after the consultation), what is the recourse?," Obath asked. The Consumer Federation of Kenya on the other hand welcomed the new law but said it would face challenges of implementation. "The law is very good, the challenge is implementation," Cofek chairman Stephen Mutoro said.

This however was in contradiction to what the organisation posted on its Facebook page. "(This law) will see many entrepreneurs perfect their hoarding of commodities in the manner sugar has been missing on the market," Reuters repored Cofek as saying on its Facebook page. Cofek has been outspoken as consumer prices continue to escalate with Kenya's inflation rate for the month of August coming in at 16.67 per cent. That means on average, shopping costing a consumer Sh1,000 in August 2010 now costs Sh1,160, an increase of Sh160.

Some analysts think real inflation for the lower income classes is actually much higher than that. The architect of the Bill, Ephraim Maina, when contacted, promised to call back but had not done so at the time of going to press. At the time the initial Bill was passed in Parliament, business and manufacturing sector analysts criticised it describing the proposal as 'draconian and anti-business.'

During an interview with the Voice of America then, economist Robert Shaw said, "Like most price controls it will have the absolute opposite. A price control is an artificial vice; it distorts the market. If someone is producing an item and they cannot make a return on it, then they will either not produce or they will sell it via another route where they will get a return. That results in shortages."

Copyright © 2011 The Star. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.