Kenyans angered by out of touch leaders

As the year 2008 draws to a close, the problems afflicting the Kenyan people continue to mount by the day, resulting in rising anger that could be a danger to stability.

There are alarmingly frequent shortages of basic consumer commodities, such as food, sugar and fuel. Price hikes are the natural result of shortages, further putting pressure on an economy that is still recovering from the post election violence.

The worst thing about the current shortages is that they are caused by politicians, a rapacious taxation regime and lack of co-ordination within government. The commodities are stockpiled in warehouses and depots but they simply cannot get to retail outlets.

Apart from scarcity in essential commodities, Kenyans are still reeling in shock at how they were manipulated by politicians into butchering their neighbours on ethnic grounds. Today, the same politicians are in bed with each other, sometimes in the strictest sense of the term.

A recent road accident involving Prime Minister Raila Odinga’s son and a grandson of founding president Jomo Kenyatta, opened Kenyan’s eyes to the treachery of politicians. While ethnic groups are up in arms against each other, the children of big-shots were busy partying at 3am on a week day.

The mishandling of internally displaced persons (IDPs) has contributed greatly to discontent with the Kenyan government. After the post elections violence and the formation of the Grand Coalition between President Mwai Kibaki and Prime Minister Raila Odinga, it was generally assumed that all efforts would be made into getting the displaced back to their homes. Unfortunately, divisions within the giant coalition prevent this from happening.

Prime Minister Raila Odinga and his ODM party is opposed to the return of mostly Kikuyu settlers into the Rift Valley. Whereas most of the Luo, Kalenjin and Luhya who fled the Kikuyu heartland are back to their old jobs, it is still too dangerous for the Kikuyu to return to ODM strongholds. Some have reportedly been killed in the Rift Valley when they went back to their homes. Others gave up and are resettling themselves elsewhere – with little government help.

One IDP committed suicide in Nairobi’s Dagoretti area after his meat hawking business was shut down by the National Environment Management Authority for alleged pollution of the environment. Another IDP took up a taxi business in Kerugoya but was shot by police who mistook him for a criminal. IDP women, frustrated at the government’s apathy, demonstrated in Nairobi and were clobbered by riot police. Many such tragic cases have been reported.

The indecision of the government over implementation of the Waki and Kriegler Reports has proved beyond doubt that Kenya is a ship without a captain. Though legislators are congratulating themselves for ‘sending’ the Electoral Commission of Kenya home, it still took almost a year to accomplish. Besides, serious constitutional challenges lie ahead in the wake of the last minute decision which, in reality, was meant to protect politicians from the International Criminal Court.

Indeed, Vice President Kalonzo Musyoka came to ECK’s defence. Could it be because the ECK’s Chair, Samuel Kivuitu, is from the same ethnic group as Kalonzo?

The refusal of government officials to pay tax has surprised both local and international observers, while the Kenya Communications Bill 2008 is an anachronism in the 21st century.

Meanwhile, the government is attacking private corporations for ‘exploiting’ consumers. This is seen as an attempt to deflect public anger over rising prices and shortages in commodities. However, private entreprise is being blamed for conditions not of its own making. Doing business in Kenya is extremely challenging as companies struggle to break even amidst poor infrastructure, corruption and arbitrary laws. It costs more to transport cargo between Nairobi and Mombasa than it costs to ship similar cargo between Japan and Mombasa.

Blaming private enterprise for exploiting Kenyans sounds more and more like the rumblings of a communist-style purge against ‘exploiters.’ Price controls will create worse shortages and spark off the rise of a black market. Unfortunately, Kenyan leaders will be the driving force in a brutal black market that will rival Zimbabwe’s. Members of Parliament have already been implicated in creating maize shortages.

The problems in Kenya, to paraphrase a Nigerian writer, are first and foremost a failure of leadership. Kenya’s leadership is disconnected from its people through the lack of ideology, short-sighted deeds and insulting words. Kenya’s leadership lacks the vision to drive the country forward and instead is regressing towards infantile politics of chest-thumping and group orgies.

The description of Kenya’s leadership used here should not be construed to mean a particular individual. The problems with Kenya’s leadership are bigger than the personalities involved for they all exhibit the same qualities. For instance, replacing President Kibaki with Raila Odinga will not bring about any changes. Removing Kibaki, Raila and Kalonzo then replacing them with Mudavadi, Ruto and Balala will simply be a game of musical chairs. All these people are part of the problem and can never be the solution.

Kenya’s leadership and its government has lost touch with its own people. The government does not know what the aspirations of the people are, it does not know the challenges that ordinary people face in daily life and neither does it care for the future. National leaders seem to think that increasing salaries, creating commissions and sub-dividing districts will placate the anger of Kenyans.

Already, the money for such tactics is running out. What then?

Advertisements

Price controls, subsidies to worsen food supply

It’s a slippery path that many governments have taken to their ever-lasting regret. It usually starts off as a temporary measure to tackle rising prices for food, fuel and other basic commodities.

Prime Minister Raila Odinga and his Agriculture Minister, William Ruto, did not say it openly but the Kenyan government is now subsidizing foodstuffs.

Subsidies and price controls are used to calm a restive population from engaging in food riots. In some countries, food riots have toppled governments, hence the Kenyan leadership’s rush to re-introduce price controls and food subsidies.

Economists say that subsidizing food is the worst decision any government can make. It is not sustainable because food prices always rise as a growing population demands more food.

The Kenya government has announced two different prices for maize: one for the poor, the other for the middle class. The government will sell ‘government branded maize meal’ to the poor using a chain of government regulated retail outlets.

If there ever was a way of creating Zimbabwe-style shortages, this is it.

It gets worse: The government has instructed the National Cereals and Produce Board (NCPB) to buy maize at Kshs1,950 (US$25) a bag from farmers then sell to millers at lower rates. This means the government has to pay NCPB the difference. The decision was made after maize millers argued that they could not lower prices due to tight margins. With annual consumption of maize in Kenya in the millions of bags, the treasury must find hundreds of millions of dollars for the new subsidy.

The Kenyan government’s intervention will distort the food market to such an extent that the poor will be the biggest losers. There is no guarantee that only the poor will by the cheap, ‘government-branded’ maize. The nature of economics is such that entrepreneurs will strive to obtain the cheap maize at Shs52, then supply it to upper-income retail outlets at Shs72, thereby making a huge profit.

The poor will eventually realize that, while their shops are empty, the supermarkets of the upperclasses will be fully stocked. This is exactly the case in Zimbabwe, where government price controls have twisted the market into epic proportions. It is not that goods are not available in Zimbabwe, but nobody is willing to sell at the state-sanctioned rates. The black market has pushed inflation to world record levels.

With time, the Kenya government will find it impossible to sustain food subsidies. The millers will find it difficult to operate in a restricted market. Yesterday, the government banned millers from buying directly from farmers. Several millers may close shop under such a stifling business environment.

The supply of maize will get worse because a government-controlled distribution chain inevitably breeds corruption. Unlike a free market situation which is dictated by forces of supply and demand, a state-controlled supply chain will create opportunities for kickbacks, horse trading and extortion.

Creating two sets of prices for the same commodity is ill-informed decision making. Why should a supplier sell maize to the poor at Shs52 yet the same commodity can fetch Shs72 a couple of hundred meters away?

The government’s plans to launch ‘branded’ packets of cheap maize are likely to draw the wrath of the World Bank and IMF. In the early 1990s, the Kenyan government implemented the two institution’s recommendations to open up the economy following rampant inflation, shortages and corruption by officials who were supposed to supply the commodities. Since then, supply has been constant even though prices have risen.

In the 1980s, Kenyans had to walk long distances looking for maize, wheat and milk because price controls encouraged hoarding. A similar situation is in store for a population already used to the abundance of liberalization.

There are fears that a black market in maize and other food stuffs may emerge. A black market will fuel inflation and put food prices outside the reach of the majority.

Black markets are controlled by criminal organizations and groups like Mungiki will have a new source of income. At the same time, black markets are not subjected to quality standards and consumers will be exposed to poor quality and dangerous food stuffs.

Discontent on the rise as greedy politicians steal state maize

Kenyan politicians have lost all shame as they out-do each other in squeezing the last drop of blood from the country’s long-suffering citizens.

It is now emerging that politicians and their allies are putting pressure on the state-owned National Cereals and Produce Board (NCPB) to stop selling staple grains to milling companies.

Instead, the NCPB is forced to sell to the politicians at low prices so that they can demand hefty profit margins from millers.

As a result, consumer prices for maize meal have risen from Kshs85 (US1.1) to Kshs120 ($1.5) within a week. The price increase is disastrous in a country where more than half the population is surviving on less than $1 per day.

Kenya’s supermarket shelves are empty, an eerie resemblance to the situation in Zimbabwe. As a result of this unprecedented state of affairs, massive discontent is brewing among the Kenyan populace, as a greedy ruling elite plots the next orgy of rape, murder and ethnic cleansing.

In recent weeks, Kenyan legislators and judges have resisted paying taxes even as manual labourers earning a few dollars a day bear the burden of financing a bloated 42 member cabinet.

*******************************

Below are excerpts of the story from the Daily Nation (click here for the full story).
*******************************

A racket involving senior politicians and businessmen has been blamed for the artificial shortage of maize and maize flour that has hit many parts of the country.

Investigations by the Nation indicate that the politicians have been buying maize from the cereals board and selling it to millers at exorbitant prices.

Letters from the Ministry of Agriculture are being used by the cartel to authorize the purchase of maize from the National Cereals and Produce Board. The cartel later resells the maize to millers at a higher price.

The shortage of maize has seen the price of the staple maize meal shoot from an average Sh85 a week ago to Sh120 for the two-kg packet.

Sources have revealed that those in the cartel, including a number of MPs, have made millions of shillings from the dubious deals.

On Monday, Prime Minister Raila Odinga held a crisis meeting with a Cabinet sub-committee on food security where they decided that middlemen be pushed out of the maize business.

Fears are also emerging that the cartel has been engaging in similar dealings for sugar and fertiliser, whose prices have been on the increase since the beginning of the year.

The politicians and businessmen are said to be buying a 90-kg bag of maize at Sh1,700 ($21.8) and selling it to the millers at between Sh2,200 and Sh2,700 ($28.2 – $34.6).

It is, however, believed that the politicians are not using their money in the shady deals. Instead, they have been acting as brokers. According to one reliable source, several associates of the politicians showed up three weeks ago at the cereals board depots with letters authorizing them to buy 25,000 bags of maize each.

After the dubious deal, each of the politicians earned between Sh12.5 million and Sh25 million ($160,000 – $320,000) depending on the price at which they sold the maize.

The price of maize flour has shot up by up to 50 per cent in the recent past to retail at Sh120. Millers have warned of an acute shortage of the product that was selling at between Sh80 and Sh85 only a week ago.

*******************************

What are your comments regarding the conduct of leadership in Kenya?

Food, fuel shortages worsen Kenyan life

As though life for the ordinary Kenyan wasn’t hard enough, inefficiencies in government are causing shortages in maize, petrol and LPG gas.

What makes it painful is that the products are in the country but are unable to reach the shops thanks to political interference intended to create lucrative business opportunities for well-connected personalities.

Unreasonable taxation by the Kenya Revenue Authority has impeded the movement of fuel from the Mombasa port into the interior. The harsh measures are intended to increase government revenue and pay high salaries for the President, Prime Minister, Cabinet ministers and Members of Parliament.

At the moment, President Mwai Kibaki earns almost as much as US President George W. Bush even though Kenya is at the rear end in terms of economic, social and political indicators.

Kenyans will, thus, have to pay more for food and fuel because of an artificial shortage designed to line the pockets of a corrupt ruling elite already wallowing in ill-gotten wealth.

According to the Saturday Nation, maize millers are unable to obtain supplies from the National Cereals and Produce Board (NCPB), which is a state organization. The millers say they are forced to negotiate with brokers, who buy the maize from the NCPB then sell it to millers at 26% commission. The brokers are likely to be people with high level connections.

As a result, consumers are buying a packet of the 2kg Jogoo maize flour at Shs87 (US$1.2). With Christmas holidays just a month away and demand expected to soar, the price of maize flour is bound to break the Shs100 barrier. As always, the poor will be hardest hit. Consumer inflation will exceed the 31% recorded in the middle of this year.

The obvious solution to such a crisis would be to import from regional countries, especially Tanzania and Malawi. However, the Ministry of Agriculture is making it cumbersome to import foodstuffs, arguing that Kenyan farmers need to be protected. The gains of a liberalized market are slowly being reversed for the benefit of a few.

Shortages in LPG gas are inflicting major losses on hotels and restaurants. 5-star restaurants now resemble rural kiosks as they resort to using firewood and charcoal to prepare meals. Of course, the results are nothing to boast about and customers are turning away in droves. The use of firewood and charcoal is extremely expensive on a large scale. The gas shortage has been attributed to inefficiencies at the Changamwe Oil refinery and tax measures.

Interruptions in the supply of petrol have become alarmingly frequent in the past year. A decade ago, Kenya’s oil industry prided itself on its efficient distribution network that made it easier to buy fuel than to find clean water. That is no longer the case. Multinational oil companies, fed up with a short sighted government, are deserting the country.

In a move that only a Kenyan politician can dream of, the government wants to create a new oil monopoly in the form of National Oil Corporation of Kenya (NOCK). The government has 100% shares in NOCK and multinationals leaving the country are being pressured to sell to NOCK. It is feared that, in the next few years, shares in NOCK will be sold to highly placed individuals disguised as “strategic partners.”

At the same time, individuals close to the centre of power have their eye on departing multinationals. They took over the operations of Mobil Kenya by creating a new company called Oil-Libya. The deal was sealed following shuttle diplomacy between Kenya and Libya.

What does this mean for Kenyans? More fuel shortages and higher prices for the little that is available.

In addition to supply shortfalls in food and fuel, Kenya is currently experiencing shortages in electricity and water supply. Utility companies – all owned by the state – have failed to keep pace with a growing population. Industries are worst hit and must maintain expensive fuel-powered generators just to keep going. Now, even their generators may grind to a halt because fuel does not arrive on time.

Price controls will cause shortages

The Kenyan government’s threat to impose price controls on fuel could create shortages and make life worse for its people.

Faced with rising prices, declining agricultural production and a weakening currency, authorities in Kenya are eager to calm a restive population recently scarred by ethnic violence.

Analysts warn against price controls in an economy liberalized 14 years ago. “Market forces are the most efficient price determinant for goods and services,” says an economics lecturer at the University of Nairobi, “because governments often cannot act quickly enough to raise or lower prices depending on demand and supply.”

It is feared that spiraling inflation caused by rising commodity prices could undermine a fragile peace between supporters of President Mwai Kibaki and those of Prime Minister Raila Odinga.

This week, the coalition cabinet discussed the rising prices and their impact on the economy. During the weekend, the Prime Minister promised that the government would tackle high food prices but fell short of mentioning specific steps. Raila was addressing his constituents in the Kibera slum, Africa’s largest.

Meanwhile, acting Finance Minister John Michuki has promised to take tough measures against oil companies for not heeding a government ‘directive’ to lower fuel prices by Shs10 (US$0.133) a litre. Michuki accuses oil companies of greed, a charge widely repeated by Kenya’s media.

As international crude prices hit a high of US$147 by mid this year, petrol prices surpassed Kshs105 (US$1.4) a litre. Now, international crude prices have settled at below $100 a barrel but fuel prices locally have reduced marginally. Most stations are retailing petrol at about Kshs99 ($1.32) per litre.

Multinational oil companies say they are being condemned unheard. Intense competition in the sector has reduced profit margins to just a few cents for every litre of fuel. “Kenyans think that oil companies are making huge margins, which is not true,” explains the University of Nairobi lecturer.

Oil companies say they are yet to clear old stocks bought when international crude prices were still high. Besides, the weakening of the Kenya shilling is cancelling out any savings made from reductions in international oil prices. In the past month alone, the Kenyan currency has suffered 15% devaluation against the dollar.

Harsh taxation measures imposed by the Kenya Revenue Authority (KRA) to curb oil smuggling have placed a heavy toll on prices. KRA demands payment of oil taxes before the product is released for sale, a measure that forces oil companies to borrow amidst a worldwide credit crunch.

Meanwhile, taxes take up almost half the retail price of fuel in Kenya. The state has been urged to cut down expenditure in order to ease the burden on the Kenyan consumer. However, with a giant cabinet of 42, there are no prospects of tax cuts any time soon.

High fuel prices have had a domino effect on electricity tariffs, which have risen over 100% since June 2008. Manufacturers have threatened to relocate their plants lamenting that Kenya’s energy costs are among the highest in the world in spite of erratic power supplies. Businesses must operate fuel-powered standby generators which further drives up the energy bill. Already, hundreds if not thousands of jobs have been lost as industries cut production to a bare minimum.

If the government imposes price controls on fuel and other essential commodities, suppliers will not be willing to sell at a loss and severe shortages will arise – Zimbabwe style. A black market will emerge with the phrase ‘consumer-exploitation’ assuming a sinister meaning altogether.

Black markets are not subjected to quality standards and are controlled by criminal gangs. Shops and supermarkets will be empty as the Mungiki, Taliban and others have a field day smuggling essential commodities through the back streets. Kenyans will waste many hours queuing for items that should normally be readily available.

Such is the harsh reality should the government re-introduce price controls.

Co-op Bank plans IPO despite objections

In spite of consumer inflation driven by rising oil and food prices, the Co-operative Bank will go ahead with its initial public offering (IPO) at the Nairobi Stock Exchange.

There are fears that the IPO will be undersubscribed. Investor disappointment caused by the near-fiasco of the Safaricom IPO earlier this year is still fresh, and could dampen demand for Co-op Bank shares.

The IPO’s lead sponsoring broker has warned against the venture at a time of worldwide economic uncertainty and inflation. Mr James Wanguyu of Standard Investment Bank was quoted last week as calling for the IPO to be postponed till next year. However, Mr Wanguyu has since changed his mind to support the IPO.

Acting Minister for Finance, John Michuki, has also dismissed calls for a postponement of the Co-op Bank IPO.

The Co-operative Bank of Kenya, Kenya’s fourth largest, hopes to raise Kshs10 billion (US$136,900,000). According to a press statement, the money will finance the bank’s mortgage products, information and communication technology infrastructure and expansion of the branch network.

Back in 2006 the KenGen IPO made history by attracting the largest number of individual investors ever seen in the history of the Nairobi Stock Exchange. Economic fundamentals were different back then, with 6% economic growth, a stable political environment, a boom in consumer spending and billions of shillings in remittances from the diaspora.

Today, consumers are hit by inflation rates of close to 30% due to rising prices for fuel, electricity and food. Post election violence after the December 2007 polls has greatly reduced confidence in the economy whose growth rate this year is expected to fall below 4% at best.

Hundreds of thousands of families, which had invested in previous IPOs, were rendered destitute in the violence as farms and property were looted. Political infighting within the ruling elite hasn’t done much to restore investor confidence in the Kenyan economy.

Gloomy economic forecasts have resulted in job cuts among Kenyan industries. Companies are complaining of reduced consumer demand coupled with higher energy prices. Cuts in electricity and water supplies have added to a worsening of the country’s economic situation.

Economic uncertainties, mostly in the United States, have greatly affected the flow of remittances by Kenyans living overseas. Quite a number of them have already lost their jobs. Unlike previous share offerings, Co-op Bank’s IPO is unlikely to attract much interest from the diaspora.

The fiasco that was the Safaricom IPO tarnished the reputation of the Nairobi Stock Exchange. Apparently, planners at the stock exchange, Capital Markets Authority and the Central Depository had greatly under-estimated the logistics of having so many shares introduced at once. Safaricom shares, by themselves, currently constitute almost a third of all shares at the Nairobi Stock Exchange.

To start with, few people got the actual shares they had applied for. Many ended up with so little that their allocations became meaningless as far as investment is concerned. Cash refunds took too long to process; in some cases individual investors waited months to get back their money. There were allegations that brokers were trading with the cash, hence delays with the refund cheques. It was further claimed that the Central Bank of Kenya issued instructions that refund money be released slowly in order to prevent a crash of the Kenyan currency.

And because of the huge number of Safaricom shares, the share price did not shoot up as expected. Indeed, Safaricom shares are currently trading more or less around the IPO price of Kshs5 (US$0.068) a share. The result has been tangible disillusionment among the mass of retail investors.

Co-op bank hopes that its improved performance after a loss-making streak will attract ordinary Kenyans. Furthermore, Co-op is placing huge bets on an enthusiastic response from the co-operative society sector, which is the bank’s core business. Co-op says it has put in place an automated IPO processing infrastructure that will enable it make refunds within a short time.

Co-operative Bank made a profit of Kshs1.7 billion (US$23 million) for the last financial year ending 30th June 2008 and has a target of Shs3.3 billion ($45 million) for the current year.

No respite as food, energy prices rise

Kenyans are helpless against increases in food and energy prices caused by rising demand worldwide, supply disturbances and climate change.

With Kenya’s liberalized economy, the government has little leeway in effecting price controls on traders already suffering razor-thin margins. Meanwhile, the Meteorological Department has warned of diminished rains in coming months, raising the prospects of more expensive food, and starvation for the poor.

The prices of maize, wheat and rice have gone up an average of 50% in the past year, the single biggest increase since 1993. Much of the increase is a result of rising food prices globally. The mega-populations of China and India are putting great demand on the world’s food output. Economists say that the growth of the world economy means more people have more money to buy more food. According to the principles of supply and demand, prices must go up.

The Kenyan government is also to blame: last year, an extra tax on plastic bags caused an immediate Shs3 increase in the price of bread with no visible impact on plastic waste disposal. Prices of other foodstuffs packaged with plastic, such as milk, also went up.

Tribal violence in the wake of Kenya’s disputed election worsened the situation by disrupting agricultural activities, causing shortages and pushing up prices. Much of the violence was concentrated in the agriculturally productive areas of the Rift Valley, Western province, Trans Nzoia and Mount Elgon. Granaries were destroyed, farms ransacked and stores looted. One of the more famous newspaper photographs is of armed soldiers walking over heaps of smoldering potatoes.

The violence delayed planting of crops that would have been harvested later this year. In some of the worst cases, planting was never done.

As with everything else, food prices in Kenya have been affected by the worldwide increase in the price of oil due to the transportation element. Fuel is needed to get fertilizers to the farms. Fuel is needed to till the farms using tractors. At the end of the process, fuel is needed to get the produce to consumers. Farm workers, citing current inflation, also demand higher wages and thus push up food prices.

In the Rift Valley, farmers who had escaped post-election violence were unable to plant because they could not afford the costs of fuel and fertilizers. Those who could, only managed halfway before they ran out of funds.

Rising fuel costs have affected electricity rates in Kenya. In June, the Kenya Power and Lighting Company announced a 24% increase in prices. The company says the hike was caused by the use of oil-fired generators at Kipevu, Nairobi East and from Aggreko, an emergency power supplier. Come July, it was evident that the increase in electricity tariffs was in excess of 50%. Consumers made a rush for energy saving bulbs, and cut down on electric heating. Kenyan industry, already paying one of the highest electricity tariffs in the world before the increase, will lose out to Egypt, India and South Africa.

There is renewed interest in alternative energy but it will be a long time before it is commercialized. Biofuels are almost non-existent. Coal mining in Mwingi District has been frustrated by the local political elite. Solar power is still too expensive. Meanwhile, abandoned wind mills at Ngong indicate that authorities gave up on the concept long ago.

Climate change is another factor behind rising food prices. In the past decade, rains have been erratic as a growing population moves into forest areas to create farms and settlements. Periods of drought are interspersed with flooding, all of which destroy crops.

Unlike other countries in Africa, the consumer market in Kenya is completely liberalized. This perhaps explains why food riots have not been witnessed here as most consumers understand free market forces.

During last year’s electoral campaigns, the Orange Democratic Movement (ODM), promised to reduce the price of maize flour from Shs60 (US$0.89) down to Shs30 ($0.44). Since then the price of a packet of maize flour has actually risen to Shs80 ($1.17). There is simply no legal mechanism to enforce price controls.

The outlook for the future is that food and oil prices are unlikely to go down to pre-2007 levels. At best, we can only hope that prices stabilize at current rates. The possibility of a recession in the United States, Europe and Japan will reduce demand, forcing food and oil producers to stabilize prices.