Kenya passes new price-fixing law

By Vision Reporter

Kenya’s parliament has passed a bill allowing the country to return to price controls of essential food and fuel goods, after the policy was abandoned in the 1990s in favour of economic liberalisation.

NAIROBI

Kenya’s parliament has passed a bill allowing the country to return to price controls of essential food and fuel goods, after the policy was abandoned in the 1990s in favour of economic liberalisation.
The passage of the bill late on Wednesday, which faced stiff opposition from ministers and must be ratified by the president, could further strain relations between the house and the government after the latter complained lawmakers were interfering in its economic agenda.
“This bill has become necessary because attempts by the government to use market forces to lower prices and exhortations to traders not to overcharge consumers of these essential goods have not borne fruit,” said Ephraim Maina, the parliamentarian who sponsored the bill.
Maize, maize flour, cooking oil, sugar, paraffin, diesel and petrol are the targets of the bill that will be sent to President Mwai Kibaki for his assent in order to turn into law.
If Kibaki signs the bill, the finance minister will set a minimum and maximum price for the goods.
A 2kg packet of maize retails at 80 shillings ($0.99), down from a high of more than a 100 shillings last year.
A litre of petrol is retailing at 90 shillings, after creeping up for most of this year from around 80 shillings for most of last year
Trade minister Amos Kimunya led opposition against the bill in parliament on Wednesday, saying its passage would discourage investors.
A former trade minister, Mukhisa Kituyi, and local papers spoke out against the food and fuel price control bill after its passage in the house.
“It is a foolish idea whose time is past,” said the headline of a front page commentary on the bill in the Daily Nation newspaper.
“Prices of essential goods have been skyrocketing unpredictably but to imagine that this can be stopped by returning the country to the ancient regime of price controls is to engage in pure fantasy,” the paper said.
Kimunya he would comment on the matter after the cabinet discusses the bill and takes a common position.
“One can understand the rationale why parliament acted that way, but now we need to look through at what are the implications of this and then advise accordingly,” he said on Thursday.
Parliament’s passage of the bill came a day after Prime Minister Raila Odinga accused MPs of delaying the government's development projects through numerous hearings by house committees on government spending.
Dozens of MPs who attended the meeting with Odinga accused him of lecturing them and said they were merely exercising their oversight role as set out in a democracy.
Billions of shillings earmarked for various development projects went unspent in the financial year ending this month, prompting the finance minister to propose in his budget speech this month that departments be compelled to spend at least 80% of their development budgets businesses have warned that new price-fixing legislation will cause job losses and food shortages.
MPs passed the bill on Wednesday giving powers to the finance minister to set maximum prices for basic goods like maize and fuel following price hikes after last year's drought.
It is a move away from the free market approach which Kenya has followed for the last 20 years.
The president will have three weeks to decide whether to approve the bill.
The BBC’s Peter Greste in the capital, Nairobi, says when a severe drought drove up the price of basic commodities like flour, sugar and fuel across the country last year, the government came under intense pressure to stem inflation.
But parliament’s solution has been condemned by industry and economists alike, our reporter says.
With the end of the rought, inflation has settled to a respectable 3.9%, he says.
Analysts like Samuel Nyamdemo from the University of Nairobi’s School of Economics say price fixing will only create long-term problems.
He argues that it will force the government to control prices of farm inputs like seed and fertiliser as well, and encourage farmers to move away from those artificially cheap commodities, creating serious shortages.

Reuters

ReManufacturers too say it will encourage factories to move elsewhere, just as Kenya is about to enter the East African Economic Community.
“We are going back to the era of shortages or commodity diversion,” Kenya Association of Manufacturers’ chairman Vimal Shah told Kenya’s Daily Nation paper.
“If a manufacturer finds the cost of inputs too high, he will simply close shop until they come down or sell his products to countries which have no price controls,” he said.
But Kenya’s President Mwai Kibaki is himself an economist and may return the bill, which has penalties of up to five years in jail for anyone breaking the rules, to parliament.
Given that Kenya is pushing for trade liberalisation at the World Trade Organisation talks, sending the bill back looks likely, our reporter says.
Meanwhile, Ugandan businesses may not reap from cross-boarder consumer commodities trade after the passing of the Bill, seeking to allow the treasury to fix prices of essential goods, adds Emojong Osere.
The Kenyan Parliament on Wednesday passed a Bill, which if given a presidential assent would allow government determine the cost of petrol and diesel, maize, maize flour, sugar, rice, wheat, wheat flour, kerosene and cooking fat.
Ugandan companies dealing in the products would now have limited alternatives since they would be forced to export to Kenya and sell at the dictated costs or look for alternative markets in the region incase the overheads they incur through exports to Kenya surpass sales returns.
The decision comes less than a week to the start of the implementation of the Common Market under which there will be free flow of goods and factors of production across the region.
Analysts on Thursday said the move could be a trade barrier aimed at discouraging foreigners from out-competing Kenyans dealing in the commodities.
“It is all about checking competition,” Makerere University economics lecturer, Dr. Thomas Bwire said.
“If a Ugandan exporter took commodities to Kenya and found that the price is less than the intended charge with respect to the production costs, it would be ridiculous if such a businessperson thought of returning to such a market,” adding that forces of demand and supply should be allowed to determine commodity prices.
The Bill, The Price Controls (Essential Goods) Bill, 2009, authorises the Finance minister to fix the maximum retail and wholesale prices for essential commodities.
It criminalises buying or selling of the listed goods at a price above the maximum price fixed by the government and breaking the rule would lead to imprisonment for five years or to a fine of Kshs1million (about sh27 million), or both.
Uganda remains one of Kenya’s closest trading partners across the world.
and statistics form the Uganda Exports Promotions Board show in 2008, Uganda’s formal exports to Kenya were worth $164 million (about sh360 billion), up from $118 million (sh259.6 billion) the previous year, with informal exports (services) earning $108 million (approximately sh237.6 billion).

Kenya passes new price-fixing law