The monumental challenges Kenya has to grapple with this year

Kenyans entered 2023 stoically, believing that it has to be a better year than 2022.

It is too early to project how this year is going to pan out, but the foreseeable future looks exceedingly challenging and testing.

True, we do not have an election hanging over us as was the case a year ago. But we do have that persistent old devil called ‘drought’.

The year 2022 will go down in history as one of the driest on record, comparable to 1984 and 2000. To date, there is no letup in that.

The graphic updates on how more and more of the country is succumbing to the ravages of drought have become so plentiful that we are arguably becoming numb to this plethora of depressing news.

Without a doubt, the situation will get a lot worse before it gets better, bearing in mind that the next main rains are not due for another couple of months and assuming that they come and are sufficient.

The misery and fallout from drought will increase for the next few months at least, and we need to be conscious of the mounting social, economic and even political challenges that this will bring.

The repercussions from the Ukraine factor in particular fuelled inflation worldwide to the extent that many countries are facing inflation rates of eight per cent or more. Inflation literally erodes people’s standards of living as it pushes up the prices of everything. It’s akin to having to run faster and faster to remain in the same place.

In Kenya, these external factors are exacerbated by the drought or, as some would politely put it, ‘the deficient rains’.

Let me give two current, live examples. Anyone who has bought electricity tokens recently must have wondered if they had been shortchanged.

This is because much of the subsidy is in the process of being withdrawn and the unit price is going up and up. The knock-on and far-reaching effects are widespread, considering that electric power is a major player in our daily lives as well as a key input for production. 

Five-year high 

The other is staple foods. Kenya is a major net importer of maize, wheat and rice, as well as edible oils. It is importing so much that its import bill for the first nine months of last year hit a five-year high.

Last year we imported wheat worth Sh55 billion, rice worth Sh27 billion and maize worth Sh20 billion.

This year it is likely to be even more.

It is worth pointing out two things. First, in a good harvest year, we are reasonably self-sufficient in maize. Secondly, worldwide food prices are on an upward trajectory. The landed cost of duty-free maize is the same as the domestic producer price.

If anything, the price and supply pressure on both is edging them up. And when we take into account increased transport costs, processing costs and so on, we can see the curve moving upwards. 

The government acted fast to create a duty-free window for these three staples and that is commendable. It is a clear indication that the government has gauged the serious situation on the ground and is acting fast to bring in imports, which could contain the upward price surge.

It needs to be emphasized that the operative word is “contain”. We are unlikely to see any price relief for some time to come unless the government gets into the subsidy game again, which it has no money for.

Remember informal maize imports from our neighbours have lessened as they are also grappling with lower production due to drought.

Guidelines on these duty-free windows are urgently needed, bearing in mind the lead time to import and also that the tighter supplies are pushing prices upwards. If this does not happen, then the exercise could be subject to manipulation and rent-seeking, which will inevitably push prices up.

Dampen growth 

There are some additional factors that are likely to dampen growth. Kenya’s balance of trade and debt levels are all rapidly going in the wrong direction. Increased food imports and their payments will put more pressure on both.

This puts downward pressure on the shilling, which in turn increases the landed cost of imports as we have to pay more shillings to get the relevant foreign exchange.

In summary, everything points to an inflationary spiral that is difficult to contain at this time. There are too many internal and external factors pushing it up.

Looking deeper at the economic prospects for this year, there is another factor that is fast coming into play. The government is desperate for cash. Its revenue base has been struggling to meet even basic expenditure demands.

The government is under pressure to reduce subsidies further and at the same time raise extra revenue from other areas. It did this by raising capital gains tax from five per cent to 15 per cent.

Capital gains tax has long been resisted by property owners and a small increase would have been palatable. But to triple, it is likely to slow down property transactions.

It is akin to slowing down one of the key drivers of the economy. By doing so, one is putting the brakes on it when it is already struggling to move. The more pressure one pile on the taxes, the more one slows down vital commercial and in turn economic activity.

If the government gets into the subsidy game again, then ultimately that puts another burden on the economy, especially as it is financially unsustainable.

In summary, while we may be out of the pre-election scenario, several other factors have come into play or have got worse and will hamper economic growth.

The projection of 4.5 per cent growth for 2023 looks overly optimistic and could well fall below four per cent.

In conclusion, deficient rains and drought, the long drawn-out global crises such as the Ukraine factor and rampant inflation will be the critical factors.

Robert Shaw is an economic and public policy analyst: [email protected]