This is the year of perfect storm... or could it be worse?

surging food prices

World food prices are at a 10-year high, which means the cost of importing those foods will prove more expensive.

Photo credit: File | Nation Media Group

What you need to know:

  • More and more listed companies are issuing profit warnings indicating that 2021 was a tempestuous year.
  • Markets have become smaller all round and pickier, and competition is the name of the game.

When looking at the months ahead and the prospects for 2022, it is useful to start with what we have inherited or been passed onto from 2021. People are still sighing with relief that 2021 is over. The fallout from Covid-19 and its many knock-on effects lurk everywhere and indeed invade the whole country.

From a health and medical point of view, we have been reasonably fortunate, but from an economic and social-effect one, we have had one blow after another, and that will continue in the foreseeable future.

One only needs to look at some of our main economic drivers such as tourism, horticulture and tea exports to see how they have all been hard hit and how their recovery is erratic and slow.

More and more listed companies are issuing profit warnings indicating that 2021 was a tempestuous year.

Let us stand back a little and look at some of the hard basic underlying facts. The Kenya National Bureau of Statistics reminds us yet again of the glaring and increasing disparities within the country.

The number of Kenyans living in poverty has increased from 38.9 per cent to 53 per cent in the last few years. That is both frightening and scary.

That means over half the population, amounting to around 28 million people, lives in deprivation of various kinds.

Considering that over three quarters of the population is below the age of 30, this translates into high unemployment, coupled with lack of gainful opportunities for the majority of Kenyans.

We often blandly categorise them into to ‘haves’ and ‘have not’s’ but in reality, it is a minority who have something or plenty and the majority who have little or not enough. 

The social effects and ramifications run deep. A quarter of the population are undernourished and a quarter of our children under five years are stunted.

Reduced production

Another basic hard fact is our heavy dependence on imported food products.

That is not unusual as global economies go. There are a number of countries that have high dependency on imported food but in turn make up by producing surpluses in other areas.

The important thing to take fully into account is how the population and particularly those on the other side of the curve of the poverty line can afford enough food especially when the prices are on the upward trend and the economy is stuttering.

This is a situation that is changing daily. Let us break down the facts.

Kenya imports a majority of its wheat and rice and a significant percentage of its maize, bean and sugar needs.

World food prices are at a 10-year high, which means the cost of importing those foods will prove more expensive.

A combination of increasing costs of production and reduced production have put pressure on domestic maize prices with the buying price for a 90 kilo bag now jumping to Sh3,000 and more.

That means that for the foreseeable future, we will be heavily dependent on imported food products, maize included.

The maize importation factor is complicated by the government giving a specification for imported GMO maize which is very difficult to comply with.

So high and rising food prices coupled with inflation and continuing adverse weather conditions create a hostile and precarious backdrop for the next several months.

This will be complicated by other major factors such as the price of fuel. The consumer has been cushioned against the rising price of fuel for the past few months. For example consumers would be paying Sh133 per litre of diesel as opposed to the current sh110 per litre if it were not for this subsidy.

Main economic pillars

On the flip side, this has now depleted much of the Petroleum Development Fund, which leaves the government between a rock and a hard place.

This sort of subsidy is taxing the already strapped government resources to the point that at some stage, tough decisions will need to be made on a more sustainable, but inevitably more expensive, way forward. Then there is the issue of debt. The debt to GDP ratio threshold is 55 percent and rising and will hit 64 percent by this June.

Even if one does not understand the full significance of such statistics, the message is clear: they are on an upward trajectory.

To put it another way, debt repayment, whether principal or interest, robs us of money that could be going into basic and necessary services such as healthcare and education.

As for the main economic pillars, whilst there may appear to be a semblance of resumed economic activity, going by the traffic flows, the real substance of those activities are all well below what they should be.

It is useful to look at some of the myriad of impediments and difficulties and challenges ahead. First, there is the issue of numbers. For the time being, gone are the volumes of tourists and horticultural cargo we witnessed in the past.

Markets have become smaller all round and pickier, and competition is the name of the game. Another way to look at it is more work for less return.

If you wander off the beaten track at the coast you will see hotel buildings and roofs in various states of disrepair.

Tourism is a struggle and is not helped by the continuing alerts over Covid-19 and security. Remember the market is smaller and thinner at present and prospective tourists have an array of tempting offers from around the world before them.

The overall trajectory is that prices are rising as a result of domestic and international pressures. When domestic fuel prices rise significantly, then we are going to see inflation surge ahead on everything. So what is the way forward in this year, especially with five months to go to an election?

First, what we are seeing is a political avoidance of the reality. The talk is more about how someone is better or worse than the other and who is going to shift to which alliance.

Economic hurdles

Secondly, we are witnessing a gargantuan plethora of promises that cannot be implemented and, indeed, are so false that they breach the basics tenets of honesty.

On several occasions I have asked people watching and listening to such promises whether they believe the latter and there is a definitive no.

Let us not forget that Kenyans have been through the worst of roller coaster rides in the past two years and seen hopes, aspirations and hard work dashed before their very eyes.

They are cynical but not gullible. What they thirst for from our politicians is hope and some belief in their promises on the way forward.

To promise us fuel prices will come down when we already subsidise them heavily with a fund that is fast running towards empty, and when world prices are rising, is playing cynical games with Kenyans. 

What is clear, with or without an election this year, is that this is going to be the ultimate of crunchy years and our political candidates should take their blinkers off and be a little more forthright on the way forward.

Last, but not least, our presidential candidates need to show the public that they are capable of lining up a credible team who are up to the herculean task ahead.

There are people out there such as Ndiritu Muriithi, Kivutha Kibwana and Peter Kenneth who have a credible track record.

For me, the acid test is finding running mates and team mates who will help jump our economic hurdles. 

In short, rescuing this country’s economy, and in turn preserving our social fabric, is not going to be for the faint-hearted.

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