Poll, taxes, imports, Covid, war ... What’s making prices rise?
Residents of Nyeri town protest against the high cost of living last week. They threatened not to participate in the upcoming General Election if the government won’t lower the cost of basic commodities.
Over-reliance on imports by the country’s manufacturing sector and rising production costs due to high taxes has left consumers paying for more for basic commodities.
The prices of imported products have been rising over the past four years as Kenya became vulnerable to global shocks and a weakening currency, causing importers to spend up to 90 per cent more to buy some products.
While last year saw the greatest hike in prices for many products, the situation worsened this year as prices rose further by up to 50 per cent in six months, forcing some manufacturers to operate below capacity, while commodity prices shot to the highest levels in June.
The Kenya Association of Manufacturers (KAM) blames the Covid-19 pandemic, the Russia-Ukraine war — which broke out in February and has disrupted supply chains — high taxes and election-related tensions for the current mess.
“Over the past three years, we have seen the cost of essential goods sky-rocket, eroding purchasing power and making it extremely difficult for many Kenyans to make ends meet,” said acting KAM boss Tobias Alando.
“This is attributed to the impact of Covid-19, the Russia-Ukraine conflict and the ever-increasing cost of commodities due to high taxes and new levies and fees.”
Cushion consumers
Mr Alando said the sector believes that, while it can implement some measures to cushion consumers, only the government can provide a lasting solution by scrapping some taxes on the affected products.
“Additionally, the weakening of the Kenyan shilling against the US dollar has also affected the foreign exchange rate, affecting our ability to bargain in the international market,” he said. “The ever-increasing cost of fuel has also impacted on operations. In industries, most machines are powered by diesel. The cost of transporting raw materials and finished goods is also reliant on the cost of fuel. If the fuel cost goes up, the extra cost will be transferred to the consumer.”
The Kenyan shilling has weakened by 4.2 per cent against the US dollar this year, from Sh113.1459 by January 1 to Sh117.8735 on Friday last week. This means that the cost of importing products has also gone up, with the final cost ultimately being passed on to the consumers.
Construction sector
KAM also noted that the construction sector has been affected due to a 30 per cent increase in freight costs, a 300 per cent increase in coal prices since 2021 and an increase in cement clinker prices, raising the cost of construction.
In the timber sector, the association said the 2018 ban on logging continues to affect operators, with firms operating at between 30 and 50 per cent of their capacity as they rely on imports, raising the prices of finished products.
Consumers Federation of Kenya (Cofek) Secretary-General Stephen Mutoro said over-reliance on imports in the economy and the manufacturing sector and a high cost of doing business are to blame for the burden that consumers have been left to bear.
“The problem with Kenya is that we are importing almost everything and I dare say that there is no manufacturing in Kenya anymore, because 95 per cent of the people who purport to be manufacturing under the ‘buy Kenya build Kenya’ clarion call are the same people who are importing products,” he said.
Further rise
Data from the Kenya National Bureau of Statistics (KNBS) shows that the cost of importing products in the manufacturing sector increased between 22 per cent and 89 per cent between 2018 and 2021. Manufacturers have reported a further rise of up to 50 per cent in 2022 alone.
The cost of importing a kilo of animal and vegetable oil shot up from Sh68 to Sh130 between 2018 and 2021, a tonne of cement clinker from Sh4,748 to Sh6,264, and a tonne of iron and steel from Sh74,352 to Sh90,890.
“Locally, even though Covid-19-related factors had already caused an increase in the price of a 20-litre jerrycan [of crude palm oil] from Sh2,200 to Sh4,500 in under two years, after the invasion [of Ukraine by Russia], the price went up to Sh5,100 in under a week,” Mr Alando.
“Currently, the prices of a 20-litre jerrycan across brands [are] an average of Sh6,500. This rise has caused an upward ripple effect on the prices of basic commodities and food businesses.”
Meanwhile, average producer prices have also risen, with the cost for producing 20 litres of vegetable oil moving from Sh3,997 in 2018 to Sh4,641 last year; 18 packets of 500ml milk from Sh692 to Sh747; and 12 packets of 2kg maize flour from Sh1,172 to Sh1,272 over the same period.
The cost of producing a kilo of steel bar in Kenya has increased from Sh86 to Sh109, a tonne of cement from Sh12,130 to Sh12,962 and a tonne of sugar from Sh80,198 to Sh89,323.
