Kenya's Parliament on Wednesday passed a Bill requiring Treasury to fix the price of food and petrol. Parliament wants the prices of maize, maize flour, sugar, rice, wheat, wheat flour, kerosene, diesel, petrol, and cooking fat controlled by the government.
The Bill is not law yet, it still needs President Kibaki’s signature. If it becomes law and is implemented, the Bill will almost certainly bring down the price of the commodities in question. But it will only be temporary relief and shortages are likely to follow as producers move away to crops with better returns.
On Wednesday, manufacturers warned that the move will kill industries and reverse gains made in liberalising the economy, a key plank in the vision to transform Kenya into a newly industrialised country by 2030. Though likely to be popular with wananchi (citizens), feeling the pinch of high prices, manufacturers warned that price controls may result in the closure of many factories, leading to job losses.
The vote by MPs seeks to return the country to a practice last seen in 1994 when the government completely freed the market economy. If controls are re-imposed, then they might need to be wider that those envisaged in the Bill because the government will need to control the prices that manufacturers pay for their inputs, to ensure they stay in business.
The Price Controls (Essential Goods) Bill, 2009 was sponsored by Mathira MP Ephraim Maina. It will now go to the Attorney-General, who will send it to the President within 14 days. The President will have three weeks to assent to the Bill or reject it and send it back to the House for amendment.
The Bill gives powers to the Finance minister to fix the maximum retail and wholesale prices for essential commodities. It criminalises buying or selling the listed goods at a price which exceeds the maximum price fixed by the government. Breaking that rule will lead to imprisonment for five years or to a fine of Sh1 million, or both.
All MPs contributing to the debate supported the Bill, except Trade minister Amos Kimunya who warned that it will harm the economy. Mr Maina, said he was defending the welfare of the common man. Back-benchers urged their front bench colleagues to persuade the President to quickly sign the Bill into law.
But the Kenya Association of Manufacturers warned of massive shortages of essential commodities. “We are going back to the era of shortages or commodity diversion. 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,” said KAM chairman Vimal Shah.
He termed the Bill “populist” and urged the government to encourage more competition instead of imposing price controls. Industrialist Peter Kuguru warned that whereas price controls are well intentioned, the government must find a way of controlling the cost of inputs like electricity, fuel and raw materials.
“If the price of fuel goes up to the level we cannot deliver the goods, then the consumer will lose and we suffer losses,” warned Mr Kuguru, the CEO of Cateress Milling Company. He warned that the price controls would kill innovation and compromise quality. Mr Jacob Segman, the managing director of KenolKobil, warned of job losses in the oil industry as oil multinationals close shop and relocate to countries where they stand to make good returns.
Result in scarcity
The price controls will also result in scarcity of some products as manufacturers are forced to close shop due to massive losses. He termed the Bill as retrogressive and against the spirit of free economy. Sugar millers, however, welcomed the new law, saying it will save the consumer from unscrupulous middlemen who were responsible for the high cost of most essential commodities.
“It will enable prices of commodities such as sugar not to skyrocket beyond the reach of the common man because of middlemen and retailers who want to make a kill at the expense of the consumer,” Nzoia Sugar Company chairman Julius Nyarotso said. He, however, urged the government to regulate the cost of farm inputs and raw materials in order to insulate manufacturers from high production costs.
Moving the Bill in Parliament last year, Mr Maina argued that price controls were necessary because the government had failed to use market forces to lower prices of essential goods. “It has become critical to control the prices of the listed goods in order to protect Kenyans from exploitative and unscrupulous businesspersons,” he said. The market for most of the essential goods was dominated by a few players, he argued, who had formed cartels to frustrate the forces of demand and supply.