What you need to know:
A political scheme or not, the subsidy raises at least three economic issues.
The first question is financing.
Second, it is fiscally irresponsible.
Third, it is a study in how not to do a food subsidy.
My favourite Twitter handle is a plane spotting software @GVA_Watcher that goes by the name GVA Dictator Alert. The “Twitterbot” or simply “bot” (short for robot) alerts its followers on arrivals and departures of planes used by authoritarian regimes at Geneva International Airport. Every so often it sends out a summary. As of May 7, the UAE was leading with 45 landings, followed by Equatorial Guinea with 33 and Saudi Arabia.
There is something truly empowering about thumping one’s nose at the world’s autocrats from the comfort of one’s desk. It is beginning to grate. Recently, the Cameroon government shut down the internet in the Anglophone opposition strongholds for three months. Paul Biya’s Swiss comings and goings feature regularly on the GVA alert.
The “bot” is credited with putting pressure on Swiss authorities to open an investigation on Teodorin Obiang, the high-living son of Equatorial Guinea president, who was already under investigation for corruption in France. The investigation led to confiscation of 11 of the world’s most expensive cars that included a $2 million Buggati Veyron and one of only seven $2.8 million Koenigsegg One ever made.
The power of information never ceases to amaze.
And so it is that when, a week ago, the government proclaimed very loudly that maize from Mexico had arrived at the port of Mombasa, Kenyans quickly established that the IVS Pinehurst, the ship carrying the maize, had sailed from Durban a few days earlier. All one needed to do to confirm this as was log on to one of many ship-tracking websites. As I write, the ship is headed to Richards Bay in South Africa, where it is expected to dock on Monday at 22.30, having left Mombasa at 21 minutes past midnight on Thursday.
The truth about this particular maize shipment is another one of the Jubilee administration’s rackets that we may never unravel. Whatever the truth, the fiasco is deeply disturbing.
The government started talking about maize imports in January. It was reported in early February that the government was in talks with Mexico about maize imports. By mid-March, the market price had surged to Sh4,200 per bag. But the government assured the country that there was enough maize in the country. The Cabinet Secretary for Agriculture reported that as at end of January, we had 15 million bags of maize. With normal consumption in the order of 3.5 million bags a month, this would have been enough maize for four months. Actually, the government would have known that we were going to have a food crunch much earlier.
The Economic Survey reports that the maize harvest last year came in at 37 million bags, down from 41 million bags the previous year. Although the Economic Survey is published in April, a fairly accurate estimate of the maize harvest is available in late November. This is why the CS could speak confidently about the stocks at the end of January.
The big question then is this: how was the government planning to go about bridging the gap? A situation, however critical, whose occurrence is known months in advance cannot be termed a crisis or emergency. No ifs or buts. We were going to import maize. Unlike yellow maize, or other cereals such as wheat or rice, the availability of white maize in the international market is erratic. And with Southern Africa having a deficit as well, a prudent government would have sought to secure supplies in February, March at the latest.
The way the Jubilee administration has gone about it suggests one of two scenarios. First scenario is no plan. Its hard to imagine a government that could risk a country running out of food, but over the last four years, I have learned that it is difficult to overestimate this administration’s ineptitude.
The second scenario is that arrangements with the importers had been made, and they were waiting for the most opportune moment to ship it in. What we then have to contemplate is motive, whether it would have been financial or political. By financial I mean to allow the local prices to peak, bring in the maize, duty free of course, and make a killing. That is straightforward.
A political motive would be the situation we have now: government-branded subsidised maize as a campaign tactic. It should not surprise. Using famine relief as a political weapon was Kanu’s stock-in-trade. It is highly doubtful that maize can land in Mombasa, be offloaded, transported, milled and distributed within a week. I have seen images of packets with the government subsidy sticker printed on with a March date of manufacture. These lend credence to the possibility that it was pre-planned.
Political scheme or not, the subsidy raises at least three economic issues.
The first question is financing. As we are almost at the end of the financial year, it would be very difficult to find money to reallocate from the recurrent budget. This leaves either diverting money from the development budget or additional borrowing. Additional borrowing is outright illegal, as the law prohibits borrowing for consumption. Re-allocating money from the development budget amounts to the same thing since the entire development budget is debt-financed.
Second, it is fiscally irresponsible. Had the government organised the importation of maize at the right time, it would have dampened the pressure on prices and the subsidy would not have become necessary. The Principal Secretary has been reported telling Parliament that the government reacted when it realised that the price was going to reach Sh5,000 per bag. You don’t require the Treasury macroeconomic model to predict what will happen to the price if the country runs out of maize.
Third, it is a study in how not to do a food subsidy. As with all welfare schemes, the biggest challenge is targeting. How do you ensure that the subsidies go to the most deserving. We know that the most deserving do not shop in the big supermarket chains yet that is where the subsidised unga is being sold. Within hours of the subsidised unga hitting the shelves, half a kilo packs in polythene bags were being sold at Sh30 in the dukas and kiosks in my neighborhood. That was predictable. In economics and finance, we call it arbitrage. It is quite possible that the government bigwigs are not aware of the kadogo economy.
Maize production has declined in four of the last five years, from 41.9 million bags in 2012 to 40.7 million in 2013 and further to 39 million in 2014. There was a bumper harvest of 42.5 million bags in 2015 followed by the drop to 37 million last year. This translates to a decline of 2.8 per cent per year. Population, on the other hand, has increased by four million people over the same period. Consequently, the amount of maize produced per consumer is declining by five per cent per year, from 103kg in 2012 to 82kg last year.
And there is more going on. Less maize is coming into the market every year. Marketed production has declined from 3.9 million bags five years ago to 2.65 million bags last year. What is going on? Over 80 percent of our maize is grown by semi-subsistence smallholders. They don’t produce for the market, they sell surpluses. With population growth and production stagnant or falling, there are more mouths to feed in the villages, and in effect, less surplus to be disposed. The government talks of hoarding. It is not hoarding. There are no surpluses. The people are keeping their food.
This data also tells us that commercial production of maize is not increasing. Why? The prognosis we have been hearing in recent years is cost and availability of inputs, especially fertiliser. The Jubilee administration has been big on fertiliser subsidies. We should not be spending money to subsidise consumers after we have spent money subsidising farmers. That is double jeopardy for the tax payer.
Data published by the Kenya National Bureau of Statistics shows that fertiliser consumption rising sharply under the Jubilee administration, by 30 per cent per year on average. The intervention is also reflected in a 25 per cent drop in fertiliser prices. Quite evidently, the fertiliser intervention is not delivering on maize. It is conceivable that the fertiliser has been applied to other crops, but this is easily ruled out. There is no major crop that has registered production increases that is commensurate with the fertiliser consumption. In fact, the marketed production of all crops has grown by only five per cent per year compared to the 30 per cent increase in fertiliser consumption.
Where is the fertiliser going? We have been hearing stories of substandard fertiliser and fake seeds. I would not want to believe that an administration can do such not just to the country, but to its core support base, but this data begins to lend credence to these stories. There is also the possibility that the fertiliser data has been inflated to correspond to the subsidy budget, a case of phantom fertiliser, not unlike the now famous 7,000 kilometres of phantom roads. Whatever the case, its another Jubilee mystery that we are not likely to resolve.
Over the last four years, this column has flagged the looming food security crisis on several occasions. Not that I expect the Jubilee administration to pay attention. Three years ago, I bumped into one of the country’s foremost agricultural economists, who was at the time a food security advisor to the Jubilee administration. He was on his way to a new job in the US, having spent more than a year in the administration as he put it, doing nothing at all. Little wonder.
David Ndii, an economist, is currently serving on the National Super Alliance’s technical and strategy committee.