Economics Of Unga Prizing In Kenya.

Fluctuating and cynical prices of consumable commodities in any country pose a very serious problem in the supply chain of goods and services. This does not only reflect the performance of the economy but also instability and unsustainable budget control of government operations. In the first half of 2022, Kenya has seen a rise in the price of maize flour from an average of Kes.112 per 2 kg to current Kes.136 across the country signifying a 21% increase between January and June 2022. Amid the excess supply of Maize from farmers in the harvest of December 2021 to the National Cereals and Produce Board (NCPB) the prices have continued to steadily increase without substantive mitigation from the government. Every two kilograms of maize that is supplied to NCPB is received at Kes.56. The hundreds of thousands of bags that are sold at Kes.800 would translate to Kes.18 per 2kg of flour. In the local mills, the cost of milling is about sh. 10 per 2kgs and what is packed and retailed in shops is grade 1 flour milled by big millers enjoying economies of scale which translates to lower costs. The ministry of agriculture estimated that maize consumption in Kenya stood at an estimated quantity of 55 million bags against a national harvest of 45 million bags of maize. This means that the country needs to meet the 10 million bags deficit by importing from countries with a surplus.

The government of Kenya has cited that cartels hoard maize for in anticipation for a prize jump. The government also argues that the country has enough grains for supply after the 2021 bumper harvest. On the other hand, maize miller’s protest about low supply level of maize stocks from farmers, high purchase price of the grains at the farm and high handling costs that are caused by a national inflation driven by high cost of fuel.

Regulation of unga prizes therefore factors all costs incurred by farmers, millers and retailers. Government subsidies are needed at each input level of the value chain. There is also a need to reassess our form of agriculture such that profits earned by farmers be driven by low input costs rather than high retail rates. Implementation of Strategic Grain Reserves should also be put in place to safeguard the needs of over fifteen million households who are not able to meet their minimum dietary requirements. These measures will not only secure a steady supply of consumable goods but also fulfill the right to food enshrined in the constitution of Kenya, 2010 Article 43 1(a).

Sailing To The Ceiling?

Implications of the cost of fuel prices in Kenya.

Over the past three months, Kenyans have felt the heat of ever-increasing fuel prices. The prices have shot up on the account of the growing demand for oil as economies shake off the impact of the COVID- 19 pandemic and the more recent Russian-Ukraine war. The Kenyan shilling has also weakened against the dollar implying that fuel importers will use more shillings to import the same volumes of oil. This led to oil vendors withholding products from the Kenyan market while diverting fuel to neighboring countries in a bid to compel the government to track their payments as well. The Kenyan government had partially withdrawn the fuel subsidy sending diesel and petrol prices to an all-time high since October last year.

With historic heights, the super petrol and diesel prices shot by sh. 5.50 signaling the increase in the cost of basic goods and services hence having a direct impact on the Kenyan economy. The energy and petroleum Regulatory Authority (APRA) set the new retail prices at sh.150.12 for a litre of super petrol and sh. 131 for diesel. This single-handedly shows that there will be tough times for households and motorists given that fuel is the key determinant of the basket of goods and services used to measure inflation. When the fuel prices increase a larger share of the household’s budget is likely to be spent which leaves less to spend on other goods and services. For businesses, whose goods must be shipped from place to place the shipping prices will be much more expensive therefore increasing the prices of goods. This price has also shifted the growth of the economy through its effect on supply and demand for goods and services brought about by the production costs increasing slightly higher than expected.

Despite the increase in fuel prices the government committed to pay marketers an estimated sh. 14.39 billion as a subsidy to prevent further price escalation. The subsidy has come under increased pressure as the state struggles to compensate for the high deltas amid the global rally in crude prices. Apart from straining the government finances, higher fuel prices drive up inflation which sees lots of economic policies not being implemented. The inflation rate is expected to rise by 50%   in the coming months with prices of commodities’ becoming unsustainable.

The Debits And Credits Of President Kibaki

Many Kenyans believe that Kenya’s economy was at its best during the reign of the late President Mwai Kibaki. Dr. Mwai Kibaki who was an economist from Makerere University in Uganda excelled in managing Kenya’s economy between 2002 and 2013 thanks to his academic and professional background and sufficient experience in national treasury prior to his presidency. During Kibaki’s reign, there was a global recession which began in the United States as a result of deregulation of the financial industry. There were also internal civil wars in the country which were fueled by tribalism in Kibaki’s government, unevenness in sharing national resources between regions and mistrust among politicians in the then ruling party. Despite all these challenges in Kibaki’s 10-year tenure as the country’s chief executive, the gentle Kenyan politician managed to place Kenya in the top 12 list of Africa’s largest economies with a moderately low appetite for foreign debt yet with fairly significant investment in infrastructure.

Just like John Myriad Keynes, a great classical economist whose ideologies are taught in business schools today, Kibaki believed in free markets and in liberalization of the economy through policy interventions. President Kibaki opened up commercial lending in the country by providing sound regulations of the money markets through the Central Bank of Kenya. Kibaki also grew revenue collections by expanding the tax collection base. He borrowed from the West and the East based on affordability of loans and reasonableness of terms and conditions. Kibaki’s success in public debt management went a long way in managing inflation levels and stabilizing the shilling against other currencies. Unemployment rate and poverty index of Kenya compared to other East African countries was slightly higher throughout Kibaki’s regime indicating that the gap between the rich and the poor existed at very wide margins. This could be attributed to the capitalistic nature of Kenya’s economy whose seeds had been sowed by Presidents Moi and Jomo Kenyatta in Kenya’s years of infancy. In my qualitative analysis of Kibaki’s performance as briefly summarized in this column, I found a leader who understood economics of the country in theory and in practice. The consummate economist set the stage for Kenya to take off as an economic powerhouse in Africa and as a significant participant in global trade. His policies on management of the economy are widely admired across political divides, private sector leaders and the electorate of his time.

Global Trade Amidst Russia -Ukraine War

The war between Ukraine and Russia has yet again put the global economy at the verge of collapsing even before the world fully recovers from disruptions caused by the COVID19 pandemic. For the past two years, unexpected events have significantly changed the way we do our things. The International Monetary Fund has warned that the fight between Russia and Ukraine could pose a great economic threat that could hurt the anticipated post-covid 19 recoveries. Global economy profoundly remains affected by the negative impact of the pandemic. However, there is slight stability in the second half of 2021 amid Omicron that threw the global markets into a frenzy.

Countries that have economic links with Ukraine and Russia are at particular risk of scarcity and supply disruption and are most affected by the increasing commodity supply. Recently the US government promised to sanction Russia for potential retaliation and this has already seen a push down of stock markets and driven up gas and oil prices. This clash could cause dizzying spikes in energy and food prices, fuel inflation fears and spook investors, a combination that threatens investment and growth in economies around the world.

For Kenya’s economy alone Kenyans have been forced to dig deeper into their pockets because of the cost of fuel due to the strengthening of the dollar relative to Kenya shillings meaning that the country will spend more on imports. This has seen the cost of fuel rise by ksh.5 and a total jump in oil prices which has hit $100 per barrel.

The world’s major economies, from Russia to the US are experiencing a multi-year high in inflation levels due to shortages in the supply of commodities whose demand is growing because of lifting covid-19 restrictions. For Kenya, food prices are expected to rise while imports will suffer delay in delivery. Manufacturing Industries may experience imported inflation which could put further pressure on the shilling against the US dollar. To mitigate the ongoing war the European Union should speedily find a solution to the war to salvage the already suffering world economy caused by Covid -19 pandemic.

Impact of 5G Network on Kenya’s Economy

We are living at a time when speed matters a lot in our daily business activities. When it comes to the internet, they say slow WIFI is worse than no WIFI. COVID has taught us that companies can still work remotely and deliver 100% service to their clients. This is only possible with good connectivity of the internet. The 5G future is here. Years in the making, the long-buzzed-about fifth generation of wireless connectivity has become a reality, ushering in an era of radical new possibilities in many industries.

Innovative use cases such as autonomous drones and smart city ecosystems promise increased efficiency and productivity for governments and businesses in a post-pandemic world, and pervasive benefits across the globe. Faster internet also opens up fresh opportunities for businesses by enabling them to leverage online marketplaces and tap into new customers and operating morals to grow their revenues.

Why 5G? The promise of 5G has been echoed throughout the business world for years.5G’s faster speed, lower latency, and ability to connect vastly higher numbers of devices than previous generations of mobile technology offered executives a glimpse of a more efficient and productive future. By providing the basis for ubiquitous ultra-fast broadband, 5G opens up possibilities far beyond the reach of 4G or Wi-Fi 6. This promise has only grown more critical today, as managers consider how best to repair, rethink and reconfigure their business for the post–COVID-19 world.

Kenya’s leading mobile network provider Safaricom in March 2021 launched 5G network powered partly by Huawei, a move seen as a show of confidence in the Chinese multinational technology company. With the launch, Safaricom became the first in Kenya and East Africa to offer the new service. It also makes Kenya just the second country in Sub-Saharan Africa to roll out 5G after South Africa. 5G will also enable the deployment of advanced digital technologies such as virtual reality, crowd gaming, autonomous drones, industrial automation, and a wide range of IoT devices. 5G technology will usher increased internet speeds and capabilities for millions across the country, laying a strong foundation for a new generation of innovators and entrepreneurs.

As leaders contemplate the decade ahead, 5G demands strategic attention—both to where and how it can create competitive advantages and to the implementation and integration imperatives that must be met for it to generate value.

Kenya, The 6th Wealthiest Nation In Africa

During the 8th state of the nation address H.E Uhuru Kenyatta presented his speech based on Economy, social structure, and democracy. President Kenyatta stated that amid Covid 19 pandemic there were interventions set in place to reinforce the resilience in the economy while cushioning millions of households against harsh effects. He further stated that economically Kenya had become 6th wealthiest nation in Africa in terms of GDP of 11 billion Kenya shillings.

The Kenyans GDP currently stands at Ksh 11 billion shillings up from 4.74 billion shillings.  On the 2nd quarter this year the economy grew by 10.1 % being the highest growth in the history of our economy. ICT sector grew by 21.15%, transport sector grew by 16% and manufacturing grew by 9.6%.

However, the claim that Kenya is 6th is the wealthiest country in Africa is true, but the approach and framework could be wrong. Kenya is only the 6th wealthiest in terms of GDP (total production of all goods and services and not evenly distributed through the economy).

A more accurate figure of economic situation is GDP per Capita or nominal GDP, Kenya is one of the bottom 20 in Africa with a per capita GDP of US$ 2,000 compared of with Seychelles with $26,120 per capita GDP.

Another indicator that reflects the wealth of a country is Purchasing Power Parity which takes into account actual income plus inflation and the prices of local goods and services. The current Kenyans inflation rate is at 5.4%. In 2020 the Kenyans Purchasing Power Parity was 44lcu from 21.3lcu from 2001 which shows there is only 3.95% growth rate annually.

Other than Gov’t expenditure which has been growing in terms of pushing the GDP is the growth of elite economy like banking, Tourism and hospitality and cooperate services Agriculture productivity has been stagnant and deteriorating. In simple terms the economic outlook is positive. The economy is projected to grow by 5.9% in 2022. The rebound assumes that the economic recovery strategy is being successfully implemented and Kenya is capitalizing on external liquidity and benefitting from initiatives to meet its external financing needs. Inflation is expected to remain within CBK target range of 2.5% to 7.5%. Downside risks could emanate from delay in fully reopening of the economy, failure to secure financing to execute the budget and bad social conditions during 2022 elections.

Kenya: Granary Without Food.

What makes a country great? Is it the authority of its government, size of its economy, power of its military, unity of its people, riches of its national culture or there’s something else? In the East African Region, Kenya is envied for its fast-growing economy characterized by vibrant towns and busy ports of call for road, rail, sea and air travelers. On the flip side, 35.5% of Kenyans live below a dollar each day thus falling into the category of poor humans. Kenya’s poverty index is worsening by day and food insecurity has become a threat to lives of many Kenyan people and livestock.

Poverty for lack of food, water, clothing, and healthcare is poverty of dignity. This is what Kenyans are facing in a regime that is busy constructing long kilometers of roads, a railway line to the wilderness and health facilities with no doctors and drugs. President Uhuru Kenyatta is on record claiming success in economic growth by GDP indicators showing a rise from a 4.4trillion shillings economy in 2013 to 11trilion in 2021 as per his reports in the state of the nation address (SON2021). While the president’s report maybe skewed to win him a legacy, there’s more to ask about this legacy when poverty index in Kenya increased from 38.9% to 53% simultaneously with the reported GDP growth rate. My submissions in this column do not seek to make readers forget the importance of infrastructural development in a country. I am however vouching for the protection of economic and social rights of all citizens by the government as a top priority over roads, railway lines, ports and building of great cities. It is the protection of these rights that will result into freedom from hunger and the development of an effective universal healthcare program that knows no discrimination between the haves and the have nots.

According to the Oxford Poverty and Human Development Initiative (OPHI), people in Kenya are significantly deprived in the living standard dimension. In a nutshell; economic growth is an important means to development rather than an end in itself. Governments should thus focus not only on investment in transport, manufacturing and housing infrastructure but also invest in food production, healthcare and areas of direct impact to the dignity of its people. Mahatma Gandhi would summarize this column by his famous quote, “The greatness of a nation can be judged by how it treats its weakest member.”

Impact of 5G Network in Kenya’s Economy

We are living at a time when speed matters a lot in our daily business activities. When it comes to the internet, they say slow WIFI is worse than no WIFI. COVID has taught us that companies can still work remotely and deliver 100% service to their clients. This is only possible with good connectivity of the internet. The 5G future is here. Years in the making, the long-buzzed-about fifth generation of wireless connectivity has become a reality, ushering in an era of radical new possibilities in many industries.

Innovative use cases such as autonomous drones and smart city ecosystems promise increased efficiency and productivity for governments and businesses in a post-pandemic world, and pervasive benefits across the globe. Faster internet also opens up fresh opportunities for businesses by enabling them to leverage online marketplaces and tap into new customers and operating morals to grow their revenues.

Why 5G? The promise of 5G has been echoed throughout the business world for years.5G’s faster speed, lower latency, and ability to connect vastly higher numbers of devices than previous generations of mobile technology offered executives a glimpse of a more efficient and productive future. By providing the basis for ubiquitous ultra-fast broadband, 5G opens up possibilities far beyond the reach of 4G or Wi-Fi 6. This promise has only grown more critical today, as managers consider how best to repair, rethink and reconfigure their business for the post–COVID-19 world.

Kenya’s leading mobile network provider Safaricom in March 2021 launched 5G network powered partly by Huawei, a move seen as a show of confidence in the Chinese multinational technology company. With the launch, Safaricom became the first in Kenya and East Africa to offer the new service. It also makes Kenya just the second country in Sub-Saharan Africa to roll out 5G after South Africa. 5G will also enable the deployment of advanced digital technologies such as virtual reality, crowd gaming, autonomous drones, industrial automation, and a wide range of IoT devices. 5G technology will usher increased internet speeds and capabilities for millions across the country, laying a strong foundation for a new generation of innovators and entrepreneurs.

As leaders contemplate the decade ahead, 5G demands strategic attention—both to where and how it can create competitive advantages and to the implementation and integration imperatives that must be met for it to generate value.

Position Of Cooperative Movement in Kenya’s Economy

Savings and Credit Cooperative Organizations (SACCOs) are arguably the oldest form of banking in Kenya. Most of these organizations began as traditional table-banking groups with little or no formal organization but with structures of leadership, unwritten policies and a circuit of meetings in which deposits were received from members. Today, many such groups have formalized and are registered with Sacco Societies Regulatory Authority (SASRA). This development in the financial service sector has transformed Kenya’s economy through the convenience of savings and access to credit that is in SACCOs. In rural areas where agriculture creates the most number of jobs, the cooperative movement has been recognized by the government as a vital institution for mobilization of material resources for development. At a minimum, SACCOs offer savings accounts and loans. Deposit-based loans are usually sized at three to four times the amount of the member’s savings held at the SACCO. What makes the model unique is that loans are secured by the members’ deposits, and oftentimes by guarantees who also have deposits in the SACCO. The loans are fairer in their pricing and easier to access when compared to bank loans. Moreover, SACCOs pay higher interests on deposits than Banks, and members with SACCO shareholding enjoy guaranteed dividend payment annually. SASRA’s 2019 report highlighted resilience in SACCOs despite COVID-19 related constraints in the economy. For instance, total deposits held by Deposit Taking (DT) SACCOs stood at Kes.545 billion in 2020, a 13.4 % improvement on Kes.380 billion recorded in 2019. The growth reflects resilience in Saccos despite a difficult year that saw economic activates crippled by the global pandemic. Gross loans stood at Kes. 474.8 billion in 2020 from Kes.429.6 billion in 2019 being a record growth of 13.2%. The government of Kenya has been driving reforms to enhance governance, financial soundness, and sustainability of SACCOs consistent with policy developments articulated in cooperatives development policies (CDP) of 2019. Some of policy reforms that were initiated include: creation of a central liquidity facility and a shared technology platform, operationalization of deposit guarantee fund for SACCOs, establishment of SACCO Fraud Investigation Unit, and prudential supervision of non-deposit taking SACCO commodity referred to as Back Office Services Activities (BOSA SACCOs). These legal amendments have been drafted and submitted to National Treasury which has been included in Financial Bill for 2021. This is a milestone in ensuring that the capital investment in Saccos is protected.

FIGHTING BIG BUSINESS THROUGH POLICY AND TECH

With technological advancements in the 21st century, the market has been described as ‘explosive’ in nature. Small businesses are taking advantage of their ability to cause disruption, have independence of action, and be increasingly diversified to become big corporations, and in some instances, control the market space. These aspects allow them to exercise a given degree of advantage over other market players, which they leverage over time. However, this is not necessarily true. The quest to become more prominent, better, and faster in the field has resulted in occasional economic bubbles that bring about anxiety in any market. This increases the probability that corporations can move from positions of muscle to vulnerability and faintness. The question is, how does this happen?

Concern on market dominance in any sector has grown over the years, with some big corporations termed monopolies.  This situation is due to control over the prices, production, supply, and distribution of more than one-half of the total goods of any description, all to stifle competition. The competition regulator in such markets establishes regulations to limit such power by capping the percentage mark for market share. This move is unpopular since it restricts the ability to innovate for fear of being declared dominant.

Consumers have not been left behind in shying away from markets that are controlled predominantly by big businesses. The general feeling is that their ability to choose is constrained by the market behavior to only favor one business entity on aspects such as quality and quantity of commodities. Consequently, they tend to react against the market leaders by turning away from what they offer, thus creating room for new entries in the market.

The political environment has not been any kinder to big businesses as each election year; they become a punching bag for political outfits who believe that they are ruining the moral fabric of the society. Calls to hold corporate leaders accountable for wrongdoing to concern about the corrosive influence of corporate money in the politics of culture have stained the ability of big businesses to become more prominent, with most legislation targeting their expansion capability.

The quest to become more prominent is no longer feasible. Corporations should angle their strategies towards becoming better in aspects such as serving customers and attracting investments. Focusing more resources on future opportunities rather than preserving past successes creates the cutting edge for small businesses to become big and remain relevant in a world that is hungry for new.

Paul Oreje | Columnist, IGBR. pauloreje@gmail.com