NAIROBI, Sept 22 – Kenya’s new price control law that allows government to cap the cost of essential commodities is well intentioned with consumer prices soaring but will fail to tackle inflation and is the latest in a string of botched policies, analysts say.
With presidential and parliamentary elections looming in 2012, the heat is turning up on government to shield low income consumers from runaway prices that have pushed the rate of inflation to 16.67 percent in August.
But a wide spread of economists, political analysts and consumer groups said the legislation was doomed to fail, largely due to the powerful cartels that run many key commodity sectors in east Africa’s biggest economy.
“If the government moves to fix prices, the immediate effect will be cartels cutting production and creating a shortage,” said Joseph Keiyah, an economist at the Kenya Institute for Public Policy Research and Analysis (KIPPRA).
“And if government cannot guarantee supply they will end up creating a black market of some essential goods,” he said.
POLICY NIGHTMARES
The price control bill enacted by President Mwai Kibaki last week allows Kenya’s finance minister to set price caps on any essential commodity in consultation with industry players.
Kenya abandoned price controls in the early 1990s in favour of economic liberalisation and the option to reintroduce price ceilings has been interpreted by some as a policy about-turn, thought most agree it is far from a return to state controls.
It was the second time the bill had come before Kibaki after he rejected an earlier version that allowed the Treasury to set minimum and maximum prices for goods including maize, maize flour, cooking oil, sugar and paraffin, diesel and petrol.
At the time Kibaki said it flouted World Trade Organisation regulations and recommended the bill be amended to allow the minister to set only a ceiling and after talks with the relevant industry — recommendations that were heeded.
“This should not be seen as a reversal of Kenya’s market-friendly policies or an attempted return to price controls,” said Razia Khan, head of Africa research at Standard Chartered in London.
Independent analyst Aly Khan Satchu said, however, the law was destined to become the latest in a string of nightmares for Kenya’s economic policymakers this year.
The central bank has struggled to come up with a consistent strategy as it attempts to prop up a currency pummeled by a crisis of confidence in local markets and the global economic crisis, while keeping policy loose enough to spur growth.
“It’s a populist move. For the politicians it’s a quick win, it looks as if you’re doing something with an eye fixed firmly on 2012,” said Satchu.
“Our policymaking is one of the biggest problems right now and that’s why we have this risk problem that’s come back into the shilling in such a big way, it’s why the Nairobi Stock Exchange is down so hard,” he said.
By Kevin Mwanza and Richard Lough
Source: Reuters Africa newsletter
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