Economists oppose Kenya price Bill

June 24, 2010
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, NAIROBI, Kenya, Jun 24 – A Bill that seeks to regulate the prices of essential commodities in the market has raised uproar from both the private sector and economists, many of them urging the President not to assent to it.

The Price Control (Essential Goods) Bill now requires the President’s approval to become law but Economist Dr Gerrishon Ikiara said that would be disastrous for the economy.

The move would not only hurt farmers but it might also lead to a shortage of goods as they will opt to produce crops that bring a good return on their investment.

“It would be very unfortunate for the economy if the act became effective. If farmers are not getting profits from their operations they will move away from maize production to something else and you cannot force them to continue producing maize,” he said.

The other option would be to import these food stuffs at current market rates and have the government sell the same at a subsidised rate which would have a fiscal implication on it.

Instead of controlling prices, Dr Ikiara said Parliament should push for the creation of an enabling environment for the private sector to operate and the elimination of the constraints in the distribution chains.

“They should try to encourage the production of more maize or more sugar and the like and they can also restructure some of the sector where we don’t have more suppliers so that you encourage competition,” Dr Ikiara added citing the example of the telecommunication sector where prices has dramatically come down with the entry of more players.

Financial experts including World Bank’s Country Director Johannes Zutt have in the past criticised the proposal saying it would create distortions in the market.

Such people argue that the economy should be left to the demand and supply forces although they admit that there’s a need to cushion the poor and vulnerable groups in the society.

The passing of the bill, which if signed into law, will also see fuel prices fixed however received a thumbs up from the Motorist Association of Kenya (MAK) that argue that it would help restore sanity in the oil industry.

“The vote for reintroduction of fuel controls by MPs is good news to us motorists. The Oil industry has been bedevilled by cartel collusion to price fixing, failure to be rational in setting sensible prices to correspond global prices with local ones,” MAK Chairman Peter Murima charged.

Mr Murima argued that energy is the backbone of every economic activity as it determines inflation, high cost of manufacturing goods and regional business and therefore the MPs are justified in passing the Bill.

 “We have confidence that the President knows better the benefits of such a financial system and is going to do his citizens proud by signing the Bill into Law, effectively emancipating Kenyans from the yoke of highly priced perverse service,” he said in a statement.

It is worth noting that previous attempts to fix prices have been resisted as evidenced by the fuel price control formula which continues to gather dust in the Energy Regulatory Commission’s shelfs.

All eyes will thus be on President Kibaki in the coming weeks to see whether he succumbs to pressure and give a nod to the Bill.
 

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