Government responds to rising costs


Kenyans are experiencing a very sharp rise in the cost of living.  The high cost of petroleum has ignited a spiral effect.  Until recently, the national rate of inflation stood at three percent.  It has increased to nine percent.

The increased food prices are responsible for 60 percent of the total inflation.  Local prices have risen sharply, largely due to the emerging drought. Globally, surging demand in growing economies like China, India and Brazil, severe drought in China, massive floods in America and Australia, and increased use of maize to produce ethanol, have raised food prices.
The international price of crude oil has been rising due to high economic growth in China, India and Brazil, as well as the current turmoil in North Africa and parts of the Middle-East. It has risen from US$73.0 per barrel in July 2010 to US$ 115.1 per barrel in April 2011.
Our people are adversely affected by these high prices. The Government will implement a strong package of measures to cushion the poor and vulnerable.  Such measures are both short-term and long-term. The will find solutions that are sustainable.

For immediate relief, the Government has removed all taxes and levies on Kerosene to reduce the cost of light and cooking energy. This will reduce kerosene price by Sh5.66 per litre, in addition to the reduction of Sh2 per litre announced by the Treasury last week. This makes a total reduction of Sh7.66 per litre.
Appropriate legislation will be introduced in this House as soon as possible to give effect to this measure. I expect that this House will act with utmost urgency, so that Kenyans receive this much needed relief very soon. 
The rates of current taxes and levies on petroleum products have remained constant since the year 2000, with the exception of the Road Maintenance Levy which was raised by Sh3 per litre in 2007.  In addition, the Government reduced the profit margin on regulated products such as Kerosene, Diesel and Petrol from Sh6 per litre to Sh4.
In addition, the Government, within the framework of the East African Community, will remove import duty on wheat and maize imported by private millers.  We have directed the National Cereals and Produce Board to provide its storage facilities for use by private millers who import wheat or maize.  The Government itself will not import wheat or maize.
Given the high international prices, duty free import of maize and wheat will not adversely affect local farmers. Rather, together with the available stock of maize, private import will make sure that there will be adequate supply of maize throughout the year. The Ministry of Agriculture estimates that 23 million bags of maize currently exist in stock. This includes about three million bags held at the NCPB.   
The Government is also expanding the famine relief assistance to cover more people and regions. A total of four million people will be covered up from the current 2.4 million people.

We are working on improved coordination and logistics with development partners. We have waived Secondary school fees in areas affected by drought.
In the longer-term, it is crucial to reduce dependency on imported oil, and to secure self-sufficiency in food. We will achieve these goals by going GREEN.

We will maximise generation of geothermal and other renewable energy and totally replace kerosene with clean energy.
The Government will also mandate blending of gasoline with ethanol, both to reduce costs and to assure cleaner and safer air to Kenyans.
It should be recalled that the minimum wage was increased by 10 percent last year. The Government has agreed to further increase the minimum wage, to be announced on Labour Day. Such increment should have come after two years, but we will do it now to address the sharp rise in the cost of living.

Going forward the Government intends to shift from cost of living wage adjustments to productivity based wage adjustments.  Resources are being provided by the Ministry of Labour to set up a productivity centre.
Creating jobs is equally important. The government will therefore ensure that Kenyan industries will remain competitive. Moreover, to create jobs immediately, particularly for the youth, after due diligence and in consideration of views of Members of Parliament and Kenyans, the Government has decided to re-launch the Kazi Kwa Vijana programme, and continue with most of the Economic Stimulus Programmes.
The KKV II (Kenya Youth Empowerment Programme) will be implemented jointly with the World Bank. Under this program, the World Bank is providing $60 million.
Out of this, US$43 million is funding 1,200 labour intensive projects at district level across the country.  These will employ 190,000 youths in the 18-35 age bracket.  Another US$15.5 million will fund an internship programme for 16,000 urban youth in the 15-29 age bracket.
To address the adverse implications of high oil prices in the long-term, the Government will fast track the development of Nairobi Urban Commuter Rail.  This will greatly reduce the cost of transportation within and around Nairobi.  It will also take a lot of motor traffic off our roads.  We will also introduce a mass transport system in and around Nairobi.
Furthermore, the government will substantially and immediately strengthen our social protection programmes. The Ministries of Gender, Special Programmes and Agriculture have such programmes in place. A comprehensive targeted food subsidy programme will be introduced to complement these programmes, and buttress the Government social protection initiative.
The joint GOK/Oxfam/World Food Programme pilot programme on urban food subsidy based on cash transfers has been successfully completed.  5,000 families in Korogocho and Mukuru and 2,500 families in Mathare were beneficiaries of this pilot programme over a period of eight months.  Each family received by MPESA Sh1, 500 per month for food.

A Memorandum on the Implementation of a Comprehensive Targeted Food Subsidy is already before Cabinet to support the food insecure in urban areas. Once this proposal is approved by Cabinet, the Government will expand the pilot programmes to providing Sh2,000 per month to 100,000 people in six informal settlements in Nairobi, Mombasa and Kisumu.
In order to assure long-term sustainability of this and other social protection programmes, the Treasury has been instructed to propose a package of tax measures that will be sufficient to fund these programmes in the long-run, but also that will not impact the poor negatively.
As our ordinary citizens suffer from high costs of living, we in the Executive, the Legislature and the Judiciary  must share the burden. We need to be frugal and prudent in our expenditure.
(Rt. Hon. Raila Amolo Odinga is the Prime Minister of the Republic of Kenya)

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