Kibaki price control snub tests new legislative order

President Kibaki on Wednesday rejected a Bill that would have introduced price curbs on essential goods, leaving consumers at the mercy of market forces which have been blotted by greedy merchants, while endearing Kenya to investors.

The President returned to Parliament the controversial Price Controls (Essential Goods) Bill 2009 passed by the House in June, detailing his reservations on the proposals sponsored by Mathira MP Ephraim Maina.

The Bill — which MPs are now mandated to review — sought to assign Treasury the role of fixing maximum retail and wholesale prices for essential goods such as maize, sugar and petroleum products.

The President said the Bill was inconsistent with the policy on economic liberalisation and international trade conventions that Kenya has signed, particularly the World Trade Organisation (WTO) Agreement on National Treatment.

“This obligation places a duty on Kenya to avoid measures including price controls, which would have prejudicial effects on other contracting parties supplying imported products to Kenya,” he said in a note to Parliament.

He added: “The Bill currently provides for matters to be catered for in the order fixing minimum prices, including maximum service charges to be made for any service in relation to goods. These matters will be difficult to police and may lead to an increase in unscrupulous traders and ultimately cause a disadvantage to the citizens.”

The President also rejected a five-year jail term or a fine of Sh1 million for traders found in breach.

By rejecting the Bill — whose passage would have pleased consumers by punishing greedy traders, while risking price distortions and investor flight — analysts said the President confirmed his economics leaning.

“Its now clearer Kibaki is a capitalist at heart and a supporter of free markets. That besides, the idea of price controls was ill conceived, ” said Mr Robert Bunyi, an analyst at Mavuno Capital.

“The Bill would have been more damaging to the economy than the supporters thought by disallowing free pricing, ” said Mr Bunyi.

MPs now have an option of revising the Bill to accommodate the President’s concerns or ignoring them altogether.

In the latter case, Parliament would return the Bill to the President as it is so long as it is supported by more than two thirds of the members.

It would then become law even if the President fails to endorse it within seven days of the Speaker referring it to him.

For consumers who had hinged their hopes of fairer pricing on the Bill, the Constitution offers them a channel of redress through a provision that entitles consumers to goods and services of reasonable quality and pricing.

The President’s decision is a win for Treasury, manufacturers and institutions such as the World Bank who were against controls, saying they risked chasing away investors at a time when the economy was already facing many challenges.

Kenyan households have recently become victims of arbitrary changes in prices of basic commodities, coming against the backdrop of a sharp rise in the cost of living especially for the low-income segments of the population.

The cost of sugar and cooking oil, for example, has nearly doubled over the past three years on what manufacturers attribute to increased cost of doing business.

Also, oil marketers have tended to raise pump prices when international trends dictate so without effecting reductions when the factors reverse.

On Tuesday, oil marketers raised pump prices by at least Sh3 per litre of petrol, a move Kenol/Kobil said was triggered by “high level manipulation of storage systems in the country.”

The President wants the Minister to determine the maximum prices of the commodities in consultation with the industry players as well as taking into account any relevant treaty or convention ratified by Kenya, making it almost impossible to have price controls because the treaties are binding and manufacturers have been opposed to them.

“The Bill was introduced without taking cognizance of the entire price chain that affects the final goods of products and thus it is totally misguided and harmful to producers of final products in Kenya, ” said Betty Maina, the chief executive officer of the Kenya Association of Manufactures in a recent column in the Business Daily.

But some economists had argued that while controls could cushion consumers, they could cause price distortions and investor flight, putting Kenya at variance with its trading partners in the East Africa Community, who have resisted attempts to regulate prices.

Finance Minister Uhuru Kenyatta had also dismissed the Bill as unrealistic, saying it would amount to reversing Kenya’s economic policy.

Manufacturers said price controls would cut down production and affect supply in the long term.

The President also however assented to other Bills with far-reaching economic and social implications including the Prevention of Organised Crime Bill, 2010 and the Alcoholic Drinks Control Bill.