Food, water, electricity to cost more as drought hits millions
A fruit and vegetables trader. Kenyans are headed for tougher times as the economy takes a hit from the raging drought that is expected to drive up prices of basic goods and services, eating deeper into household budgets. PHOTO | FILE
What you need to know:
The drought, which has hit large parts of northern Kenya, Coast and Eastern, is particularly expected to push up the cost of food, water and electricity.
A 2kg packet of the staple maize flour, for instance, is currently selling at highs of Sh120 from lows of Sh97 in January last year
A kilo of cabbages cost an average of Sh67.1 in December, a 55 per cent increase on the same month the year before.
Agriculture accounts for a quarter of the GDP, meaning that productivity losses will significantly weigh down the national output.
Kenyans are headed for tougher times as the economy takes a hit from the raging drought that is expected to drive up prices of basic goods and services, eating deeper into household budgets.
The drought, which has hit large parts of northern Kenya, Coast and Eastern, is particularly expected to push up the cost of food, water and electricity — reducing the purchasing power of low-income households.
Thursday’s announcement that the national government is setting aside Sh5 billion to fight the drought also signals that the taxpayer will shoulder additional burden through increased borrowing or a spending cut in the development budget.
Rationing of water in Nairobi and other towns has set up urban dwellers for a major increase in water bills as vendors step in to fill the gap at exorbitant prices.
Those without major reservoirs in Nairobi, for instance, can expect to pay the vendors up to 17.8 times the Nairobi City Water and Sewerage Company (NCWSC) charges.
NCWSC charges consumers for water at the rate of Sh53 per cubic metre for those consuming between seven and 60 cubic meters, a consumption segment that covers the majority of the city’s households.
Vendors charge Sh20 or higher for 20 litre of water or 0.02 cubic meter, reaping a large profit from the supply shortage.
Cost of power
Electricity prices will also rise significantly, mainly through a jump in the variable fuel and foreign exchange charges that can account for up to 25 per cent of a power bill.
The drought has eroded power generation from dams, setting the stage for increased reliance on diesel power plants and the attendant spike in fuel cost charge (FCC).
The charge is expected rise to Sh3.52 per kilowatt-hour (kWh) this month, a 23.5 per cent increase from Sh2.85 in December. This will raise the cost on the charge alone by Sh0.67 on each unit consumed.
FCC has risen steadily in recent months, increasing the typical middle class household’s power bill by more than Sh100.
Consumption of 200 kWh in December, for instance, cost Sh3,589, including a fuel cost charge of Sh570 at the rate of Sh2.85 on each unit. In September, the same unit cost Sh3,448, including the FCC which stood at Sh2.31.
Besides the fuel cost charge, electricity bills are expected to rise on account of higher foreign exchange charges following the weakening of the shilling against major world currencies.
The forex charge stood at Sh0.91 per kWh in December. The Water Resource Management Authority (WRMA) levy, another variable charge in power bills, could also rise from Sh0.02 per kWh in December in the wake of the drought.
Food prices, which have already risen in recent months, are expected to go up further in the coming weeks as supplies drop.
A 2kg packet of the staple maize flour, for instance, is currently selling at highs of Sh120 from lows of Sh97 in January last year while a kilogramme of cabbages cost an average of Sh67.1 in December, a 55 per cent increase on the same month the year before.
A kilogramme of mangoes now costs 32 per cent more at Sh117.2, according to data from the Kenya National Bureau of Statistics.
All-round inflation
The all-round inflation is also expected to lead to more expensive loans should the Central Bank of Kenya (CBK) opt to rein in the cost of living by raising interest rates.
The Central Bank Rate (CBR), the bank’s monetary policy tool, now influences interest rates directly after last year’s capping of lending rates at four percentage points above the benchmark rate.
Banks currently charge a maximum interest of 14 per cent, with the CBR at 10 per cent. Controlling inflation by raising interest rates should also support the shilling, whose weakening has invited imported inflation as more units of the local currency are used to ship in consumer and capital goods.
Most importantly, the drought is expected to slow down economic growth through its debilitating impact on the mainstay agricultural sector and related industries.
Agriculture accounts for a quarter of the GDP, meaning that productivity losses will significantly weigh down the national output.
The sector is also a major employer and its fragility is likely to cost hundreds of thousands of jobs in the short term.
The drought has similarly exposed lenders to the agricultural sector to increased risk of loan defaults, some of which could be absorbed by underwriters offering crop and livestock insurance.
23 counties
The authorities Thursday said 23 or half of all counties are facing a serious drought crisis, with livestock dying and people malnourished or facing starvation.
Some 1.5 million people have been receiving relief food, mostly in arid and semi-arid areas. Besides food provision, a step-up in cash transfers to vulnerable households is also underway.
Elsewhere, the government is buying livestock from pastoralist farmers who have suffered major losses from animal deaths as pastures and water pans dry up.
The Sh5 billion being spent on these measures was diverted from other spending plans, indicating that some of the original budget items will be suspended or the gap will be filled through more borrowing or taxation.
