Price Control Act puts Treasury under the spotlight

Finance minister Uhuru Kenyatta is expected to walk a tight-rope as he juggles between protecting the poor through price caps on basic goods and maintaining the confidence of investors sensitive to free market economy conditions.

President Kibaki on Friday assented into law the Price Control Act that provides for the regulation of prices of essential commodities to secure their availability at reasonable prices.

Under this Act, the Finance minister is authorised from time to time, by the Kenya Gazette order, to declare any goods to be essential commodities and determine the maximum prices of the commodities in consultation with industry players.

Analysts said the new laws presented a mixed bag for the Finance minister in Treasury effort to protect the poor from exploitative cartels and still maintain the confidence of investors.

“We are yet to see what the president signed but the success of the overall concept will depend on how it address all market factors both on the production and consumer side,” Mr Vimal Shah, the chief executive of Bidco Oil said on Friday.

The government has of late come under pressure to cushion consumers from 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.

Sharp rise in the prices of basic commodities such as sugar, maize flour and petroleum pushed inflation up for 10 months in a row to settle at 16.67 per cent in August.

This means that the government will be forced to address the plight of consumers while at the same time watch its moves not hurt the production sector through unrealistic pricing that leaves little headroom for return on investment.

Some analysts, however, warned that the latest attempts by government to control price may backfire, both hurting consumers and damaging the country’s investment potential.

“Kenya is a free enterprise economy where pricing is a key component of any business.,” said Stephen Mutoro, secretary-general of the Consumer Federation of Kenya(Cofek).

“The most likely scenario to arise is where producers of goods whose price has been fixed will hoard these items and only sell them once the prices are higher – benefiting the middlemen and hurting consumers.”

In the past, government interventions to introduce a pricing formula have not borne fruit with the price of most commodities maintaining an upward trend even after excise duties on kerosene was zero rated.

The government last May increased the minimum wage for the least paid workers by 12.5 per cent; cut taxes on kerosene and diesel and removed duty on wheat and maize to cool the widespread discontent after prices of bread, flour and fuel shot up.

Analysts would also seek to establish what changes may have been made to Act, that President Kibaki had earlier declined to assent to.

When rejecting the Bill in September last year, the President said it was inconsistent with the policy on economic liberalisation and international trade conventions that Kenya has signed, particularly the World Trade Organisation 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.

Both Treasury and the World Bank have gone on record warning that the reintroduction of the controversial Bill would deal a blow to manufacturers and soil the investment environment in the country to the detriment of the economy.

Existing laws

“The intention of government, although noble, would only cause those poor Kenyans it seeks to protect to suffer in the long-run,” Prof Joseph Keiyah, a researcher at the Kenya Institute for Public Policy Research Analysis, told the Business Daily last month adding that the recently enacted competition law could have been a better avenue to curb spiralling commodity prices

Mr Mutoro said Cofek would seek a constitutional interpretation on the effectiveness of the new Act.

“In the next two to three weeks we shall be seeking a constitutional interpretation of this law in respect to its consistency with other existing laws like that of competition,” he said.

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