The State has received Sh24 billion backing from KCB Group for the importation of cheap foods to be distributed through 120,000 shops in efforts to lower the cost of living.
State-owned Kenya National Trading Corporation (KNTC) said on Wednesday it had secured a letter of credit—a guarantee that a seller will receive a buyer’s payment on time — from the bank to support the importation of 100,000 tonnes of household goods on a duty-free basis.
It has mapped 120,000 retail shops in the country where cheap imported foods would be stocked as the government targets to ease the cost of living that pushed inflation to 9.2 percent in February.
The import scheme intends to force other manufacturers to lower their prices of basic goods, with the government stepping in as the de facto controller of the cost of essential commodities.
The KNTC will set the retail prices of goods including cooking oil, sugar, rice and beans in its quest to lower the cost of basic commodities as it seeks to stabilise the runaway price of goods on the shelf, which has seen a two-kilo packet of sugar retail at Sh312 with maize flour of similar quantity going for Sh200.
“The RRP (recommended retail price) will be managed by supply and demand forces. This will not collapse the market but increase competition. It will also ensure other traders manage their pricing achieving the overall objective of price stabilisation,” Pamela Mutua, managing director at KNTC, told the Business Daily on Wednesday.
“We have been financed by KCB 100 percent and we are still in talks with the other international banks for more support,” said Ms Mutua, adding it has opened talks with the Egyptian Bank Afreximbank and Trade Development Bank for financing.
The State agency with the help of three distributors will sell these commodities directly to the shops that have been mapped out, reducing the long value chain that eventually makes the goods expensive.
The distributors include technology firms Twiga Foods, iProcure and Market Force. Ms Mutua said the choice of three companies is based on their vast distribution coverage and experience with last-mile delivery.
The Kenya Revenue Authority issued an exemption on duty to KNTC for the importation of 125,000 tonnes of cooking oil, 25,000 tonnes of rice, 80,000 tonnes of beans, 200,000 tonnes of sugar and 150,000 tonnes of rice.
This is in addition to the previous duty exemption on 100,000 tonnes of sugar, 100,000 tonnes of rice and 900,000 tonnes of maize, which was issued last November.
Under letters of credit, the State will pay the suppliers later after recovering cash from the corner shops, avoiding the need for upfront payment by KNTC.
The Cabinet in November approved tapping a ‘government-approved bank’ for financial support on the importation of the essential good.
KCB is expected to earn fees from offering letters of credit or offering comfort to suppliers.
The KNTC used to thrive and only had relevance in the ‘70s and ‘80s when Kenya was still under the regime of the command economy, price controls and foreign exchange allocation committees.
At least seven companies have been contracted by the KNTC to import various duty-free commodities, including fertiliser.
However, questions have been raised about how the agency contracted the seven firms.
Fears abound in Parliament that there was no competitive bidding as provided for under the Public Procurement and Asset Disposal Act and that the contracts were simply dished out to favoured entities.
A document filed in the National Assembly shows that the KNTC has contracted Multi Commerce FZC for Sh8.12 billion to supply vegetable oil and Indian white rice.
Standard Petroleum won a Sh5.5 billion deal to supply rice, red kidney pinto beans, cooking fat and fertiliser.
Lamar Commodity Trading will pocket Sh2.7 billion to supply NPK fertiliser (quantity is not stated), while Charma Holdings Limited has a Sh2 billion tender to supply edible vegetable oil.
The others are Makram Imports and Export Limited with a Sh1.88 billion tender for the supply of Indian raw white rice, Shehena Company Limited to supply jerry cans of edible oil at Sh1.33 billion and Nutrivine Sh187.5 million to supply rice.
State estimates show the cost of basic food commodities will decrease by at least 30 percent under the duty-free import scheme.
“All commodities and fertiliser have the KNTC brand name on their packaging. The corporation will also publicise the recommended retail price for all its commodities in the market,” said Ms Mutua.
“The mapped shops will be using an e-commerce application which will help the corporation to manage the last mile.
In addition, the corporation will deploy a team for spot check and collection of market intelligence.”