Economy

Treasury sets stage for clash with House over price controls

A law that provides for regulation of prices of commodities may not be enforced after the Government signed a commitment with the IMF to pursue free market ideals in the hope of attracting investors.

The rethink of the Price Control (Essential Goods) Act, 2011, which was signed into law by Kenya's President Mwai Kibaki in October last year leaves consumers at the mercy of traders even in the case of essential commodities like food and fuel which are behind rising social tensions in many countries.

“We are convinced that price controls do not work, may be detrimental to economic activity, reduce access to essential goods and hurt the poor most,” the government said in a letter of intent — a kind of memorandum of understanding — to the International Monetary Fund (IMF).

The letter was signed by Finance Minister Uhuru Kenyatta and Central Bank governor Njuguna Ndung’u in November but was posted on the International Monetary Fund website this week on Wednesday.

Under the Act, the Finance minister is authorised to declare any goods to be essential commodities and determine the maximum prices in consultation with industry players.

The Government, however, indicated it was unlikely to adopt the provisions of the new laws.

“We remain committed to a policy regime free from controls on prices, interest rates, and the exchange rate,” Mr Kenyatta and Prof Ndung’u said.

Analysts had observed that price control laws presented a mixed bag for the Finance minister as he juggles between protecting the poor through price caps on basic goods and maintaining the confidence of investors.

“We only hope the minister has not fallen to the whims of crafty firms in the economy.

There seems to be a selective implementation of legislation that have to do with consumer protection,” Mr Stephen Mutoro of the Consumer Federation of Kenya (Cofek) said on Thursday.

Prior to the signing of the Act into law there had been indications that the State would not fully embrace it.

President Kibaki had rejected the Bill in 2010, saying 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 the Treasury and the World Bank have consistently warned that the reintroduction of the controversial Bill would deal a blow to manufacturers and poison the investment environment.

Cushioning consumers

Adopting the new laws would have left the Government with an intricate balancing act between cushioning consumers from high prices while not hurting the productive sector through administrative curbs that leave little headroom for reasonable return on investment.

In the past, the 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.

However, the consumer could find solace in the new Competition Act which provides for punishment of businesses that knowingly sell sub- standard goods and lie on pricing.

The competition law also provides checks on dealers who overstate the capabilities of goods and services.
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