Uhuru unveils bailout to calm political base

President Uhuru Kenyatta Tuesday unveiled a multi-billion shilling economic stimulus package to jump-start the economy and pacify his political base after the amount of cash in Kenyans’ pockets dropped to a four-year low.

The stimulus package will mainly seek to widen the market and offer better produce prices to tea, coffee, milk, rice and potato famers, sub-sectors that are critical in putting money in peoples’ pockets that is needed to boost other sectors via improved purchasing power.

Latest Central Bank of Kenya (CBK) data shows that the cash circulating outside banks dropped to Sh176.9 billion in September — the lowest since September 2015.

The record low cash in circulation comes in a period when the economy has faced a cash crunch that has been reflected in job cuts, stagnant wages for employees and a slowdown in businesses and output.

Mr Kenyatta promised to focus on the economy in the next few months, acknowledging that many people have been complaining of severe hardships in recent years.

Official data shows the economy grew by 5.1 percent year-on-year in the third quarter of 2019, compared with 6.4 percent in the same period in 2018.

The choice of key cash crops in Mr Kenyatta’s bailout suggests the President is keen to calm the restive Mount Kenya and Rift Valley regions—his political bedrock—that has suffered the brunt of the sluggish economic activity and reduced cash in circulation.

The bulk of Kenya’s tea, coffee, milk, rice and potatoes are produced in those regions—which accounted for the bulk of Mr Kenyatta’s votes in 2013 and during his re-election in 2017.

Yesterday, Mr Kenyatta initiated a Cabinet reshuffle amid a growing power struggle between the President’s allies and those of his deputy, William Ruto, who considers himself the heir apparent.

Mr Kenyatta had said during the last election that he would support Ruto in 2022, but is growing closer to veteran opposition leader Raila Odinga.

“My second intent for the year is to increase the money in the pocket of the farmer,” Mr Kenyatta said in a televised address.

“I am also directing action to increase the revenues to the farmer as opposed to the middlemen and brokers.”

The President ordered the immediate release of Sh1.075 billion to the State-backed New KCC where it will use half a billion shillings to buy excess milk from farmers and convert the produce to milk powder.

The milk processor will use the remaining Sh575 million to enhance the processing capacity of its Nyeri and Nyahururu plants.

Dairy farmers have been complaining of falling raw milk prices in a market dominated by Brookside, which is majority owned by the Kenyatta family.

“To protect our milk producers from illegal imports, I have directed the National Treasury to impose a 16 percent VAT on milk products originating from outside EAC,” said Mr Kenyatta.

The Treasury will also provide Sh600 million to the Kenya National Trading Corporation to buy excess rice from farmers in Mwea and Kano, which will be sold to the military, police and schools.

Mr Kenyatta directed the rollout of the Sh3 billion Cherry Advance Revolving Funds, which offers coffee farmers advance payment ahead of harvesting, within 30 days, potentially boosting the cash flow of thousands of farmers.

Potato and banana farmers in Nyandarua, Meru and Kisii will benefit from a Sh300 million package for building cold storage facilities.

Radical measures are targeted at the tea sector, including removing middlemen from the sale of green tea, a fund to cushion farmers from price fluctuations and offering a minimum guaranteed price to the growers.

Mr Kenyatta called for the restructuring of the Kenya Tea Development Authority (KTDA) including eliminating directors’ conflict of interest, arguing that the governance breaches had worked to deny farmers their rightful share.

“As a result of poor corporate governance, farmers who would be earning about Sh91 per kilo of tea are currently earning about Sh41,” said Mr Kenyatta.

Poor weather also helped to curb faming activity in what affected other auxiliary sectors, especially agro-processing.

This is reflected in the fact that three of the six firms listed in the agricultural counters at the Nairobi Securities Exchange (NSE) have issued a profit warning for the financial year ended yesterday.

Agriculture accounts for 34 percent of the country’s Sh8.9 trillion gross domestic product and employs the bulk of Kenyans.

Kenyans are increasingly concerned over mounting debt, sluggish revenue growth, a slowdown in output and job losses.

Companies are struggling with reduced sales and profits in a soft economy that has persisted since 2017 when Kenya went through a bruising General Election followed by a repeat presidential election.

Key firms have put on hold hiring of new staff in an economy that has also witnessed a string of job losses in recent months affecting nearly all sectors, a development that has worsened Kenya’s economic situation and cut the flow of cash.

“We must use politics to shift the economy and indeed to address the plight of the most vulnerable members of our society,” Mr Kenyatta said.