Commentary (by Robert Shaw) - In all ways, Kenya is facing very difficult times ahead

Ref: http://www.nationmedia.com/dailynation/nmgcontententry.asp?category_id=25&newsid=120709

Story by ROBERT SHAW
Publication Date: 4/8/2008

FELLOW KENYANS, WE ARE being buffeted by a second crisis. No, I am not talking about the post-election fallout and turmoil and the continuing standoff regarding who gets what piece of the action.

I am talking about the breathtaking spiralling cost of living, eating and just existing and how it is fast overtaking more and more people’s ability to manage and to feed their families.

Kenya has more than half its population living on the wrong side of the poverty line and is in the top 10 league of the most unequal societies in the world.

Much of the 1990s and early part of this decade were lost years in terms of economic progress.

Add onto that the endemic corruption, misuse of power and disproportionate economic progress and gains of the last few years. The latter is most important.

Tourism and horticulture may have raced ahead, but some vital economic and social sectors that millions of Kenyans depend on such as sugar, pyrethrum and cotton have languished.

NOW, LET’S ADD ON TO THAT THE present and get closer to the nub of the crisis. Regardless of the reasons behind it, the hard fact is that Kenya needs to import a large slice of its staple foods: two thirds of its wheat; three quarters of its rice; over a third of its sugar; much of its edible oils, and so on.

In a bad year, and this is likely to be one, we will also have a strategic deficit of maize and will need to import, especially in the third quarter of the year.

There was a time, not long ago, when several people, myself included, advocated that we should not build up strategic reserves of maize but import domestic shortfalls because the former was exceedingly expensive.

Now all that is turned upside down. Consumption of food is outstripping supply and that is not a temporary blip. World food stocks are at the lowest they have been for years.

This is for a number of well-documented reasons: increasing consumption particularly in the fast growing economies of China and India; poor harvests, and the diversion of some of these products into making biofuel.

Prices are literally going through the roof. Wheat prices have doubled in a year, and on average, world food prices have increased by some 40 per cent this year alone.

The price of locally grown maize is rising by the week and is in the region of Sh1,400 per 90-kilo bag. It will not be long until it reaches the world price which is now in excess of Sh2,000.

Indeed, countries are now imposing restrictions or taxes on food exports in order to safeguard or preserve their domestic supplies.

There are very few food products that will be unaffected. If supply tightens and prices rise, one shifts to a cheaper food.

Demand for that product increases and prices rise accordingly.

Secondly, Kenya is in no position to buck the world trend because of the quantity of food it needs to import.

To round off the picture, there are three other factors: fertiliser prices, the post-election mayhem, and fuel prices.

As farmers are finding out, the former has doubled in less than a year. If one can afford it, all well and good. But many farmers can’t and are either cutting back on the acreage, or using less fertiliser.

EITHER WAY, WE END UP WITH REduced harvests. It is estimated that the main crop from our breadbasket in North Rift and Trans Nzioa will be at least 30 per cent less this year.

The second factor resulted in some of our crop being destroyed, reduced acreage under cultivation and delays in planting. It is an important negative cause but should be seen in the context of the other issues and not blamed solely for the price rises.

Thirdly there is the oil factor. Oil prices are now in excess of $100 a barrel, an all-time high even in real terms, and the supply and demand equation is such that we are unlikely to see much relief from that.

The trouble with oil price increases is that they affect literally everything that requires to be transported whether goods or people.

In conclusion, Kenya, and the world, is in the early stages of a price explosion. It has many ramifications. It will plunge more people into poverty.

It will have a negative effect on virtually all our social indicators, particularly in the nutrition and health arenas.

It will continue to result in serious social unrest as those prices bite and scarcities spread. It will test sorely the competence and capacity of government in reducing the impact and keeping social order.

Mr Shaw is a businessman operating in Nairobi.