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Taming Kenya’s Inexorable Cost of Living

Prices for basic necessities like food, fuel, and energy have increased since President William Samoei Ruto was sworn in in September 2022, especially for poor households that make less than $1 per day. This has increased pressure on the Kenya Kwanza government to address the high inflation rate and cost of living in the nation because many Kenyans are still struggling.

Abraham Maslow, an American psychologist, put out the concept of Maslow’s hierarchy of needs in the 1943 work “A Theory of Human Motivation” published in the journal Psychological Review. The basis of Maslow’s theory, according to psychologist, is that we are motivated by our needs as human beings. Maslow’s hierarchy of needs is a theory of motivation which states that five categories of human needs dictate an individual’s behavior. Those needs are physiological needs, safety needs, love and belonging needs, esteem needs, and self-actualization needs. Therefore, people require some things on a basic level. To survive, we need access to food, drink, fresh air, and shelter. Humans cannot survive if even one of these necessities is not supplied.

Since last year, runaway inflation and instability have been fuelled in parts of Africa, including Kenya, as the price of global goods, particularly energy, has increased dramatically. Kenya’s devalued currency is causing more inflationary pressures, driving up import prices and heightening concerns about debt payment.

The Russia invasion of Ukraine, according to report, has disrupted oil, fertiliser and wheat supplies leading to the increased cost of the commodities globally. While elevated oil prices, compounded by limits on Russian oil exports have increased the cost of importing refined petroleum, putting pressure on Africa’s forex markets, with the net importers such as Kenya suffering the most. The cost of living crisis is being exacerbated by the Russia-Ukraine conflict which have resulted in sanctions, airspace bans and security, according to a research by analysts at the Economist Intelligence Unit, EIU, “aggravating pandemic-related supply-chain difficulties” (Economist Intelligence Unit, 2022).

The impact of inflation is being lessened by governments implementing policies like tax cuts, free train travel, energy subsidies and cash transfers. The UN Development Programme (UNDP), a United Nations agency tasked with helping countries eliminate poverty and achieve sustainable economic, study from the previous year cautions that not all policies will be equally effective and some may disproportionately benefit wealthier people. According to report author George Gray Molina, UNDP Head of Strategic Policy Engagement, “While blanket energy subsidies may help in the short term, in the longer term they drive inequality, further exacerbate the climate crisis, and do not soften the immediate blow of the cost of living increase as much as targeted cash transfers do.” They offer some relief as an immediate band-aid, but risk causing worse injury over time.

Kenya is the 27th most populous country in the world and the seventh most populous in Africa, according to the 2019 census, with a population of more than 47.6 million people. Lower-middle-income countries include Kenya. The greatest economy in eastern and central Africa is that of Kenya, with Nairobi acting as a significant regional economic hub. The biggest industry is agriculture, which traditionally produces cash commodities like tea and coffee and exports fast-growing goods like fresh flowers. Together with tourism, the service sector is a significant economic generator. The agriculture sector contracted by 1.5% in the first half of 2022 and, with the sector contributing almost one fifth of GDP, its poor performance slowed GDP growth by 0.3% (IMF, 2022).

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The government of Kenya is taking steps to correct the shocks occasioned by the Russia-Ukraine war. Available data indicates that, the cost of goods and services has increased significantly due to the disrupted oil supply and subsequent price increase, as noted above. Due to this abnormality, Kenya has continued implementing a fuel stabilisation programme to stabilise and maintain oil prices. Similarly, the government has taken measures to ensure that oil marketing companies do not take advantage of the situation to cause artificial shortages and increase oil prices. In addition, Kenya’s authorities has moved to increase its strategic oil reserves by allocating a higher quota to the National Oil Corporation of Kenya (NOCK) to act as a national strategic oil reserve. Local expert found that, “Diversification should be a good strategy for the cost of living in Kenya. This is because despite the upheaval, Kenya-Ukraine and Kenya-Russia trade is modest compared to trade with other countries.”

Nevertheless, in recent years, the statisticians have paid considerable attention to a subtle problem: that the change in the total cost of buying a fixed basket of goods and services over time is conceptually not quite the same as the change in the cost of living, because the cost of living represents how much it costs for a person to feel that his or her consumption provides an equal level of satisfaction or utility. However, economists measure the cost of living by looking at different cities or countries and adding up the prices of the goods that people need to live an average life— food, housing, transport, energy and healthcare and taxes. They then look to see where prices are on the whole are the most expensive.

In 2022, the rising cost of living in Kenya coincides with the country’s general election in August 9. The topic was a major talking point throughout the campaigns of the two leading contenders to successor former President, President Uhuru Kenyatta. The longtime opposition leader Raila Odinga then pledged cash transfers to low-income households while the new president William Ruto spoke of a “bottoms-up” strategy to boost the economy. Unfortunately, nothing has changed since the new administration took office. Moreover, President William Ruto has revised the time frames within which he had promised to lower the cost of living for Kenyans.

A Consequence of Inflation

The rising food costs in Kenya have increased the burden on households and the expense of living, according to new data, inflation climbed to 9.2 per cent in February, as some food costs went up to 11 percent more than they did in January. This is a reverse trend. It is coming after inflation slowed for three consecutive months to hit 9 per cent in January, after accelerating through 2022, seeing households struggle with a high cost of living (Zawya, 2023).

Inflation is an increase in the level of prices of the goods and services that households buy.” Though, it is measured as the rate of change of those prices. Typically, prices rise over time, but prices can also fall (a situation called deflation). In order to measure changes in the cost of living, the Consumer Price Index (CPI) is often utilized, but it is not an ideal indicator of this,” noted one sage. While the CPI measures price changes, cost-of-living inflation is the change in spending by households required to maintain a given standard of living. As consumers’ cost of living depends on the prices of many goods and services and the share of each in the household budget. However, to measure the average consumer’s cost of living, government agencies conduct household surveys to identify a basket of commonly purchased items and track over time the cost of purchasing this basket. Trading Economics, a variety of economic indicators provider for many countries around the world, states that Kenya’s Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of goods and services. Consumer Price Index CPI in Kenya increased to 130.13 points in February from 129.29 points in January of 2023 (KNBS, 2023).

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As local reports state, millions of people in Kenya still struggle to survive. “Kenya National Bureau of Statistics (KNBS) Consumer Price Index (CPI) noted that in February, food commodities contributed greatly to the high inflation, reflecting the pain Kenyans are enduring.” The KNBS CPI indicated that cabbages, carrots and Sukuma wiki (kales) were among food items whose prices rose by highest rates. The three commodities’ prices rose by over 11 per cent within just a month. “Tomato prices also increased by 7.8 percent compared to January while the prices of fresh unpacked milk increased by 2 per cent,” (KNBS, 2023). “Households also felt pain refilling their cooking gas,” the article continues, “whose price increased by 4.7 percent in February compared to January, even as electricity prices fell by between 2.9 and 3.7 percent on different user bands.”

On the other hand, Kenya’s high cost of living is a recurring problem that has left many households struggling to make ends meet. High prices for food and fuel, rising taxes, and a depreciating currency have all been blamed for inciting inflation. Apparently, the “cost of living in Kenya is, on average, 58.8% lower than in the United States.” Rent in Kenya is, on average, 83.7% lower than in the United States, according to some data. However, for the residents of Kenya, paying rent is a difficult job, given the fact that their salaries are also pretty low, according to Travel Safe. “An apartment in the center of any of the main cities will cost you around $250. Low incomes are the main reason why high rents are such a huge problem. If an average person receives an average salary of about $400, they can barely afford to rent a normal-sized apartment in a city centre. The minimum wage in Kenya is also pretty low: just a bit above $140. “ The travel information platform says, “This is barely enough to make ends meet even while living in pretty bad conditions.”

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Also, a report claims that inflation is rising as a result of a modest increase in Kenya’s cost of living in February. The annual inflation rate in the country accelerated to 9.2% in February of 2023, from 9.0% in January, above market forecasts of 8.8% (Trading Economics, 2023). Hitherto, it rose to 7.9 per cent in June of 2022, breaching the upper limit of the Central Bank of Kenya’s target range of 2.5 percent, -7.5 percent for the first time since August 2017. Similarly, inflation slowed to 9.1 percent in December 2022 from 9.5 percent a month earlier. The inflation rate rose beyond Central Bank of Kenya’s guided upper limit of 7.5 percent mid-2022 and has remained up, triggering the bank’s move to raise lending rates as a control measure.

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Still, the new government in January 2023, eliminated the low-cost Kenya Power electricity subsidy, which cost taxpayers Sh26 billion over a one-year period. According to report, the International Monetary Fund (IMF) and Kenya Power had opposed further extension of the cheap electricity subsidy placed by former President Uhuru Kenyatta’s government. Compared to the UK, where the worst-affected households are those on low incomes with higher-than-average energy bills (for example if they have a large family). While these households have received additional payments from government, these are not sufficient to match the increase in energy and other costs. The energy price guarantee provides a big benefit to this group, but on average they are still worse affected by the crisis.

Kibera, one of the biggest slums in the world, is located in Nairobi, Kenya. There are thought to be between 170,000 and one million residents of the shantytown. Almost 500,000 people live at the United Nations High Commissioner for Refugees (UNHCR) facility in the semi-arid town in Garissa County, named Dadaab. The Dadaab refugee complex has a population of 218,873 registered refugees and asylum seekers as at the end of July 2020 (UNHCR, 2023).

To discover the situation of vulnerable people, such as refugees, in urban and suburban areas of Kenya. The International Rescue Committee (IRC), the global humanitarian aid, relief, and development nongovernmental organisation, points out that “The lack of safety nets to protect refugees and vulnerable host residents from the impact of the crisis undermines achieved or planned development gains. As governments, bilateral and multilateral donors establish a response to support affected populations in East Africa, they should draw lessons from the COVID-19 response and ensure assistance is provided without discrimination based on refugee status or location. While inclusive social protection systems are being set up, immediate multipurpose cash assistance should be scaled for the urban displaced who have been chronically underfunded.” Although “donors and humanitarian frontline responders should coordinate closely with national and city governments, to support targeting and last mile delivery of social protection services that ensure the inclusion of urban displaced populations,” (IRC, 2022).

In order to cushion this social and economic crises. The 26th edition of the Kenya Economic Update (KEU) released in December, 2022 by the World Bank suggest the need to prioritize policy options that help to  raise both productivity and resilience, at the household, producer, and national levels. Keith Hansen, World Bank Country Director for the country, “Kenya can further leverage the agriculture sector to spur growth, poverty reduction, and food security,” noted . “Boosting food resilience through community interventions in arid and semi-arid lands while supporting farmer groups to link into sustainable value chains will help to better feed Kenya during periods of drought,” (Hansen, 2022). While private sector led growth is critical to job creation and a steady increase in household living standards over time, added Naomi Mathenge, World Bank Senior Economist for Kenya.

Similarly, at the July 7th, 2022, Strathmore University Business School’s Economic Symposium, experts, decision-makers, and stakeholders expressed the following opinions: “The broad consensus is that fiscal sustainability entails policies that promote economic growth, maintain national solvency, a supportable debt position and create stable taxes that are equitable,” they claim. Also, prudent fiscal policies and enforcement will help Kenya manage current and future pressures. As Kenya’s gross debt crosses the 8 trillion shillings’ mark in 2022, the old adage ‘Live within your means,’ rings especially true for Kenyan leaders and policymakers as debt repayment costs rise and the country grapples with global shocks. While Kenya cannot rewind time, the unfolding situation highlights the urgent need for governance reforms to improve debt transparency and strengthen debt management policies and frameworks.

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