Cartel country: Here are the leeches sucking away your sweat

Ayn Rand, the Russian-American author and individualist, called them “the pull peddlers.”

She described them as a new biological species, “the hit-and-run businessmen, who did not stay in any line of business longer than the span of one deal.”

According to Rand, pull peddlers had no payrolls to meet, no overhead to carry, no real estate to own, no equipment to build.

“Their only asset and sole investment consisted of an item known as ‘friendship’.”

Ms Rand’s fictional society sounds like Kenya, where lopsided policies have seen hard-working individuals punished while looters are rewarded.  

On Tuesday, President Uhuru Kenyatta compared them to “leeches sucking away the blood and sweat of hardworking Kenyans.”

For More of This and Other Stories, Grab Your Copy of the Standard Newspaper.  

Uhuru directed intelligence agents to comb through the nook and cranny of the country with an eye for all the cartel groupings that have “illegally rigged the market.”

“I want the review to pay particular attention to cartels operating in the public systems of budgeting, procurement, regulation and the illegal rigging of markets,” said the President.

Agriculture sector

Special attention, he said, should be put on the agricultural sector.

“Once this review is completed, I further direct the DCI to take necessary action, working alongside the DPP, to confront these cartels with every instrument available.”

Unfortunately, like a cancer that is metastasising, this deal-cutting mentality has infected Kenya’s entire psyche.

Granted, there are brokers critical to a market in which there is an asymmetry of information. They have more or better information than customers.

They operate in markets affecting all sorts of necessities, from food and housing to transport. There are, of course, regulated brokerage services as in the insurance business, stock market or banking sector.

Their conduct and fees are regulated. And if you’re a customer, these brokers will play a critical role in furnishing you with information regarding market prices, products or conditions

However, many of the brokerage businesses in the informal sectors are unregulated and tend to rob business owners and customers by distorting market prices.

If you have tried looking for a house to rent or land to buy, you might have been asked to pay viewing fees by people who claimed to be agents of the owners of the property you were eyeing.

“Most of these agents do not have regulated offices, but they are the ones who will tell you there is a vacant house or property available to buy. Sometimes, the owner of the house or land doesn’t even know these agents exist, which means they can get away with charging you even twice the price,” said Scholastica Odhiambo, an economics lecturer at Maseno University.

“And if you don’t know the market price, you will be robbed. What these brokers end up doing is distorting market prices and even increasing the costs of living.”

Virtually every motorist who parks his car in Nairobi’s Central Business District (CBD) has to part with a few coins to some parking boys. People don’t pay because some service has been rendered, but because of the fear of their car being vandalised next time they come.

But it is the matatu sector in Nairobi that has been in iron grip of these cartels. The rent-seekers are not just the ruffians manning bus-stops, they also include county government askaris and traffic police, according to Simon Kimutai, Chairman of the Matatu Owners Association (Moa).

“There is no day that a matatu will operate and receive its revenues 100 per cent,” says Kimutai.

The expenditure is not on taxes or operations. “These are just monies going to cartels,” he says.

Both traffic police and county government traffic marshals have set up extortion rackets where they collect protection fee from every matatu.

“It is everywhere, it is practised everywhere. It is like it is legal. You don’t have to commit an offense to pay them, it is a facilitation,” says Kimutai, putting the estimates lost by public transport at between 30 and 35 per cent of total sales.

“This leaves the industry so exposed. I am a player in the industry, and I get the figures on what we lose.”

This is a country of cartels. Even with the introduction of a free-market to kill ‘cartelism’ by giving the farmer the discretion to sell to whoever they want to, cartels still thrive.

Desperate farmers

“Rent-seeking arrangements that created resistance to reform in the early stages of the process have been re-established within the evolving market-oriented institutions that have developed since liberalisation, a phenomenon that has been observed more widely in other countries,” said FAO about Kenya’s agriculture.

It is these cartels that extinguished Peter Mwangi’s dream of growing and selling watermelons.

Mr Mwangi had his fill of brokers. He says his first attempt at making a business out of agriculture left him too disappointed with the market chain to keep at it. He got into farming after losing his bank job.

“I grew the fruit in the belief that I could take a truckload to Marikiti (market) and sell at at least Sh30 per kilo. But the cartels and brokers quickly killed this idea,” he told Sunday Standard.

Left with the option of either letting his watermelons rot in the farm for lack of a large enough customer base or selling them at a loss, he reluctantly chose the latter option.

“I ended up selling a kilo of the fruit at Sh20 to a broker, yet I knew the final consumer was buying the fruit at Sh35 to Sh40 a kilo. Why bother struggling to farm when a broker who has no idea how difficult the process is makes more money than you do?”

When trucks carrying fresh produce from different parts of the country get to Nairobi’s Wakulima Market early in the morning, there are people waiting. These are the brokers who purport to connect farmers to their customers.

They determine who offloads vegetables and fruits at the country’s largest fresh produce market, better known as Marikiti.

But these are small-time brokers. There are big-shot rent-seekers that have hijacked the maize, coffee, tea and sugarcane sub-sectors. These are what Timothy Njagi, a research fellow at Tegemeo Institute, calls “political crops.”

“The problem is the capture. When they become what we consider to be real cartels is when they will even influence state decisions and even the interventions to actually suit them,” says Njagi.

In the case of coffee, there is collusion between the marketing agents and the leaders within the co-operatives. The co-operatives have been borrowing money that is not invested in farmers.

“The farmers continue paying debt but they don’t understand it,” Njagi says.

Despite the coffee sector receiving several debt waivers, farmers continue to pay debt.

“The debt was written off but the collateral was never released,” Njagi says. “You can actually see that it is a purely rent-seeking behaviour.”

The so-called sugar barons have consigned farmers to poverty even as sugar millers collapsed. Collusion for importation is what defines sugar and maize sub-sectors.

In tea, where the President has called for the restructuring of the Kenya Tea Development Authority (KTDA), the problem is largely conflict of interest.

“You are a marketer but you are also influencing the decisions at the factory. You cannot make decisions in the interest of farmers,” says Njagi.

The dairy suffers from monopoly. With three processors controlling the entire market, collusion is very easy because there is no competition. “The term is cartel-like behaviour. You can only compare it with Kenya’s energy market,” says Njagi.

Bitange Ndemo, a former Principal Secretary now a lecturer at the University of Nairobi, says there is manipulation of data to begin importation.

“The sugar issues come up either when there is an election or people want to make money,” he says.

“This is where they orchestrate all the producers to be repairing their factories,” says Dr Ndemo. “You ask yourself, why would you do maintenance at the same time? It is to cause a temporary shortage.”

That will give them, the sugar barons, an excuse to import, and because it is expensive, they will ask for duty to be removed.

Then there is the manipulation of consumption data. “The ideal decision-making should be based on data,” reckons Ndemo.

Recently sacked Agriculture Cabinet Secretary Mwangi Kiunjuri wanted to import maize when there was two weeks to harvest. “Why would you import when we are harvesting? When someone makes policy, they should table the numbers and those numbers should be convincing,” Ndemo says.

While wheat consumption in Kenya has more than doubled, production has gone down.

For a country with youth unemployment and vast open lands in Narok, Ndemo does not understand why wheat production is not being boosted. This will guarantee a lot of jobs to youth, he says.

“Because our consumption shifted towards wheat, nobody has addressed it as a policy issue. Everybody is talking about maize,” he says.

But maize consumption has been declining due to changes in lifestyle. Yet policymakers are not making polices aligned to these changes.

“There is a major shift. And that shift is reflected in the problems the farmers have in the North Rift. That always, the cost of production has exceeded the price they set simply because the demand has declined. They are not addressing economic issues,” says Ndemo.

“Instead, they say NCPB will buy a 90-kilo bag of maize at Sh3,500. Do you know when they announce that? It is when they have gone to desperate farmers and bought at Sh1,500,” he says.  

President Kenyatta’s administration, which owes suppliers close to Sh200 billion, has to carry its fair share of blame for the festering of new breed of pull peddlers: the tenderpreneurs. 

These are individuals who use their connections -- or as Rand would call it, ‘friendship’ to government -- to secure government tenders for personal advantage.

Fake supplies

They pocket a good chunk of the pending bills worth Sh32 billion that national and county governments have so far paid out.

To turbo-charge an economy that has largely been moribund, President Kenyatta has prioritised settlement of pending bills to increase the supply of money in the economy.

Unfortunately, some of these pending bills accrued from fake supplies. But, generally, prices for most of the things they supplied to government were hugely inflated.

A probe by the Auditor General’s office showed that pending bills worth Sh35 billion by counties were illegal. Already, three counties were found to have paid Sh500 million of the illegal pending bills.

But perhaps the biggest tragedy has been on inflation of prices of goods supplied to government. A county spent Sh1.2 million to open a Facebook account when all it would have taken is just internet bundles.

There are plenty of other examples.

Former Bungoma Governor and now Senate Speaker Kenneth Lusaka, spent Sh109,000 for a wheelbarrow. On average, an ordinary wheelbarrow costs between Sh2,000 and Sh4,000.

In the ongoing National Youth Service (NYS) saga, a woman rose to riches by supplying air to the state corporation. The Assets Recovery Agency said the family has not demonstrated or tabled any evidence to support claims that they secured contracts with NYS, supplied goods or even paid any taxes to the government on income made.

Inflation of prices and fake supplies that were entered have pushed the government’s expenditure up. A big public sector meant a small private sector.

Suddenly everyone was selling to the government the private sector.

This also saw everyone with money to invest, particularly banks, lend it to government and not the private sector. The private sector, the largest employer and taxpayer, started to suffer. Their contribution to the baking of the national cake started to reduce.

The private sector is the proverbial goose that lays the golden eggs. Eight in 10 people are employed in the private sector. It is this sector that pays taxes. Yet its contribution to the economy has been declining.

“The contribution from private investment has been negative in recent years, declining from 1.3 percentage points of GDP in the four years leading to 2013 to 0.3 percentage points in the four years leading to 2017,” reads a World Bank report on private capital in Kenya.

Do not miss out on the latest news. Join the Standard Digital Telegram channel HERE.

Get the latest summary of news in your email every morning. Subscribe below

* indicates required
Ayn RandCartelsNCPB