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Why there might be no cheer this festive season

BUSINESS
By | December 3rd 2011

By KENFREY KIBERENGE

It’s December. But is there anything to make merry over? Kenyans are set to experience one of the gloomiest Christmas seasons as the cost of living continues to go up pushing most basic needs out of reach for majority.

Two weeks ago, the Energy Regulatory Commission (ERC) increased the prices of fuel by up to Sh4, paving way for manufacturers and service providers to adjust their charges upwards to maintain their profit margins.

Manufacturers say the cost of goods will soon increase, but some service providers say they are caught in a tricky situation after successively increasing prices throughout the year.

Soaring inflation means that many may not celebrate Christmas like they have always done in the past. [PICTURE: FILE/STANDARD]

ERC announced an increase in super petrol prices in Nairobi by Sh3.63 up to Sh124.13 shillings and diesel by Sh3.36 to 114.30 per litre. The price of kerosene also went up by Sh4.92 to Sh94.87 a litre.

"The key drivers of this trend have been high international prices of crude oil and refined products and a weakening shilling against the dollar," explained Kaburu Mwirichia, ERC director general.

ERC’s move will translate into an automatic increase in fare prices around the country, which is expected, as is always the norm, to rise further during the Christmas period.

Increased fuel prices

Ms Betty Maina, the chief executive officer, Kenya Association of Manufacturers, said the higher cost of production and transportation of their goods as a result of increased fuel prices will necessitate a price increment.

"We will be facing higher prices by Christmas," said Maina.

Kenyans have been forced to contend with an ever-increasing cost of living throughout this year as fuel prices escalated on an almost monthly basis pushing basic commodities such as food and transport beyond the reach for many.

In less than a year, a litre of super petrol in Nairobi has risen by a whopping Sh30 from Sh94.03 in January to the current Sh124.13.

Food prices have also increased steadily over the same period with a 2kg packet of sugar now retailing at between Sh375 and Sh400 in Nairobi up from Sh200 in December last year.

The cost of kerosene, which is used as a source of energy by most households, also jumped from by Sh19.04, from Sh75.83 in January to the current Sh94.87.

Fare charges around Nairobi have also gone up by between Sh10 and Sh30 over the same period.

Analysts now say Kenyans should brave for a difficult festive season because of myriad factors that also include a weakened shilling, high interest rates on loans and the war on Al Shabaab.

Consumers Federation of Kenya boss Mr Stephen Mutoro argues that the gloom over the Christmas period will stem from the fact that while the cost of basic commodities has increased progressively, the income of most Kenyans has remained the same.

"Most people will not travel upcountry to celebrate with their extended families as a result of increased fares, which will go even higher this year," Mutoro says.

To him, there is no reprieve in sight as parents could be forced to fork out more school fees come January as schools managements also seek to cope with increasing cost of food and transportation.

"The Government needs to admit they have let down Kenyans," he said.

Common sense

Matatu Owners Association chairman Simon Kimutai, says the industry operators are now exploring various options to come up with a permanent solution to the fare menace that have more than doubled in the last two years in some routes.

"Common sense demands that we should increase the fare to correspond with the high fuel prices but we cant even find the strength to do that at the moment," Mr Kimutai said.

He said the Government should reduce the fuel levy which he said has increased by 1,000 per cent from the Sh5,000 paid a few years ago.

However, Kimutai said fares must double during the Christmas period as is the tradition.

"Since we are in a liberal market, then we let the market forces dictate the prices. People will be traveling to one direction so if operators double their prices, then one must understand where they are coming from. For instance, if a matatu ferries passengers from Nairobi to Kisumu, it will likely come back empty so the increased figure covers this," he reasoned.

Mr Michael Otieno, a governance advisor at the National Taxpayers Association, says Kenyans must brave for tougher economic times as we head into Christmas period, as companies pass higher operating costs to consumers.

Asked whether companies would pass on the extra cost to consumers or absorb the same, Maina posed: "Whom do you want to pay?"

The prevailing exchange rate and local fuel prices are key determinants of cost of living. This is because most of the commodities used in Kenya are imported using the dollar, as the Kenyan shilling is not accepted at the international market.

Most Kenyan companies also rely heavily on fuel as a key source of energy in production and transportation.

Kenyans had expected that with the decreased crude oil prices at the international arena, the same would be reflected here when ERC made their monthly review earlier in the week.

But according to analysts, measures by Central Bank of Kenya to arrest the free falling shilling have made this impossible.

Crude oil

In Kenya, tenders to import crude oil are floated every month meaning the winning oil company has to negotiate for loans from banks with the prevailing interest rates.

This also means most Kenyans will also shun loans hence they will have little money to spend during the festivities.

Christmas mood will also be dampened by security concerns due to the war against Al Shabaab in Somalia, with the people wary of the group’s threat to hit Kenya.

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