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East Africa faces crises as fuel, commodity prices go up raising the cost of living

It has been a week of crises in East Africa, characterised by shortages of fuel and rising prices of consumer goods, as the region continued to shake off Covid-19 blues to revive state economies.

Motorists push their car to a petrol station in Kenya on April 4, following a shortage that affected the entire country. PHOTO | FILE

Many areas have recently experienced biting fuel shortages and, where the commodity is available, the price has risen to prohibitive levels.

The cost of living is rising. Inflation is at 6.29 percent in Kenya, 3.2 percent in Uganda, 4.2 percent in Rwanda, 3.8 percent in Tanzania, 13.3 percent in Burundi, 25 percent in South Sudan and five percent in DR Congo.

Inflation

In Uganda, where fuel supply has been disrupted since January, there are places where a litre of petrol costs $3. Kenya was hit by a shortage this past week, crippling public transport services. Traders claimed the shortage had led to an increase in prices of fast-moving goods.

In Kenya, the fuel shortage was blamed on the failure of the government to pay oil marketers their subsidy. Even after President Uhuru Kenyatta signed a supplementary budget for the payment of Ksh34 billion ($298 million) to the Petroleum Development Levy Fund (PDLF), the shortage continued on account of a dispute over the amount that the government owes the oil companies. Officials said it was Ksh13 billion ($112 million), but the companies claim they are owed more than Ksh20 billion ($173 million).

Some Ksh8.2 billion ($71.1 million) was released to the companies on Monday to settle part of the dues. Petroleum Principal Secretary Andrew Kamau said that the government was assessing how much it owes and that the process could take more than one month.

Some marketers continued to hoard fuel waiting for the monthly review of prices by the Energy and Petroleum Regulatory Authority on April 14, hoping to fetch higher prices.

In the supplementary budget that President Kenyatta signed on April 4, he approved a Ksh34.4 billion ($298.3 million) allocation to the PDLF to stabilise prices and end the crisis.

There was a rise in pump prices in the rest of East Africa, with governments blaming the Russian invasion of in Ukraine in late February, which has led to a disruption of the global supply chain and a rise in costs across the globe.

In Uganda, where the price of petrol has risen to $1.4 per litre, citizens want the government to consider a reduction in taxes on petroleum products and a cap on the pump price.

Ugandans living near the border with Tanzania have been crossing over to buy cheaper fuel, especially at the southern border post of Mutukula.

This past week, Tanzania increased pump prices by more than 11 percent for petrol and diesel, and 21 percent for kerosene. According to the latest prices published by the Energy and Water Utilities Regulatory Authority (Ewura) effective April 6, prices of petrol and diesel went up by Tsh321 ($0.14) to Tsh2,861 ($1.23) and Tsh289 ($0.12) to Tsh2,692 ($1.16) per litre, respectively.

A litre of kerosene costs Tsh2,682 ($1.15) in Dar es Salaam, from Tsh2,209 ($0.95) in March. Wholesale prices of petrol, diesel and kerosene increased by 13.29 percent, 12.69 percent and 22.72 percent, respectively.

Prices remain highest in Kigoma in the northwest, at Tsh3,093 ($1.33) for petrol, Tsh2,924 ($1.26) for diesel and Tsh2,913 ($1.25) for kerosene, raised by transportation costs from the coast. Of Tanzania’s three main ports, only Mtwara received a diesel shipment in April, Ewura said.

According to GlobalPrices.com, DR Congo had the lowest price in the region for a litre of petrol this week, at $1.04, followed by Kenya at $1.17 and Tanzania at $1.23. Uganda had the highest at $1.43. In Burundi it was retailing at $1.34, and in Rwanda at $1.33 per litre.

A people’s budget?

On Thursday, Kenya’s Treasury Cabinet Secretary Ukur Yatani read the country’s budget in parliament, two months ahead of the usual date, due to the upcoming General Election in August.

Consumers will be spared annual price increases on excisable goods such as fuel, motorcycles and bottled water if MPs approve the proposed changes to the Excise Duty Act. The proposed amendments empower the Kenya Revenue Authority (KRA) to exclude some products from annual inflation tax adjustments depending on economic circumstances facing producers and consumers of the applicable goods.

However, KRA has no power to exclude any of the 31 excisable goods from higher taxes in line with inflation. The inflation adjustment, which came into force in 2018, protects government spending power from being eroded by the rising cost of living.

“The adjustment may not always be appropriate for some products, depending on the economic and social environment facing these products at that time,” said Mr Yatani in the budget statement. “To address this, I propose to empower the Commissioner General of KRA to exclude from inflation adjustment such products after consideration of the prevailing economic circumstances.”

Billow Kerow, a former Mandera senator and local manufacturer in Kenya, blames the introduction of price controls on fuel for the crisis.

“Everything is dependent on fuel. When the cost of transport goes up it affects everything that is transported. How many businesses are not running today because there is no petrol?” Mr Kerow told The EastAfrican. “I am in the manufacturing sector and I can tell you our cost of production has gone up more than double, and it is not just the fuel — even the forex rate.

“We exchanged the dollar at Ksh110 last year. Today, we are buying it at Ksh117. Goods from China, Indonesia, Europe, and India, the cost of freight has gone up substantially,” he said.

Hoarding stock

In Tanzania, Ewura warned fuel station owners against hoarding stock to maximise profits from price hikes.

“There are reports that some wholesale and retail fuel suppliers have taken to hiding their stocks since the new prices were announced. Any supplier found hoarding fuel will have their licences revoked,” the agency said in a notice on April 5.

In Uganda, Prime Minister Robinah Nabbanja said last week, after a meeting with manufacturers, that bulk importers are taking advantage of supply glitches to distort the market.

“Some companies have increased the price by a small margin, but others have hiked it to exploit Ugandans,” she said.

“If the governments are sincere about addressing the high cost of living, then they should remove taxes and levies so that prices can be attractive to the suppliers and the buyers,” said Mr Bunyasi.

Blame goes to Russia

In Tanzania, President Samia Suluhu said the Russian invasion of Ukraine was one of the factors that has led to increased prices. She asked the Cabinet and leaders in various sectors to explain to the citizens why the cost of living had shot up.

President Samia reversed a decision by Energy minister January Makamba to suspend a Tsh100 ($0.043) fuel levy, saying it would not help cushion against the impact of the Ukraine conflict.

“It would be better for government officials at all levels across the country to just be frank with citizens and prepare them for a big surge in the cost of living because of this war. It’s going to affect everything, and there’s no point in trying to hide that fact,” she said.

Tanzania’s Energy ministry had said the fuel levy introduced last year would remain suspended for three months up to May 2022, as the government continued to monitor expected global fallout from the eastern European conflict.

“Despite the fact that the suspension will cause the government to lose about Tsh30 billion ($12.93 million) in monthly revenues, it is seen as necessary to protect the citizenry against the impacts of global oil prices worldwide,” the ministry said.

The conflict in Ukraine is also threatening global supply of grain, edible oils and fertilisers.

Last week, the Food and Agriculture Organisation said it was not clear whether Ukraine would have a harvest if the war dragged on, and uncertainty surrounded the prospects for Russian exports in the coming year.

The FAO predicted that between 20 percent and 30 percent of farms used to grow winter cereals and sunflower in Ukraine will not be planted, or will remain unharvested in the 2022/23 season.

Russia was the world’s largest exporter of wheat and Ukraine was the fifth largest. Together, they provide 19 percent of the world’s barley supply, 14 percent of wheat, and four percent of maize, making up more than one-third of global cereal exports.

Ken Gichinga, the chief economist at Mentoria Economics, said the importation culture of the region has left it unprotected.

“We have been exposed to global events — whether it is the Ukraine crisis that has disrupted the supply chain. For far too long, we have neglected domestic production, which tends to be more resilient,” he said.

The FAO predicted a rise in international food and feed prices of up to 20 percent.

“Because of the effects of the Covid-19 pandemic, a number of countries have announced goods and food export restrictions or are considering bans to protect their domestic supplies,” said Mr Kerow. “I am a manufacturer of cooking oil. Indonesia and Malaysia, which are the main suppliers of palm oil, have introduced export levies of up to $400 per tonne”

Palm is the world’s most widely used vegetable oil. Prices have risen by more than 50 percent this year, according to the FAO.

In Tanzania, prices of essential commodities such as edible oil, sugar and wheat flour continued to rise. Edible oil costs Tsh7,500 ($ 3.1) per litre, up from Tsh5,000 ($ 2.41). A kilo of sugar is selling at Tsh3,000 ($1.2) from Tsh2,600 ($1.1). Wheat flour is now selling at Tsh2,000 ($ 0.85) against Tsh1,500 ($0.64) per kg previously.

Another reason for the rising food prices is that some traders and importers are observing Ramadhan.

The Tanzania Competition Commission (TCC) director general William Erio warned producers, importers and distributors of sugar and cooking oil against arbitrary price increases.

Zanzibar President Hussein Mwinyi and Prime Minister Kassim Majaliwa also told traders not to hoard essential commodities.

The Isles government has reduced some taxes, including VAT on sugar, and fixed prices on some foods for Ramadhan.

Prime Minister Majaliwa said on Wednesday that the shortage of essential commodities and foods were unjustifiable, and that the price increases were not in line with market realities.

Agriculture minister Hussein Bashe said that edible oil demand in Tanzania was 650,000 tonnes per year, but production is 270,000 tonnes. He said the Ministry is encouraging growing of sunflower, cotton, groundnuts and palm oil to fill the gap. Most of edible oil is imported into the country unrefined from Malaysia and other Asian states.

Simon Kaheru, vice-chairman of the East African Business Council, told The EastAfrican that as a long-term solution, Uganda should build enough fuel reserves to support essential sectors of the economy. He also proposed incentives for manufacturing and distribution.

Uganda’s reserves in Jinja can store up to 30 million litres, against a daily demand of 6.5 million. The reserves can sustain the country for only four days.

Uganda National Oil Company officials said they did not have enough money to restock the reserves.

Low projections

According to the African Development Bank (AfDB), the region’s growth rate fell to 0.7 percent in 2020. East Africa’s GDP growth is projected at three percent. Kenya is projected to grow by 5.9 percent in 2022 from five percent in 2021. But public debt has surged and the country is now in a high risk of debt distress as determined by the International Monetary Fund.

In Tanzania, the AfDB projects a GDP growth of 5.8 percent this year, due to improved performance of the tourism sector and the reopening of trade corridors. Energy and fuel price increases are expected to persist, raising overall inflation to 3.4 percent this year. Spending on large infrastructure projects and depressed revenue performance are expected to widen the fiscal deficit to 3.2 percent of GDP, financed mainly by external borrowing. The current account deficit is projected to narrow to 3.3 percent of GDP this year, from 3.9 percent last year.

The major risks to Tanzania’s outlook include business regulatory bottlenecks that constrain private sector activity and uncertainties regarding the pandemic. Poverty and unemployment are expected to remain high due to depressed private sector activity.

In Uganda, the AfDB says the economic outlook is challenging. The budget deficit will remain at six percent this year, driven by the need for investment in infrastructure, including roads, power and water. Although debt levels have been rising since the multilateral debt cancellation in 2006, Uganda has prudently managed its debt, currently classified as low risk of debt distress. However, with the slowdown in the economy in 2020, the government increased its financing needs.

In Rwanda, growth is projected to rebound this year, supported by high infrastructure spending on Bugesera Airport and a pick-up in the tourism sector as the effects of the pandemic dissipate. The implementation of the African Continental Free Trade Area is expected to boost intraregional trade, which will support growth — “especially if Rwanda increases its share of intraregional exports”.

In Juba, a peace dividend and the projected rebound in oil production and exports will support partial economic recovery, with real GDP expected to grow by 2.5 percent in 2022. Inflation is expected to drop to 23.3 percent due to the easing of containment measures, especially the reopening of borders with Kenya and Uganda, which will facilitate imports of food and other essentials.

In Burundi, economic growth rate is projected at 2.1 percent in 2022. “Inflation would come down to 3.2 percent by 2022,” the AfDB said. Risks that could disrupt this scenario include a drop in global demand that would hurt coffee and tea exports as well as a decrease in foreign aid grants from donors.

The DRC economic outlook for this year is “favourable”. Real GDP is expected to grow by 4.5 percent, driven by higher prices for major minerals such as copper, and recovery in both consumption and investment.

“The pursuit of public and monetary financial reforms should help bring inflation down to an average of 11.7 percent over 2021–22, due to the facilitation of imports and better supply to urban centres,” the AfDB said.

In Rwanda, the current account deficit is projected to narrow to 9.1 percent in 2022, mainly because of a rebound in tourism and foreign direct investment. The downside risks to the outlook include trade disruptions due to simmering regional political tensions, a decline in the fiscal space due to a rising debt burden. Inflation is expected to abate to within the policy target as reopened borders increase the food supply and domestic containment measures ease. The fiscal deficit is projected to narrow to 7.2 percent this year, from 7.8 percent last year.

In Tanzania, increased public spending and a reduction in grants are projected to increase to 3.4 percent of GDP this year.  Large financing needs are projected to reach two percent of GDP this year. The risk of external public debt distress is low, but the pandemic is likely to increase vulnerabilities caused by reduced public revenues and decreased capacity for concessional borrowing.

“Maintaining debt sustainability will require keeping debt financing costs low, increasing exports, and improving domestic resource mobilisation to substitute for expensive commercial debt,” said the AfDB.

Burundi’s public debt is 70 percent domestic and has risen sharply since 2015, when civil unrest caused external funding to dry up. “Due to the structural trade deficit and the continued increase in domestic debt linked to the persistent budget deficits, Burundi’s risk of debt distress remains high. The implementation of a comprehensive reform of public finances aimed at achieving a balanced budget over time is a key priority for public debt sustainability,” the AfDB said.

In the DRC, the recovery in the extractive sector is expected to boost mining exports and to improve export earnings. However, the current account would remain structurally in deficit, averaging 4.0 percent of GDP over 2021–22. The 2023 elections are expected to result in increased public spending. As a result, the budget deficit should deteriorate to 2.5 percent in 2022. The current account deficit is projected to narrow to 3.7 percent in 2022.

Real GDP per capita growth is expected to rise by 1.4 percent in 2022. The DRC is among the least indebted countries in Africa. But it has significant financing needs. External debt represents two-thirds of public debt and is mainly contracted with multilateral donors.

Kenya’s Nambale MP John Bunyasi, a former economist at the World Bank, blamed the rising cost of living on poor structures. “We have bad management that has allowed the hoarding of fuel, increasing the market price. Based on the particular import batch, you may make abnormal profits from it,” said Mr Bunyasi. “These are aspects that should be outlawed since the government knows the stocks of fuel for each company.”

Mr Kerow said there are nine levies and taxes on petrol.

“Some of them don’t make sense. Why would you want motorists to pay the Railway Development Levy? Why do you want motorists to pay the Maritime Shipping Levy, and adulteration of kerosene and diesel?” he said. “Instead of giving a subsidy, let’s remove these things then fuel will be affordable. Up to Ksh73 ($0.63) should be removed per litre.”

The story was originally published at The EastAfrican

 

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