Hard economic times in East Africa as commodity prices go through the roof
Monday March 14 2022
March has been a hard month for the citizens of East Africa as the cost of living soared, leaving the poor staring at destitution and businesses reeling.
While the situation has been largely blamed on external factors such as Russia’s invasion of Ukraine last month and the subsequent disruption of the global supply chain, citizens have been petitioning their governments to urgently find measures to cushion them.
Talks on price reduction
In Uganda, for instance, citizens are hanging on to the hope that a crisis meeting between the Prime Minister Robinah Nabbanja and manufacturers of soap, cooking oil, salt and other household items will lead to a reduction in the prices of essential commodities which have skyrocketed in recent weeks.
Captains of industry warned last week that the cost of living on account of the surging prices of essential household items will get worse before it gets better as external shocks causing prices to skyrocket are not about to ease.
Last week, the situation prompted a debate in Cabinet and parliament, which resulted in a meeting on Friday between the prime minister and executives of companies that manufacture household items, to persuade them to ease the prices and the cost of living.
The prime minister told The EastAfrican that the hike in the prices of raw materials from the source was minimal and did not warrant the prices of soap, for instance, to double.
“Cabinet directed that we meet these companies on Friday and produce another paper for Monday’s session,” Ms Nabbanja told The EastAfrican. “It is the bulk importers that are taking advantage of this situation to raise the price and distort the market. Some companies have increased the price by a small margin, but others have hiked it to exploit Ugandans.”
Oil, natural gas prices surge
In Kenya, manufacturers have issued an alert over the impending decision to increase prices for finished products as the cost of crude oil soars to $130 a barrel, amid escalating war between Russia-Ukraine which has taken a toll on the global economy, pushing households to the verge of financial distress.
Oil prices have surged by more than 30 percent since Russia invaded Ukraine on February 24 and last week the deteriorating situation in the Eastern Europe’s neighbouring states sent oil skyrocketing to more than $130 a barrel — its highest price since the global financial crisis, according to analysts at AZA Finance, a pan-African foreign exchange dealer. This has been exacerbated by uncertainties about the possible return of Iranian crude oil to global markets.
Last week, natural gas prices soared in Europe touching $375 per megawatt-hour while wheat futures neared record highs. So bad is the situation that Kenya has the cheapest diesel in the region. A litre of diesel costs $0.99, compared with $1.04 in Tanzania, $1.22 in Uganda and $1.31 in Burundi.
This bucks the trend where Kenya has had the costliest fuel in the region, mainly due to high taxes and levies. The shift in the market structure is linked to the introduction of monthly subsidies in April 2021, which cut the current diesel prices by Ksh23.29 ($0.2) a litre.
In Tanzania, President Samia Suluhu on March 8, acknowledged the rising cost of living, blaming it on the change in commodity prices was due to rising global oil prices. The Samia administration last month announced the reduction by Tsh100 ($0.04) the levies charged on petrol, diesel and kerosene to cushion the economy.
“The cost of living is going up, as prices of everything are going up. This is not a leadership issue, it is the state of the world,” President Samia said on Wednesday. In Uganda, officials blame the surging prices of household items on high fuel prices, the introduction of a Ush200 ($0.055) levy on each litre of cooking oil and the imposition of 10 percent import duty on crude palm oil in July 2021.
The external factors on the other hand are the ongoing Russia-Ukraine war, which puts pressure on the local sunflower oil, freight costs that have since the start of the Covid-19 pandemic gone up by over 200 percent and the current international crude oil prices.
Ukraine and Russia are the top sources of sunflower oil in the world, with the former accounting for 46 percent of the exports while the latter accounts for 23 percent.
Executives at Mukwano Group, one of the largest manufacturers of soap, detergents and cooking oil in Uganda, say the prices will continue to rise because they are largely driven by external supply shocks and only domestic issues.
A litre of cooking oil hit Ush11,000 ($3.02) in most retail shops on Thursday, while by press time, a 1kg bar of washing soap was retailing at Ush8,600 ($2.36) – a jump from Ush4,700 (1.29) in the second week of November 2021.
Data from Uganda Bureau of Statistics shows that the price of soap has increased by 86 percent since mid-last year, and the surge is not about to stop, according to Businge Rwabwogo, the Head of Operations at Mukwano Group
“It will even go to Ush10,000,” he said, referring to the price of soap.
Manufacturers of soap, cooking oil and cleaning detergents import all raw materials from Malaysia and Indonesia, where the prices of glycerine have more than doubled over the last two years from $750 to now $1,700 per tonne.
Despite the prime minister’s efforts, critics argue that nothing will come out of her meeting with manufacturers as government cannot rein in on factory owners to produce and sell at a set price.
“People in government are not bothered by the commodity prices. You hear of liberalisation, supply and demand. You can't talk of liberalisation, yet the people who told you about it, the US, are not following it,” said Jane Nalunga, Executive Director of Seatini Uganda.
“There is anxiety about the rising cost of living, but all these are caused by externalities,” said Ramathan Ggoobi, the Ministry of Finance Permanent Secretary, while releasing the Absa Africa 2021 financial markets index at Serena this week.
Covid, geopolitics and rising costs
He blamed Covid-19 pandemic for disrupting supply chains and geopolitics in Eastern Europe, before saying the situation will normalise soon. On Thursday, legislator Mbwatekamwa Gaffa also told Parliament that government should act and suspend tax on fuel as it is one of the factors driving commodity prices up, across the board.
“It is not only the prices of essential commodities such as soap and salt but also the prices for agricultural inputs have gone up, yet the majority of the people depend on agriculture,” he said, prompting Deputy Speaker Anita Among to task government to table a statement on March 15, on high prices.
Kenya’s oil marketer Rubis Energy last week announced an increase in the cost of refilling liquefied petroleum gas cylinders with the cost of refilling a 6kg gas retailing at Ksh1, 560 ($13.68) from an average of 1,400 ($12.28) while that of a 13kg cylinder moving to Ksh3,340 ($29.29) from around Ksh3,000 ($26.31).
“To add salt to injury, Kenya’s excessive taxes especially value added tax on LPG has already seen prices rise prohibitively,” said Stephen Mutoro, Secretary General of Consumers Federation of Kenya.
“Most sectors in manufacturing will be impacted by the rise in oil prices due to increased cost of production and transport. The country is reeling from the impact of the pandemic. The cost of living has been increasing, against dwindling purchasing power of citizens,” said Phyllis Wakiaga, Kenya Association of Manufacturers chief executive.