For many Kenyans, life was unbearable during former president Uhuru Kenyatta’s reign. But just one day after new president William Ruto’s inauguration, life is about to get more onerous, with the imminent lifting of a fuel subsidy that has kept the price of petrol, diesel and kerosene the lowest in eastern Africa.
“On fuel subsidy alone, taxpayers have spent a total of $1.2 billion [since 2020],” Ruto said during his inauguration before projecting that if it continues till June next year, it will cost Kenyans $2.4 billion. To cushion manufacturers and processors against high production costs, the government has spent $74 million in fuel subsides since April last year.
The move is seen as Ruto bowing to pressure from the International Monetary Fund, which in July set a new condition for the Kenyan government, requiring a removal of the fuel subsidy by October under a 38-month $2.34 billion loan.
The Energy and Petroleum Regulatory Authority (Epra) will announce new fuel prices today, and forecasts show there will be a 25% increase.
Higher fuel prices will lead to more job losses
Since January, the price of petrol has risen by 50%, resulting in higher production costs, hiked prices of consumer goods and a general rise in service fees. Dollar shortages arising from the war in Ukraine, Kenya’s low export volumes, and a plunging local currency could add into fuel woes to pronounce more job losses from the manufacturing sector.
Speaking about the dollar shortage, months back, Kenya’s central bank governor said “the forex market generates and distributes about $2 billion every month. If you have a sector which is importing $100 million a month, I think that’s nowhere near the $2 billion that we are putting out there.”
In Ruto’s administration, Kenyans can expect to be cushioned from rising food prices but not through subsidies which he perceives as short-term solutions to perpetual problems.
“There was an attempt to subsidize maize flour in the run-up to the election, a program that gobbled up $58 million in one month, with no impact. In addition to being very costly, consumption subsidy interventions are prone to abuse, they distort markets and create uncertainty, including artificial shortages of the very products being subsidized,” Ruto said.
The bottom-up way asks for more effort
Ruto knows he must act fast to fix the economy and has announced a 46% price reduction in fertilizer as his government plans to establish a $420 million ‘Hustler Fund’ credit facility for small and medium sized businesses meant to stabilize the economy the bottom-up way. But that is far from enough.
“He should reduce the price of all farm inputs. The cost of seeds, pesticides and farm machinery is still very high,” John Ndarugu, a large scale farmer in Nakuru tells Quartz.
“It will be more difficult living or doing business in Kenya now,” Samuel Musyoki, a bar owner in Nairobi tells Quartz.
Correction: An earlier version of this article incorrectly attributed a quote by the central bank of Kenya governor to Kenyan economist Ken Gichinga.