As fuel and commodity prices rise, the cost of living rises in East Africa

It’s been a week of crises in East Africa, marked by gasoline shortages and increasing consumer costs, as the region continues to shake off the COVID-19 blues in order to resurrect state economies.

Numerous locations have lately seen severe gasoline shortages, and when the product is accessible, the price has skyrocketed.

The expense of living continues to rise. Kenya has a 6.29 percent inflation rate, Uganda has a 3.2 percent inflation rate, Rwanda has a 4.2 percent inflation rate, Tanzania has a 3.8 percent inflation rate, Burundi has a 13.3 percent inflation rate, South Sudan has a 25% inflation rate, and DR Congo has a 5% inflation rate.

In Uganda, where gasoline supplies have been hampered since January, some locations charge $3 for a liter of petrol. Kenya has been experiencing a lack of fuel for the last week, hurting public transportation services. Traders said that the shortfall resulted in an increase in the price of fast-moving consumer products.

In Kenya, the gasoline scarcity was attributed to the government’s inability to pay subsidies to oil traders. Even after President Uhuru Kenyatta approved a supplemental budget authorizing the payment of Ksh34 billion ($298 million) to the Petroleum Development Levy Fund (PDLF), the gap persisted due to a disagreement over the amount owed to the oil corporations by the government. The government said that it was Ksh13 billion ($112 million), while the corporations assert that they are due more than Ksh20 billion ($173 million).

Some Ksh8.2 billion ($71.1 million) was transferred to the enterprises on Monday to cover part of the dues. Petroleum Principal Secretary Andrew Kamau stated that the government was examining how much it owed and that the process may take more than one month.

Some marketers continued to stockpile gasoline waiting for the monthly review of pricing by the Energy and Petroleum Regulatory Authority on April 14, expecting to get higher prices.

In the supplemental budget that President Kenyatta signed on April 4, he granted a Ksh34.4 billion ($298.3 million) contribution to the PDLF to stabilize prices and resolve the crisis.

There was a surge in pump prices across the remainder 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 expenses around the world.

In Uganda, where the price of fuel has climbed to $1.4 per litre, voters ask the government to consider a decrease in taxes on petroleum products and a ceiling on the pump price.

Ugandans living close the border with Tanzania have been crossing across to obtain cheaper petrol, notably at the southern border station of Mutukula.

This past week, Tanzania boosted pump prices by more than 11 percent for petrol and diesel, and 21 percent for kerosene. According to the latest pricing released 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 fuel, diesel and kerosene grew by 13.29 percent, 12.69 percent and 22.72 percent, respectively.

Prices remain highest in Kigoma in the northwest, with Tsh3,093 ($1.33) for petrol, Tsh2,924 ($1.26) for diesel and Tsh2,913 ($1.25) for kerosene, exacerbated by transportation expenses from the coast. Of Tanzania’s three major ports, only Mtwara got a fuel supply in April, Ewura added.

According to GlobalPrices.com, DR Congo had the lowest price in the area for a litre of fuel 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 selling at $1.34, and in Rwanda at $1.33 a liter.

On Thursday, Kenya’s Treasury Cabinet Secretary Ukur Yatani read the country’s budget in parliament, two months ahead of the regular deadline, owing to the forthcoming General Election in August.

Consumers would be spared yearly price hikes on excisable items like as petrol, motorbikes, and bottled water if MPs adopt the proposed revisions to the Excise Duty Act. The proposed changes authorize the Kenya Revenue Authority (KRA) to exempt particular items from yearly inflation tax adjustments based on economic conditions affecting producers and consumers of the affected commodities.

However, KRA has no ability to remove any of the 31 excisable commodities from rising taxes in accordance with inflation. The inflation adjustment, which came into action in 2018, safeguards government spending capacity from being eroded by the growing cost of living.

“The adjustment may not always be suitable for particular items, depending on the economic and social climate confronting these products at that time,” said Mr. Yatani in the budget statement. “To solve this, I propose to authorize the Commissioner General of KRA to exempt from inflation adjustment certain items following review of the existing economic circumstances.”

Billow Kerow, a former Mandera legislator and local manufacturer in Kenya, blames the establishment of price limits on gasoline for the issue.

“Everything is based on gasoline. When the cost of transport rises higher it impacts everything that is conveyed. How many enterprises are not functioning today because there is no petrol?” Mr Kerow told The EastAfrican. “I am in the manufacturing industry and I can tell you our cost of production has gone up more than twice, and it is not only the gasoline — even the FX rate.

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

Hoarding stock
In Tanzania, Ewura advised petrol station operators against hoarding inventories to maximize profits from price spikes.

“There are rumors that some wholesale and retail petroleum providers have resorted to conceal their stockpiles after the higher prices were announced. Any provider discovered storing gasoline will have their licenses terminated,” the agency stated in a notification on April 5.

In Uganda, Prime Minister Robinah Nabbanja stated last week, following a meeting with producers, that bulk importers are taking advantage of supply difficulties to distort the market.

“Some firms have raised the price by a modest margin, while others have boosted it to exploit Ugandans,” she claimed.

“If the governments are honest about reducing the high cost of living, then they should reduce taxes and levies so that pricing can be appealing to the suppliers and the buyers,” said Mr Bunyasi.

In Tanzania, President Samia Suluhu stated the Russian invasion of Ukraine was one of the causes that had contributed to increasing costs. She requested the Cabinet and leaders in many industries to explain to the public why the cost of living had risen up.

President Samia overruled a decision by Energy minister January Makamba to suspend a Tsh100 ($0.043) gasoline fee, saying it would not assist cushion against the effect of the Ukraine crisis.

“It would be preferable for government officials at all levels throughout the nation to simply be open with residents and prepare them for a major spike in the cost of living due of this conflict. It’s going to influence everything, and there’s no use in trying to disguise that reality,” she remarked.

Tanzania’s Energy ministry had indicated the gasoline charge implemented last year would be suspended for three months up to May 2022, as the government continued to watch the predicted global effects from the eastern European war.

“Despite the fact that the suspension would lead the government to lose roughly Tsh30 billion ($12.93 million) in monthly earnings, it is viewed as important to safeguard the people from the repercussions of global oil prices globally,” the ministry stated.

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

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 sunflowers 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, the vice-chairman of the East African Business Council, explained 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.

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.

Tanzania’s GDP is expected to grow 5.8 percent this year, owing to improved tourism performance and the reopening of trade corridors, according to the AfDB. Increases in energy and fuel prices are expected to continue, pushing inflation to 3.4 percent this year. Spending on large infrastructure projects and weak revenue performance are expected to push the fiscal deficit to 3.2 percent of GDP, which will be funded primarily through external borrowing. The current account deficit is expected to narrow to 3.3% of GDP this year, down from 3.9% last year.

Tanzania’s outlook is jeopardized by business regulatory bottlenecks that limit private sector activity and uncertainty surrounding the pandemic. Poverty and unemployment are expected to remain elevated in the coming years as a result of weak private sector activity.

According to the AfDB, Uganda’s economic outlook is difficult. The budget deficit will remain at 6% this year, owing to the need for infrastructure investment in areas such as roads, power, and water. Although debt levels have risen since 2006, Uganda has prudently managed its debt, which is currently classified as low risk of debt distress. However, as the economy slowed in 2020, the government’s financing requirements increased.

Rwanda’s growth is expected to rebound this year, aided by increased infrastructure spending on Bugesera Airport and a rebound in the tourism sector as the pandemic’s effects fade. The African Continental Free Trade Area’s implementation is expected to boost intraregional trade, thereby supporting growth — “particularly if Rwanda increases its share of intraregional exports.”

In Juba, the peace dividend and anticipated recovery in oil production and exports will support a partial economic recovery, with real GDP expected to grow by 2.5 percent in 2022. Inflation is expected to fall to 23.3 percent as containment measures are eased, particularly the reopening of borders with Kenya and Uganda, which will facilitate food and other essential imports.

Burundi’s economy is expected to grow at a rate of 2.1 percent in 2022. “By 2022, inflation would be reduced to 3.2 percent,” the AfDB stated. Risks to this scenario include a decline in global demand, which would hurt coffee and tea exports, as well as a reduction in donor-funded foreign aid.

The economic outlook for the DRC is “favorable” for this year. Real GDP is expected to expand by 4.5 percent in real terms, owing to higher prices for major minerals such as copper and a recovery in consumption and investment.

“By facilitating imports and improving supply to urban centers, the pursuit of public and monetary financial reforms should help bring inflation down to an average of 11.7 percent in 2021–22,” the AfDB stated.

Rwanda’s current account deficit is expected to narrow to 9.1% in 2022, owing primarily to a recovery in tourism and foreign direct investment. The downside risks to the outlook include trade disruptions caused by simmering regional political tensions, as well as a contraction in fiscal space as a result of the growing debt burden. Inflation is expected to moderate to within the policy target range as reopened borders expand the supply of food and domestic containment measures ease. Fiscal deficits are expected to narrow to 7.2% this year, down from 7.8% last year.

Tanzania’s projected increase to 3.4 percent of GDP this year is due to increased public spending and a reduction in grants. Large financing requirements are expected to reach 2% of GDP this year. While the risk of external public debt distress is low, a pandemic is likely to exacerbate vulnerabilities caused by reduced government revenues and reduced capacity for concessional borrowing.

“Sustaining debt sustainability will require lowering debt financing costs, increasing exports, and strengthening domestic resource mobilization to offset the high cost of commercial debt,” the AfDB stated.

Burundi’s public debt is 70% domestic and has increased significantly since 2015, when civil unrest stymied external financing. “Due to Burundi’s structural trade deficit and the continued growth of domestic debt as a result of persistent budget deficits, the risk of debt distress remains high. The AfDB stated that “implementing a comprehensive reform of public finances with the goal of achieving a balanced budget over time is a critical priority for public debt sustainability.”

In the DRC, the extractive sector’s recovery is expected to boost mining exports and earnings from exports. The current account, on the other hand, would remain structurally in deficit, averaging 4% of GDP in 2021–22. Elections in 2023 are expected to result in increased government spending. As a result, the fiscal deficit is expected to decline to 2.5 percent in 2022. In 2022, the current account deficit is expected to narrow to 3.7 percent.

In 2022, real GDP per capita is expected to grow by 1.4 percent. The DRC is one of Africa’s least indebted countries. However, it faces significant financing challenges. External debt accounts for two-thirds of total public debt and is primarily financed through multilateral donors.

Kenya’s Nambale Member of Parliament John Bunyasi, a former World Bank economist, attributed the rising cost of living to poor structures. “We have inept management, which has permitted the hoarding of fuel, artificially inflating the market price. Depending on the import batch, you may earn abnormal profits,” Mr Bunyasi explained. “These are aspects that should be prohibited, as the government is aware of each company’s fuel inventories.”

Mr Kerow stated that petrol is subject to nine levies and taxes.

“Several of them are illogical. Why should motorists be required to pay the Railway Development Levy? Why do you want motorists to pay for the Maritime Shipping Levy and kerosene and diesel adulteration?” he asked. “Rather than providing a subsidy, let us eliminate these costs; then fuel will be affordable.” Up to Ksh73 ($0.63) per litre should be removed.”

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