· IRRESPONSIBLE POPULISM BY AN UNMITIGATED DISASTER: –
· A columnist with People Daily Gathu Kaara penned an interesting piece (People Daily, Monday, June 5, 2017).
· Kaara said: “NASA presidential candidate Raila Odinga has promised that within 90 days of his being elected, he will bring down the cost of rent, and basic commodities like sugar, milk and maize flour.
· This all sounds very exciting to Kenyans suffering from high cost of living which has skyrocketed in recent months for a variety of reasons. It is, however, irresponsible populism and a threat to the stability of this country.
· Let’s start with rent. How does a government control rent in 90 days? This can only be done by an executive order, as this would not pass Parliament. Many members of Parliament are themselves landlords.
· Immediately the government issues this order, a lot of tenants would simply refuse to pay, and state that the government promised them that they can pay what they can afford i.e. nothing. There will be an immediate clash as landlords attempt to evict tenants who have refused to pay rent, and even those who refuse to pay the amount previously agreed upon.
· Several questions emerge. In which areas will rent come down – Kibera, Runda, Mathare, Lavington, Buru Buru, Athi River, Nakuru, Meru, Kakamega? Where? What will be the basis of reduction in rents? Is it the Consumer Price Index (CPI) that tracks shifts in cost of living; is it an arbitrary percentage determined by government; or is it voluntary? What about rents for business premises; will they come down as well?
· For many tenants, such a declaration by government will be a licence to stop paying rent altogether as “Raila had promised us rents we can afford.” It is noteworthy that Raila is on record defending those tenants in places like Kibera, in Nairobi, who refused to pay rents after the 2007 post-election crisis, and so the script will be the same.
· The bottom-line is that there will be countrywide chaos as landlords hire goons to evict tenants who have refused to pay rent. It is unlikely that a Raila government will survive the ensuing anarchy.
· A lot of the rental houses in the country are on loan from financial institutions. Most of these loans were predicated on the rentals now being charged. These loans will simply go bad, bringing a huge overhang of bad debt to the banking sector’s very foundation, and a number of those institutions will simply go down under the weight of such loans.
· Another critical question is what will happen to the leases that are currently in force legally? Will the government order override them? What then happens if individual landlords go to court and get orders barring interference with their leases by the government? Is a Raila government prepared to spend the next five years battling landlords in courts?
· With controlled rents, housing as an avenue for investment will simply die. All those with plans to put up rental housing will simply stop their plans. Purchase of rental houses by prospective landlords will stop. The booming housing sector in Kenya that has attracted billions in investment will simply die off in six months.
· Raila’s apologists have argued that this can work “with goodwill.” The free market operates on the basis of returns based on demand and supply to attract investors. The minute a government intervenes in free market where there is no abuse of power, then that interference kills enterprise.
· Let’s talk about basic commodities. It is true that any government must make sure basic commodities are within the reach of its population. However, the cost of commodities in a free market is determined by costs along the supply chain. In recent months, prices of basic commodities have shot up alarmingly.
· The drought witnessed in the country has created huge shortages of raw materials leading to high prices to producers. To recover their costs, producers have been forced to push up retail costs of commodities to recover their costs; thus the high prices on shop shelves.
· So, what will happen in the promised three months that will change the prices of raw materials and/or inputs to producers? Only a bumper harvest can change that, or massive importation from low cost markets. And that will not happen in 90 days on NASA government.
· The only answer, therefore, is again, price controls on the basic commodities. Once such controls are effected, the producers simply cannot make their margins, and they stop producing. From available commodities though high priced, there will be no commodities at all. This will be a recipe for a real revolution, let alone the “unga revolution” currently being touted.
· Clearly, Raila’s economic policies are disastrous for businesses and the country’s stability. The man is simply anti-business, and that is why corporate Kenya is so wary of a Raila Presidency!