High Cost of Living Should be Addressed Urgently!

The cost of living in Kenya has hit the roof.Already the inflation is on an upward scale due to this.This can only mean one thing that the government intervention is needed urgently.There are a number of reason that have contributed to a high cost of living.The major contributor being high cost of crude oil.The cost of production is very high in Kenya.This is largely due to the high cost of energy.Kenya still rely on thermal energy which is expensive.The cost of crude oil is going up each day.The conflict in middle East and North Africa is partly to blame. The trickle down effect of this high cost of living is being felt across the divide.Almost all basic household commodities have increased their prices due to high cost of production.According to Central Bank of Kenya, petroleum is one of Kenya’s  largest import item accounting for a fifth or 20 per cent of the total import bill. The country spent Sh181.2 billion (US$2.2 billion) to import oil in the year ending February 2010

This  much money flowing into the industry, Government and  oil dealers line up for a stake of. Treasury directly takes around 30% of the cost of fuel that Kenyans pay for. A buyer pays for a litre of petrol at the pump station, and more than Sh30 goes to the Government as taxes,the bulk of it as Excise Duty that stands at a fixed Sh19.51.Sh9 as road maintenance levy and 40 cents in Petroleum Development Levy.A further remission fee of 45 cents per litre is paid to the Government and a 2.25 per cent paid to get an import declaration license.A litre of regular petrol costs about Sh69 to buy and ship to Kenya. Marketers use Sh3 to transport the litre of petrol to inland Kenya, a figure that varies depending on how further inland their retail outlets are. All add up to about Sh103, leaving oil marketing companies with a margin of Sh9 for a litre of petrol retailing in Nairobi at Sh111.Oil marketers have complained the Sh9 per litre they make is insignificant compared to their overhead costs.Leading oil companies like Total Kenya and Kenol Kobil that have a service station network of over 170 and 150 respectively, have been recording impressive profitability.

Recently Total Kenya announced Sh733 million profit before tax while KenolKobil sold petroleum products worth Sh101 billion last year leading to a 40 per cent growth in net profits to Sh2.7 billion.State parastatals like Kenya Pipeline Company (KPC) and Kenya Petroleum Refinery Limited (KPRL) also rake in billions from the oil industry.KPC makes a revenue of Sh3 billion per year while KPRL makes Sh3 billion annually. KPC is largely a monopoly in the storage and transportation infrastructure of oil but high levels of inefficiencies have forced oil companies to seek alternatives like road transport to deliver products inland, which in turn pushes up the prices.

Not unless this is addressed, the cost of living will continue to go up.However its important to note that oil prices have a significant effect on the cost of living.Other factors are inefficiency on government departments especially during procuring  and corruption in both private and public sector.All these need to be addressed to ease the burden of high cost of living. We need to ask ourselves where the rain started beating us and address these problem one by one.Cartels in the oil industry need to be done away with,reducing of taxes or scrapping it should be looked into.Encouraging farming methods that are not expensive and sourcing of inputs from less expensive markets. Raising the minimum wage before addressing the underlying issues contributing to a high cost of living is simply myopic and its like putting the cart in front of the horse.This will only exacerbate the problem by increasing the cost of production and hence this will be passed to the end user.Its will also result in  people losing their jobs as most companies cannot afford a high wage bill.The government may also freeze recruitment if the wage bill increases.What COTU should be proposing is how to lower cost of living.It has been largely argued that the cost of labour in Kenya is very high.Countries like India and Brazil are doing better than us.However increasing the minimum wages should be seen as a long term goal/measure that will be addressed after addressing the root cause of high cost of living,but we need to address the short term goals first.Individually we can help ourselves by buying what we need and avoiding to buy that which we do not need.Its important also to budget ourselves.

We need to mobilize ourselves and realize that change cannot always be brought to us,we must initiate change ourselves from our individual capacity and that the only way we will move on as a country.