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Sunday, July 15, 2007

The Amazing Kenyan Economy: Shilling Strengthens But Prices Rise Steeply

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One does not need to be an economist to grasp a simple truth.

When the currency of a country strengthens against major foreign currencies, it means that imported inputs become cheaper and costs of production and distribution of products and services should fall (and this impacts everybody because goods also need to be transported and a stronger shilling means that we need less shillings to buy petrol for example). In other words it is rather obvious that prices should fall.

But look at the situation in Kenya today. As the shilling continues to strengthen, the prices continue to go up.

So what's wrong? What's causing prices to stubbornly continue going up? What is the point of having a strong shilling that hurts our exporters and everybody who sells stuff to the outside world in foreign currency (and has already caused the loss of thousands of jobs) and yet the whole thing does not benefit the rest of the country?

Amazingly even oil prices, which are supposed to be adjusted downwards with the falling dollar have stayed put and on a number of occasions have even snaked upwards.

What's going on?

I will answer that question in two sentences. The first sentence will be a short one word one and the second one will be fairly long.

Greed.

So-called government-friendly businessmen (who are obviously corrupt because you can't get more corrupt that when you corrupt the authorities) who want to make maximum windfall profits in the short time left before the elections because one can never be sure which government will come in next. E.g. well-known sugar barons.

Why Is Hon Michuki bullying his youthful challenger?

The photographs Kumekucha feared to publish.

Horror of Kenyan with female sex organ sharing cell with men at Kamiti Prison

Are you a Kenyan? Do You love your country? Join in this noble campaign to change things. Do something instead of just complaining.

1 comment:

Anonymous said...

I was speaking to a Zimbabwean diplomat today. She said that this was the reason why their government had to institute price controls. When a cartel controls all of the supply end of an economy, they can fix prices in such a way as to abuse the notion of a free market, i.e. even when consumer demand diminishes due to the high prices, there is no correction.

Stephen Wanyama
kenyaimagine.com

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