[kictanet] [Skunkworks] Runway inflation?

[Kanja Waruru]

I'm in support of phares argument very well put. 

what i would like to add is some more significant reasons why the old grandmother fed her cow with the biggest cabbage. 

the local transporter prefer the tiny cabbage they can pack more on the truck, the shop keeper prefers tiny cabbage due to shortage of shelf space, the consumer prefer tiny cabbage they consume them fresh and cost less than the big cabbage, the big cabbage may not be consumed in a day or two and may require refrigeration which most homes don't posses.

so in the end big cabbage is less appealing to everybody else expect the old grandmothers cow.

the sad truth about cabbage is that its extremely price sensitive, if the farmer times it right they can make as much kshs 35/- per head at the farm gate, that's when the demand is higher than supply, on the other-hand if they get it wrong and the price is  kshs1/- per head. 

the question is how do we help the farmer get a more realistic and less elastic price for his produce?




--- On Mon, 9/8/08, Phares Kariuki <pkariuki at gmail.com> wrote:

> From: Phares Kariuki <pkariuki at gmail.com>
> Subject: Re: [kictanet] [Skunkworks]  Runway inflation?
> To: kanjawaruru at yahoo.com
> Cc: "KICTAnet ICT Policy Discussions" <kictanet at lists.kictanet.or.ke>
> Date: Monday, September 8, 2008, 12:34 AM
> Hi,
> I agree with you in the most part, just that there are a
> couple of issues
> I've found.
> 
> ECONOMICS; An observation.
> 
> Economics observes what happens in economies. It does not
> come up with the
> rules. The whole point of the study of economics is to
> better understand how
> transactions etc function. Now, when I say that a farmer in
> Dundori is hurt
> by low pricing, that is reality. His is a low value
> transaction. It is
> unfortunate, but if 70% of the transactions (numerically)
> are low value,
> then they can be financially worth less than the remaining
> 30%, which
> accounts for more, financially. The problem then is how to
> get the Farmers
> out of Farmland trading and into the mainstream market
> (given that if they
> do that, they will increase competition, thereby reducing
> pricing, while
> gaining more money in the same breath).
> 
> The policy is left to someone else.
> 
> I disagree with the thought that inflation causes rural to
> urban migration
> to recede. Actually, it increases it. The problem is, the
> guy at Dundori is
> so poor that the instant school fees and transport costs
> rise, he can no
> longer afford to make ends meet, so he moves, He's
> hardest hit by inflation.
> He suddenly can no longer afford to buy bread (which has
> risen, and his
> income is still the same paltry amount). It's the same
> as migration to
> foreign nations, once a comfortable life is easily
> accessible in Nairobi,
> then Greencard applications will go down. The sad thing is
> people from the
> citys/towns tend to portray and image of doing well, so the
> farmer figures
> the fortune lies in Nairobi.
> 
> In economics, its said that prices are sticky downwards,
> meaning that an
> upsurge in pricing is easy, but an adjustment downwards is
> almost
> impossible. An example? Global crude prices have come down.
> Fuel stations
> will keep the pump prices at that level, and unfortunately,
> the trend is to
> maintain that as their new profit margin. The same can be
> said about the
> matatu industry. Once they increase their fare, they have a
> new profit
> margin, which they will not go below.
> 
> UNEMPLOYMENT
> 
> For a developing nation such as ours, studies show that a
> certain level of
> unemployment (not the level we have though) is good for the
> nation, as it
> keeps competition for jobs high, making labour cheap, and
> hence keeping our
> goods more competitive globally, and it also spurs
> entrepreneurship, as
> people  are now forced to start businesses when they cannot
> find jobs.
> 
> CAUSE OF INFLATION IN KENYA
> Inasmuch as it is popular to blame the government, this
> particular situation
> is  largely caused by government. It has made a series of
> misinformed policy
> decisions which are to blame for the situation at hand.
> 
> 1. Separation of Kengen & KPLC - This was a case of
> blindly copying what
> happens in other nations without looking at our situation
> in particular.
> This is normally done when the logistics of managing the
> two becomes too
> difficult. Kenya is still a young nation, at most they
> should have created
> two smaller entities, each mandated with a different
> objective, in line with
> what Kengen did with Geothermal power generation. For
> example, having KPLC
> (Mother Company), Kengen and Kenya Power Distributors
> Limited.
> 
> 2.Lack of capacity building; Throwing money to fix the
> problem - When Kenya
> first experienced power rationing, the government started
> buying diesel
> generators and installed them at the now popular Kipevu
> Power Station. Now,
> Kenya is one of the countries with the largest capacities
> for geothermal
> energy in Africa, instead of tapping on this, the
> government spent money on
> diesel generation. As a stop gap measure, this was OK, the
> problem is,
> someone realised that this was a way to cover the capacity
> problems, to meet
> the shortfall. That is why the projects to build new power
> stations take too
> long. Now, the global price of petroleum has gone up, we
> have to pay more
> for power, simply because it is becoming a larger
> percentage of our power
> generation. This also increases diesel prices locally, as
> the demand has
> increased. You will have noticed that diesel fuel has
> increased in price
> more than standard Super/Regular, when looked at as a
> percentage.
> 
> 3. Poor Transport Infrastructure & Taxes - Our road
> infrastructure is
> dilapidated. This makes transport expensive, however, the
> tax regime makes
> it too expensive. Now fuel is at European prices. Our rail
> infrastructure is
> poor. Transporting milk/bread etc, will cost more for this
> simple reason.
> When matatus increase the fare, this affects the ordinary
> mwananchi, who
> most feels the pain. Women selling goods in markets have to
> pay more to get
> their goods there, and will charge more, increasing cost of
> food. It is the
> same on all basic goods that rely on transport. The
> handcarts/mkokotenis
> realise increased demand, and will increase their pricing
> as well. This
> price will not go down easily.
> 
> 4. Listing of Kengen & KPLC. While a good decision
> financially speaking, as
> the bearer of policy, the government flopped in this
> regard. Given that the
> companies have been separated, each now has profit targets
> to meet. The
> government had earlier subsidized cost on both Kengen &
> KPLC's part. Now,
> had they not been listed, this would not have been a
> problem, as the
> government would not need them to make profits, however, as
> things are,
> being a listed company, if the stock price falls, the CEO
> loses his job, as
> he has an angry AGM to contend with. Now, we have two
> companies, each with a
> huge profit target to meet, and a government that can no
> longer afford
> to subsidize power. Now the result is, with their new
> profit regimes neatly
> tucked in their pockets, they increase the cost of power,
> thereby increasing
> production of goods. So, the manufacturers raise their
> prices, the
> transporters raise their prices, the farmer, having to
> contend with rising
> prices, raises his prices. Leaving the citizens digging
> deeper into their
> pockets.
> 
> Kijiji, we agree in principle, the difference is that you
> are not content
> with the situation. The poverty Kenyans face is real. And I
> agree, more
> SACCOs and other such groups should be created, to allow
> the farmers to
> bargain for better pricing. Ill give an example, I was
> recently in Dundori
> (hence the several inferences), where I saw an old
> grandmother feed one of
> the healthiest and largest batch of cabbages Ive seen yet
> to her cows. Now,
> I asked why? Well, the cabbage (which retails in NBI for
> 40-60 shillings, in
> a market, the price increase, as I pointed out earlier, is
> due to transport
> problems (15 odd km of dirt road + tonnes of middlemen) is
> bought from her
> at 3 shillings a piece. She at least has a cooperative for
> milk, so they buy
> the milk at 23 shillings a litre. She figures, the cows
> tend to produce
> better milk when fed with cabbages, and they will rot,
> waiting for someone
> to collect... And we complain about food shortages? Now,
> Kijiji, we cannot
> say that 10 cabbages are worth 400 shillings. They have
> retailed at 3
> shillings each, meaning that they are worth 30 shillings.
> That's the farmers
> buying power.
> 
> Anyway, my two pence, as the tradition is, feel free to
> punch holes in my
> argument...
> 
> 
> On Mon, Sep 8, 2008 at 8:21 AM, Kijiji Jazz
> <kijijijazz at gmail.com> wrote:
> 
> > Hi Aki,Skunks,
> >
> >
> > Energy runs the economy, it greatly determines the
> cost of production.
> > What this means is that bottom lines for companies
> will be greatly
> > affected and small companies wont be able to manage. 
> It basically means
> > that small is being redefined especially in urban
> areas.
> >
> > For me to answer your question effectively, i have to
> put some things in
> > context.  Firstly in the CNBC thread what you and
> Phares said about
> > price and salaries was on point but.  Salaries or
> wages are a different
> > INDEX from GDP. They are defined as Yp or {Income per
> Capita}. Thus my
> > contention that he was right on YP and wrong on GDP
> Why is this
> > important?  Their are two kinds of economies really. 
> LDC {Low Developed
> > Countries and Medium Developed Countries}.
> >
> > This brings me to the issue PHARES raised of the JAPAN
> economy.
> > Developed Countries primarily suffer from problems of
> Devlopment not
> > Problems of Growth.  Low developed countries {LDC} or
> 3rd world
> > countries suffer from from problems of growth.
> >
> > WHAT IS A PROBLEM OF GROWTH?
> >
> > In Kenya's case a problem of Growth would be
> retrenchment, high costs of
> > living etc.  When an economy is growing it leaves some
> people behind as
> > it grows.  This are the people who do not adapt to the
> growth.  For
> > example 10 years ago a person who had a certificate in
> Secretarial
> > studies could get a job, in Nairobi.  Now their skill
> set is largely
> > irrelevant.  A degree is a prerequisite for a job now.
>  And the
> > situation will get worse.  Thus the argument by Karl
> Maxx in his book
> > "Das Kapital" that " Capitalism results
> in a reserve army of unemployed
> > workers."  He was right!! as we can see from the
> retrenchments at Telkom
> > Kenya etc. However i am a firm believer in Capitalism.
> >
> > WHAT IS A PROBLEM OF DEVELOPMENT?
> >
> > A problem of development is more societal in nature. 
> They say that
> > money only makes you more of what you already are. 
> Thus crime goes up
> > in urban areas in terms of drug use and prostitution
> etc.
> >
> > INFLATION IS A PROBLEMS OF GROWTH
> >
> > We all know that property prices in Nairobi have gone
> in some instances
> > by up to 4 times in the last 10 years.  What this
> means is that urban
> > areas are getting expensive to live in.  That has led
> to increased rents
> > etc.  Power is also largely expensive due to the
> demand for oil from the
> > East with their quickly expanding middle class.
> >
> > This means that small business and low skilled people
> will eventually be
> > unable to survive in Nairobi and relocate to rural
> areas.  Their are
> > already reported cases of people in banks asking for
> transfers to rural
> > areas where life is cheaper.
> >
> > WHAT DOES THAT MEAN
> >
> > That then means that rural areas will start to grow
> and expand into
> > urban centres in the long term.  This is because while
> a person with
> > secretarial skills in Nairobi is irrelevant. Their
> skill set is needed
> > in Homa Bay.  It could also be argued that people will
> not move to rural
> > areas but will stay and engage in crime.  Which is
> also true but unless
> > crime is organised it isn't profitable.
> >
> > HOW WILL RURAL AREAS DEVELOP
> >
> > Business works in terms of willing buyer, willing
> seller.  That means
> > that the business that succeed will need to be where
> their are high
> > populations to improve their chances of getting more
> willing buyers.
> > Thus when people relocate companies will have to roll
> out into rural
> > areas.  This will stimulate growth and development as
> seen by Equity
> > banks expansion drive, and By OneComms focus on rural
> areas in terms of
> > selling internet access.
> >
> >
> > INFLATION IS THUS GOOD IN THE LONG TERM
> >
> > This is rather ruthless to say.  However it is true. 
> Inflation reduces
> > rural to urban migration and reduces informal
> settlements in urban
> > areas. By keeping people in rural areas inflation
> fosters growth in
> > those areas.
> >
> > However inflation is bad if people who are forced to
> stay in rural areas
> > by it have no fallback option.  That means that
> governments must relax
> > regulation of businesses and make it easy for them to
> expand to rural
> > areas.  Kudos to CCK for the converged licence.
> >
> > Banks are also a big culprit.  At any one time Banks
> in Kenya are
> > holding reserves of up to 60 billion shillings.  Thus
> Michael Josephs
> > statement in the news recently when launching MPESA on
> PESA POINT where
> > he said.  "Banks always have money, at least
> Kenyan Banks" In developed
> > economies banks dont hold vast reserves of cash they
> lend.  Money should
> > be in the economy producing more not in banks.
> >
> > The more entrepreneurs have access to cash, the more
> they can do.  thus
> > lending should be long term and flexible to foster
> economic growth.
> >
> > Therefore what Kenya is experiencing is problems of
> growth.  As Phares
> > pointed out.  It will harm some people but in the long
> term it will be
> > good for the economy.
> >
> > Small companies will close or change their structure
> to survive e.g.
> > remove permanent employees and higher contract ones or
> freelancers.  For
> > example KQ has frozen employment for the next two
> years, hiring us
> > strictly contractual.  Informal industries such as
> matatus will have to
> > formalise into Saccos or Bus companies or risk
> closure.
> >
> > DISCLAIMER:  Our inflation is also artificial due to
> OPEC.  It is also
> > brought about by America and its bloated middle class
> and Chinas ever
> > growing middle class and their demand for oil. 
> However this is the
> > general trend of the economy.  I hope that clarifies
> stuff for you.
> >
> > I invite Phares and others to Critic and contribute to
> this.
> >
> >
> > Kjaz
> >
> > On Thu, 2008-09-04 at 13:07 +0300, aki wrote:
> > > At this stage I wish I knew more about economics
> than ICT!
> > >
> > > While these lists are ICT based, if we have an
> economist on board, it
> > > would be a great help to some of us if the person
> can do some analysis
> > > and share it on this list.
> > >
> > > Some points to consider ( my amatuer input ) :
> > >
> > > - Electricity runs the economy. At 100% or more
> increase, what will it
> > > mean in the long term, say 3-12months from now?
> > >
> > > - Closure of businesses, loss of employment,
> eroded spending power by
> > > the consumers or businesses?
> > >
> > > - How much of the increased costs will affect
> property business
> > > rental prices ?
> > >
> > > - How will the informal sector handle this?
> > >
> > > - How will ICT companies fare in this scenario?
> > >
> > > - Price increases of products, solutions etc lead
> to a negative market
> > > trend?
> > >
> > > My apology for posting these issues here.
> > >
> > > Aki.
> > >
> > >
> > >
> > >
> > > _______________________________________________
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