Clamour to cap prices in Kenya on the increase

Tuesday January 15 2019


Kenya Medical Association President Jacqueline Kitulu with Kenya Medical Practitioners and Dentists Union (KMPDU) Secretary-General Ouma Oluga. FILE PHOTO | NMG 

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The Kenyan economy, once described by the Central Bank of Kenya (CBK) governor Patrick Njoroge as “fully wedded to free market policies,” is now facing increased pressure to pass regulations to cap prices.

This is amid an outcry of perceived market failure.

Currently, there is a push to put a ceiling on how much doctors should charge patients as consultation fee and how much hospitals should levy for medical procedures.

The lower fees were first mooted in 2006 through Professional Fees Rules and Guidelines but this was never gazetted. Instead, Medical Practitioners and Dentists Rules 2016, with higher fees, took effect.

But Parliament has renewed the slashing of fees, saying it is acting on the realisation that Kenyans need legal protection from rampant exploitative practices such as unnecessary admissions, unjustified excessive hidden costs, exorbitant diagnostic tests and exaggerated prescriptions.

“We want to strike a balance where our hospitals will not be denied revenue while at the same time, we don’t want it to look like we are a sector that milks Kenyans dry of their finances,” Endebess MP Robert Pukose said.

At the same time, the government wants to control drug prices and have the cost indicated on packages of medicines.

Health secretary Sicily Kariuki will be relying on the 2011 law that allows for price controls of any essential commodity to achieve this end.

“The medicines will be labelled so there is the definite knowledge by the consumer on how much they can spend for a certain drug regardless of where they are in the country,” she said last year.

If successful, the two moves will significantly cut medical costs, even as fears abound that quality may be compromised.

The move will place health industry in the same boat as many others such as banking, transport and agriculture where call for price controls is on a rise.

This clamour has split public opinion as was the case with classical economists who failed to agree on how far government should interfere with free markets.

John Keynes, a British economist whose ideas fundamentally changed economic policies, once argued that governments should solve problems in the short-run rather than wait for market forces to fix things over the long-run.

And this is because, as he wrote in 1923, “In the long run, we are all dead.”

His ideas have found life again in the 2009 The Return of the Master book by Robert Skidelsky. Only that Mr Skidelsky argues that conditions have changed, plunging economists into surprise.

“The strange situation has arisen that there is no shortage of prescriptions on offer, but very little in the way of fundamental diagnosis. It's like doctors furiously prescribing for a disease which some deny exists, and others acknowledge exists, but cannot explain,” writes Mr Skidelsky.

And this argument fits the school of thought of Dr Njoroge and National Treasury secretary Henry Rotich on the 2016 move that capped the price of commercial loans at not more than four percent above Central Bank base lending rate.

The two have reiterated that while interest rates on loans were way too high - hitting above 25 percent - capping them was not the silver bullet to shield consumers. And they are getting backing from the World Bank and the International Monetary Fund.

'Strangling' economy

While the cap significantly chopped the price of loans, banks reacted by cutting down on lending, a scenario Dr Njoroge says is “strangling” the economy.

Away from banking, oil marketers have also had to content with price controls and now charge consumers depending on prices set on 14th of every month.

This started in 2006 following the enactment of the Energy Act that formed Energy Regulatory Commission, mandating it to control importation, exportation, refining, storage, transportation and sale of petroleum.

With this trend, even without legal backing, other sectors have also been sucked into the price control clamour that was once popular in 1990s.

In 2017, when maize prices had skyrocketed, the Treasury gave millers a limited window to import the grain tax free on condition that the price would be capped at Sh90 per two-kilogramme bag.

But long after the end of the programme, the State has been prevailing on millers not to surpass the price, arguing that there is no fundamental to charge higher prices. At one point, Nairobi governor Mike Sonko threatened stern action against high prices.

“I’m calling on all maize retailers, be it wholesale or retail shops or supermarkets in Nairobi, to bring down the cost of unga to Sh75 or face arrest and closure of business premises,” he said in October last year.

And in transport, President Kenyatta also issued a directive to the transport regulator to withdraw licences of public service vehicle operators who had increased fares on basis of introduction of Value added tax on petroleum products.

In December, the National Transport and Safety Authority (NTSA) warned operators from arbitrarily increasing fares. Director-General Francis Meja said players must ensure that they charge “reasonable” and competitive fares.

“We, therefore, reiterate that an operator risks revocation of their road service license should the authority receive a report of such an incident,” warned Mr Meja.

However, NTSA Act 2012 does not define what a reasonable fare is, making it hard to enforce price controls.