THE JHC
BASIC NEEDS BASKET

HALF YEAR REPORT 2006

Mugo Phares Kĩrĩi,

Researcher,
JHC Economic Justice Programme

The Basic Needs Basket

The Jesuit Hakimani Centre’s Basic Needs Basket survey is a measure of the weighted aggregate changes in the retail prices paid by consumers for a given basket of goods and services. Data for constructing the indices are generated through a monthly data collection from selected retail outlets in 14 informal settlements in Nairobi. Price changes are then measured by re-pricing the same basket of goods and services and by comparing the aggregate costs of the same basket with the previous month’s prices. The data are perceived to be representative of the spending behaviour of households in these settlements. In order to maintain consistency in price variations, data are collected on the 2^nd and 3^rd week of the month.

Officially, you were considered poor if you were living in an urban setting with less than KES 2,648 a month or in a rural area earning less than KES 1,239.

The Basic Needs Survey in the Nairobi slums revealed that for a household of four to survive on food alone it needed to spend something closer to KES 3,900 a month in the first half of 2006 …

Unfavourable weather conditions between January and March made food prices go up. According to the Central Bureau of Statistics (CBS) at the Ministry of Planning and National Development, the food index had increased by 4.0 percent from 201.3 points in January 2006 to 209.3 points in February 2006. Increases in the prices of petroleum products in April spurred inflation upwards. Compared to the same period in 2005, inflation in the first quarter of 2005 edged upwards "marginally" (CBS 2006). The rains which started late and continued into May 2006 raised expectations in the agricultural sector. Undoubtedly, good agricultural output, usually expected after rains, could yield positive results such as keeping inflation low, ensuring adequate food at the household and food security for school-going children.

The Consumer Price Index (CPI) declined by 1 percent from 210.7 points in April to 208.6 points in May 2006. Month-on-month overall inflation decelerated from 14.9 percent in April 2006 to 13.1 percent in May 2006. On the other hand, the month-on-month underlying inflation rate which excludes food items from the CPI basket also eased from 5.0 percent to 4.7 percent.

Table 1: One month change in prices

BROAD ITEM GROUP	% CHANGE ON PREVIOUS MONTH
Food and Non-alcoholic Drinks	-1.8
Alcohol and Tobacco	-0.7
Clothing and Footwear	0.1
Fuel and Power	2.8
Household Goods and Services	0.2
Medical Goods and Services	1.2
Transport and Communication	0.2
Recreation and Education	0.1
Personal goods	0.0

Source: Central Bureau of Statistics

The Food and Non-Alcoholic Drink Index declined by 1.8 percent in May 2006 compared to April. This was mainly attributed to a fall in prices of cabbages, kale vegetables (sukuma wiki) and potatoes. The average price for a kilogram of kale was KES 20.50 in May compared with KES 23.70 in April 2006 – a fall of 13.6 percent. The average price for a kilo of potatoes was KES 27.10 in May compared with KES 33.70 in April. The Fuel and Power Index increased by 2.8 percent in May 2006 compared with April due to a rise in prices of paraffin. Transport & Communication rose by 0.2 percent due to increases in the prices of petrol and diesel.

The overall inflation increased to 19.1 percent in March 2006 from 18.9 percent in February 2006 reflecting the food prices while the effects of the long rains were yet to be felt. Across income groups the low income group continued to experience the highest increase in inflation with a month-on-month inflation for the Nairobi lower income group averaging 26.3 percent in March 2006 in spite of a decline of 29.0 percent compared with the previous month’s average.

Hopefully, Kenya's Inflation will decline. The onset of the long rains looks promising enough and may improve the supply of basic foodstuffs and check food inflation in turn. The Food and Non-Alcoholic Drink Index accounts for more than 50 percent of the overall (CPI) and therefore a slight drop in food prices will have a significant effect on the overall inflation. The economic outlook for 2006 remains good, assuming favourable weather conditions that began materialising with the onset of the long rains. Improved weather conditions are expected to reduce the adverse effects of the drought which have resulted in output loss in some sectors during the first quarter of 2006.

Source: CBK Economic Report

Kenya, a prosperous nation?

If we believe the government's 2006 Economic Survey, released on the 25^th May 2006, the National Economic Recovery Plan (2003), which the government designed upon coming into power, seems to be on track. The economy expanded by a robust 5.8 percent – a 1.5 percentage point rise over the 4.3 percent growth realised in 2004. It is pleasantly surprising that such growth levels were achieved despite political turbulences and an otherwise unfavourable global economic environment with its volatile oil prices. Kenyans can rest assured that their economy appears to be immune to political drama and intrigue. Equally reassuring is the fact that the economy seems to have survived record breaking crude oil prices and a strong shilling that was obviously affecting export earnings.

Yet one cannot fail to notice the many bits of the overall economic framework that are begging for urgent attention. Firstly, the paradox in the public sector where indications suggest that the total nominal wage bill rose by a whopping 17.8 percent despite a decline in the public wage employment. Secondly, the important issue of inflation, seemingly way ahead of the economy at 10.3 percent, was nearly double the rate of growth. Inflation, as it were, is a growth dampening phenomenon that erodes gains across the board. Some time back, the government had vowed to keep the underlying inflation rate at 5 percent. Our double digit inflation level is a clear indication that certain things do not follow the script. Of ultimate concern, however, is that the improved economic growth rate appears to be having little or no impact on the lives of millions of poor Kenyans. Instead, research findings show the chilling reality of the grave inequality in our society. It should make the political elite realise that, at this stage of the county’s development, baking a cake must go hand in hand with finding the right formula of distributing it.

Our Unequal Society

At independence in 1963, the Government of Kenya declared that it intended to eliminate poverty, ignorance and disease. The reality, 43 years later, is that this objective is still far from being achieved. The reality is well articulated by Action Aid International-Kenya in its study titled: "People’s Participation for Equality Project National Inequality Report". It says that:

Almost half of the country’s wealth is controlled by just 10 percent of the population.

The rich 10 percent (some three million people) control 42 percent of the country’s income

The bottom 10 percent of the population control less than one percent of the country’s income.

The number of the poor continue to increase

Kenya’s poverty levels continue to increase

The worst hit households are those headed by women and by people with low education.

All this occurs despite various poverty alleviation attempts and the formation of Councils and Commissions that deal with poverty eradication.

The above report demonstrates that the inequality position has not improved since 2004 when the then Minister released startling statistics showing that for every shilling a poor Kenyan earns, the rich Kenyan earns 56. After the 2004 release, the government created the National Economic and Social Council. It comprises of cabinet ministers and eminent people in public life, academics, industrialists and business executives from around the world. The latest report, which was completed last month bases its findings on a study of 23 selected districts and relies on statistics available in various government offices and the Central Bureau of Statistics (CBS). The comparisons are not only limited to the actual amount of money earned by individuals in these areas but include as well their general social welfare, their access to health care, education, water, roads and their life expectancy.

The proportion of poor Kenyans has increased from 52.3 percent in 1997 over 56.8 percent in 2000 to 59 percent in 2005, with some parts of the country showing much higher poverty levels than others. Nyanza Province, for instance, is still the poorest region with a 63.1 poverty rate, followed by Coast (62.1 percent), Western (58.8 percent), Nairobi, (50.2 percent) Rift Valley (50.1 percent) and Central province (31.4 percent). Out of the 23 districts sampled, Kuria District is shown as the poorest in the country, with 79 percent of the population living there below the poverty line, while Nyeri was considered the least poor with 30 percent living in the poverty line. Comparing urban areas, Kuria District still has 86 percent of its urban residents living in poverty, while Mt Elgon has 76 percent. Kenya has previously been ranked by the World Bank as one of the four most unequal countries in the world, with the wealth and income skewed in favour of the rich. The Minister for Planning and National Development enumerated the various programmes the government had implemented to fight poverty and inequality. He included: free primary education, the Constituency Development Fund, the District Roads Fund, the Local Authority Transfer Fund, the Constituency Aids Committee and the Education Bursary Funds that reach local levels.

As mentioned above, the number of the have-nots in Kenya has grown progressively to about 60 percent of the population. In contrast, only 10 percent of the population own the nation’s wealth. The tragedy with poverty is that it is self-perpetuating. As the poor cannot access quality health care, good housing and proper education they enter a vicious cycle they cannot extricate themselves from. Although equity is an ideal that has hardly been realised in any society, to have a nation run by a few billionaires lording over millions of paupers is explosive. Colonialism has been blamed for many social ills, but successive governments have never reversed a skewed equation. In fact, entire communities were punished with impoverishment for holding dissenting political views while others were enjoying favours.

The legislation that created and tripled the Constituency Development Funds (CDF) meant, instead, to give all Kenyans a chance to make their own decisions on how to use resources in their locality. But its purpose might be equally mixed with dubious political motives, its implementation lacking in transparency and the entire mechanism unconstitutional. In fact, by approving the CDF law the MPs, the lawmakers, enthroned themselves as the executive and as the evaluating instance. This goes clearly against the principle of the separation of powers. In practice, CDF has already added to the confusion in terms of a duplication of roles in specific sectors: who, for instance, is finally responsible for the maintenance of rural access roads in the Western Province’s sugar belt? The local authorities using cess money, the public works department, the CDF, or all three simultaneously?

Capital development does require an outlay of substantial sums of money. The bulk of it is still in the domain of the central government and remains there a temptation for wastage, misuse and ineffectiveness. It is time those responsible realised the values of public “service” and solidarity with the poorest. Only then will economic growth translate into more sufurias of ugali in every household.

And what about education and health?

One of the best ways of ensuring that Kenyans meet their basic needs is seriously investing in education and in health. But the question is: Why have we not realised the true value of health and education all this time? The evidence of the role of education and health in economic progress and development is well documented. Other than facilitating positive changes at the macro level, education and health play a significant role in micro level changes at the household level in terms of meeting basic needs, leading productive lives, fighting HIV/AIDS, the ability of engaging meaningfully in political processes for the improvement of their communities, and so on. Nothing good can come from a national plan that gives no priority to education and health.

Kenya, I believe, would be wealthier if the majority of its citizens acquired post-secondary education. Putting more public and community investment on educating people to higher levels would also address the problem of inequalities in the country. Poverty levels decrease with increased education levels. Households headed with members with secondary education have lower poverty levels than those who do not have any education.

However there are exceptions to that rule and variations within regions and among households headed by people with similar levels of education. The North Eastern Province, for example, recorded a poverty rate of 12.1 per cent among households headed by people with secondary education while Nairobi province had the highest rate, at 28.9 percent (CBS, 2006). The government admits that there is unequal teacher distribution in schools across regions in primary schools. Among the 23 schools studied, Malindi has the highest pupil teacher ratio of 6:1 and Baringo the lowest, at 23:1. It is instructive that since 2004, the Teacher Service Commission (TSC) has been conducting a teacher redistribution exercise intended to balance the staff within and without districts. The 2006 Economic Survey notes that there are serious gender disparities in primary schools despite government’s and civil society’s efforts to even them out. To some extent, customs and circumstances lead to a range of cultural practices, which cause differences in girl-child participation and progression at all education levels. By 2003, North Eastern had only 20,065 girls in primary schools, which formed only 32 percent of the total gross enrolment. But a few of the facts might have changed as some of them are based on the 2003 statistics. A new government report on free education showed that, thanks to the free primary education programme, 13 more pupils in every 100 are now completing primary school education.

Health policies and strategies in Kenya are geared towards reducing the incidence of disease and improving the health status and thus the quality of life of the general population. People's perception of the standard and quality of health services on offer are not particularly complimentary. New evidence points out that while facilities do exist in most parts of Kenya, it is the poor who have limited access to them because of cost, or because of the quality of the treatment offered to the facility nearest to them. The latter would include the availability of medicine, medical supplies and qualified medical practitioners.

Conclusion

The impressive 5.8 percent growth figures recently published in the government's 2006 Economic Survey have been dismissed in certain quarters as “cooked”. Official figures, correct or not, are habitually criticised in public or misinterpreted for various reasons. Those figures, however, are the best one can hope for. In terms of capacity and experience in collecting economic data, no institution in this country has better credentials than the Central Bureau of Statistics (CBS). Herufi House, where the bureau is located, may look old and dilapidated on the outside but it has taken in great expertise and motivated staff. After all, the Ministry of Planning and National Development is the single largest repository of qualified economists and statisticians in the country.

On the other hand, intellectual honesty compels us to underline that the sudden jump in growth rates merely reflects a change in the formula of computing Gross Domestic Product (GDP) statistics. This year’s Economic Survey is the second to be compiled on the basis of the new "System of National Accounting" (1993 SNA). If we had continued to use the old formula, the growth figure would be much lower.

A second point is that the growth figures do not represent a new record for the country. Kenya's economy of the 1970s used to consistently post a 7 percent GDP growth rate… calculated with the old statistical formula. Thus, the economy is still far away from making a comeback. Besides, Kenya's neighbours, Uganda and Tanzania, had higher growth rates in the last five years.

Finally, even as we celebrate the new growth statistics, we better remember that qualitative growth does not necessarily translate into qualitative development. While one's Gross National Product (GNP) is growing, the 'gross national happiness' may be stagnating. People rightly protest that the impressive figures announced by the government have not trickled down.

For instance, the 2006 survey cites a 3 percent increase in the number of health facilities, but does not tell us whether these are properly equipped. The survey also announces that the economy created more informal-sector than formal-sector jobs thus admitting that the country has not produced employment for its citizens. Is the informal sector not just an employer of last resort - when school-leavers can’t get sustainable employment anywhere else? To what extent were the individuals who joined the informal Jua Kali sector precisely those who were expelled from informal employment? And, when our statisticians are counting the number of people employed in this sector, do they consider working conditions and earnings? The informal sector may be rather part of the problem but certainly not the solution for chronic unemployment in this country.

The government praised the survey for proving that the green shoots of recovery are visible at last. More sensibly, these growth figures merely remind us of this economy’s innate strength and resilience. Indeed, Kenya's economy has, in the last two decades, survived a pile of mismanagement that would have left a stronger country bankrupt. Even when the looting was going on shamelessly, the fundamentals of Kenya's macro economy - inflation, budget deficit, interest rates and the exchange rate - remained fairly sound. The only period when things went almost haywire was in 1994 when the economy was coping with the dramatic effects of Goldenberg's infamous financial mega-scheme.

The innate strength of this economy may have something to do with the depth of the private sector, the educational level of the country’s population, a relatively fair amount of basic physical infrastructure, and the location of the country as the economic hub of the region. It is an economy that even could run perhaps on auto-pilot, but has been hampered from reaching its full potential by bad policies, corruption, and a dysfunctional public service.

Until we start seeing substantial investment in new plants and machinery, a vigorous rise in agricultural output as well as significant investments in infrastructure, education and health, we will not see a major difference. For the time being we are spending, instead, too much money on salaries, allowances and mileage claims for civil servants and MPs. According to the 2006 Survey, the government will spend a massive KES 180 billion this financial year on salaries and wages. This is more than half the KES 326 billion it hopes to collect in taxes. The Electoral Commission of Kenya (ECK) is planning to create an additional 42 constituencies. This is the kind of behaviour that makes one clamour for public sector restructuring. This economy may not return to the growth levels of the 1970s until the number of ministries is reduced and the public wage bill is restrained. An exception can be allowed for the useful Bureau of Statistics at Herufi House…