Setting up markets for the poor will not ease poverty

from Business Daily Africa

The poor are bearing the heaviest brunt of inflation. Business Daily spoke to CBK governor Prof Njuguna Ndung’u on what could be done to improve their lot


Q) Do you consider the setting up of market outlets for Kenyans in poverty, a good idea?

Setting up market outlets sounds like a good idea, but it is not readily workable. Markets are for everybody, a market develops where there is demand for a good or service, the only filtering mechanisms for particular segments of the market is using prices and sometimes quality. If one identifies market for the poor, socially it will be unacceptable.

Second, it may be misconstrued to mean a subsidy is being provided, it becomes then a public good issue, with all the accompanying problems for allocation, efficiency, etc.

Q) Is it a viable venture that can be applied?

At a practical level setting up market outlets for the poor is not workable for a number of reasons. The exclusivity of the market outlets to the poor is not assured and there will always be the problem of joy-riders when it comes to supplying public goods.

Such an isolationist market will exacerbate the poors’ sense of deprivation as it means tagging people as poor and therefore undermining people’s sense of confidence and this is a dimension of poverty.

The best alternative is to empower the poor to increase their real incomes and this can be done.

Firstly, by establishing public works programmes to absorb them into meaningful employment thereby providing them with a source of livelihood. Those with viable self-employment business opportunities should be assisted with seed capital for business start-ups.

Meanwhile, production and distributive efficiency of goods and services in the formal sectors should be fostered to avail affordable commodities. On its part, the Central Bank will ensure low stable inflation by eliminating money based inflation.

Second, the provision of infrastructure to open up the potential in poverty prone areas is still the win-win formula for poverty reduction. This opens market channels for the poor to participate in the market place, depending on the relative endowments.

Third, it is an institutional failure problem. Institutions should help mitigate risks and prevent vulnerable groups from slipping into poverty through provision of social services that are required by the poor.

It is also important that we continue fostering social responsibility roles that entrench minding our neighbours through social support systems like freedom from hunger walks and food donations under the auspices of such institutions as the Red Cross, SOS.

Q) What are the challenges facing our country in dealing with food balance vis-à-vis population?

As the population increases demand for basic needs including food increases. It is argued that population is the embodiment of labour and human capital development.

Technological developments provide us with the answer to cope with population pressure and food production at the same time. But technology and land ownership pattern move hand in hand. If property rights are not well defined on land, then investment on land and taking advantage technological developments will be constrained.

Q) Is the population the reason why Kenyans could be living below poverty line?

The population is not the reason why Kenyans could be living below the poverty line. The above arguments have answered this question, but some emphasis may be laid on it. Studies on poverty have identified the factors that lead to poverty and the characteristic of the poor.

The level of education, lack of assets etc are higher in ranking than dependency problems that come with high population growth.

Q) What will happen to our economy if we don’t address the high cost of living?

It is important to understand what is cost of living and contributing factors, to the extent that the cost of living is associated with inflation, then we can break down the sources of inflation. CBK is committed to low stable inflation by ensuring optimal money supply.

But prices do rise due to supply problems and distributional channels, in our case due to political activities of January and February that have increased insecurity.

But these price increases are never ratified by money supply growth, so the effect usually dissipates over time. But cost of living also emanates from transactions costs. We need to invest in public infrastructure to reduce them.