Oil price controls are good for the economy of Kenya

  

Date Posted: 12/18/2012 12:29:58 AM

Posted By: moff J  Membership Level: Silver  Total Points: 485

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Price controls are tools used by the government to regulate the price at which some crucial commodities should be sold to the public. In Kenya, petrol, diesel and kerosene are subjected to price controls. The big question however is whether these price controls are good for the general economy at large and in the long run.

The purpose of price controls could be to protect consumers from unscrupulous traders. With the liberalization of the market and the setting in of capitalist economies, consumers are exposed to many threats from business entities. Among them is exploitation through being charged high prices. This is because in such markets, prices are determined through the forces of demand and supply. When demand is low, prices are low and vice versa. Thus, the capitalist institutions may create artificial shortage by hoarding their products now only to sell them later when the prices rise due to higher demand.

This used to happen in Kenya, especially in the petroleum industry, where the oil marketers would hoard the petroleum and create shortage which drove prices to very high levels. It is such instances that made the government decide to intervene by introducing price controls.

The energy sector is very crucial to the Kenyan economy. Whatever happens in this sector has profound effects on the other sectors of the economy from manufacturing, to food production, to even the service industry. The ripple effects of any adjustments in the energy sector are felt in all the sectors of the economy. Leaving this sector liberalized therefore is like putting the country in the captivity of a few oil marketers who will demand ransom when they want by hiking the oil prices.

The government noticed this and came up with a regulation to control the prices. This was a bold and welcome move. As a

result of this, oil prices have been reasonably stable and this is good for the economy as a whole. Firms can now be able to plan much more efficiently and boost their productivity.

Despite this, the government has to ensure that the investment environment is attractive to all investors, including the oil marketers.
Therefore, these price controls put the government on a tight rope where it is juggling between controlling the oil prices on one hand and on the other hand ensuring that the oil marketers do not find the Kenyan market unattractive. This calls for a lot of consultations and balancing because a small misstep will make the entire cause tumble down.

Therefore, in supporting the price controls, we have seen that it is for the interest of the general economy because oil is used across the board in all sectors of the economy. Thus, the government did a good job to introduce the controls. Nevertheless, it has to be pointed out that the government also aims at providing an attractive environment of the investment community. Therefore it has to balance between the interests of consumers and those of oil marketers. Without the oil marketers, there could be no oil to control after all!

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