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December 14, 2018

Nairobi can learn from Jakarta on food subsidies

President Uhuru Kenyatta shares a meal of Nyama Choma with Nairobi leaders at Hayi- Hayi Butchery at Kenyatta Market, Nairobi.
President Uhuru Kenyatta shares a meal of Nyama Choma with Nairobi leaders at Hayi- Hayi Butchery at Kenyatta Market, Nairobi.

Once upon a time, well close to 20 years ago [which might as well mean some fairy tale past given the speed with which the World is turning and turning these days], I was a managing director at Sumitomo Bank and running a Repo Desk and reporting to the Anglicised Konishi-san who was my executive chairman. Konishi-san had hired me when I was 30 and made me a managing director. I had assembled a team of 15 that sat in London, New York and Tokyo. The Repo markets in those days were a ‘’Go-go’’ market and we were aggressive, and in fact clients all over the world knew we embraced taking on positions that others might blink at. Sumitomo Bank had invested in an Indonesian Bank and we did some business there with the ‘’Bakrie’’ brothers who were quite a colourful pair and deserving of a column of their own. Well in that period 1997-1998, East Asia was gripped by a financial crisis which started with the collapse of the Thai Baht. The Indonesian Rupiah followed.

One morning Konishi-san called me into his office. The government of Indonesia is requesting a $500m facility. Can we do it, he asked? They are requesting we visit Jakarta immediately. The next day, we were in Jakarta and in the evening we were in State House with President Suharto, his minister of Finance and the Governor of the Central Bank, Konishi-san and myself. I engaged with the Governor and we established he could cobble together enough collateral and I turned to Konishi-san and said: “ Yes we can”. We were of course going to be rewarded very handsomely and I had persuaded Konishi-san that not only would we make a lot of money but they would never forget that we had pulled through when everyone was hitting the eject button. Konishi-san sat on the board of the bank in Tokyo and started to call other board members to get their agreement. We were front-running a request to the IMF by the Government.

And at that moment, the phone rings and the minister picks it up and then he turns to his President and announces we have got the IMF package, but one of the conditions is we remove all the food subsidies.

The president then turns to all of us and says: ‘’Well that means I will be gone in a week’’ and he was.

Such a thing is not something you forget and from that time I have studied the correlation between food prices and political reactions. And let me tell you that high food prices are typically seriously inimical to the interests of the incumbent Government. President Suharto was an extreme example. Now what is crystal clear is that to date the response to high food prices [and we can discuss another time why we are here in the first place] could be best described as sub optimal or more accurately as a pig’s ear and in an election year. Markets are often characterised as a tug of war between greed and fear. Well, here it appears that greed [profiteering] has triumphed over fear [the political need to win an election].

Intelligence reports have this election neck and neck as does my proprietary Rich Model. Every vote will count.

If I were President Kenyatta I would be dialling up President Enrique Peña Nieto of Mexico and be ordering all the food supplies directly from him. I would be packaging the “unga” on the high seas with the right branding and stamping it with a Sh90 price and dumping it on the local market. It is called risk-management.




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