The Effects of Privatisation on Consumers’ Welfare: the Case of Tea and Coffee Farmers in Kirinyaga District, Kenya
Kenya embraced privatisation as one of the liberalization measures in 1990s, for it to accelerate its economic growth. Despite embarking in it early 1990s, the economic growth during this period deteriorated from a GDP growth rate at constant prices of 4.8 percent in 1995 to -0.2 percent in 2000. At the same time wage employment fell from a growth rate of 3.4 percent to 0.4 percent. The poverty level of the average Kenyan increased from 48 percent of the population in 1990 to almost 56 percent ten years latter. There is therefore need to investigate the degree to which privatisation has achieved the intended purpose of increasing economic efficiency and economic flows, which would have had direct contribution towards poverty reduction and reduction in unemployment. The objective of this study was to investigate the contribution of privatisation to the consumers’ welfare and the appropriateness of the process so far undertaken. In addition the study has suggested how the-process of privatisation could be modified to achieve optimal consumers’ welfare; and finally drawn policy implications from the findings of the privatisation process implemented in Kenya. The methodology used in this study was on two levels. From the national production of tea and coffee, the growth rates of real incomes based on 1982 prices was estimated using semilog model. On the second leyel the impact on the consumers’ welfare was estimated using comparative statistics derived from the utility maximisation modelled as a Cobb-Douglas function. Data used to construct the model was the basic consumer’s bundle of goods and services. viii The empirical findings from this study show that coffee income in real terms had a negative growth rate, over the period between 1995 and 2006, of approximately 5.8% per annum. At the same time tea income had a positive growth rate of 2.9% per annum. Overall, the consumer welfare showed a decline for all bundles of goods included in the study, notwithstanding the substitution effects like on foodstuffs. From the findings of the study it was evident that success or failure of privatization of a particular sector depended very much on the leaders of the process rather than any available laws or developed policies to achieve a unified goal. This can be deduced from the fact that the coffee sector had a negative growth, while that of the tea sector was positive. Empirically it is evident that these two sectors took different strategy in their privatization process. The emergent conclusions from the findings are that privatization process would have been positive if the process was well designed, laws enacted and properly implemented.
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