Skip to main content
Covid 19

Price Gouging in Kenya amidst the COVID-19 Pandemic

By December 19, 2020February 6th, 2023One Comment15 min read

This article was written by Arnold Ombasa, an LLB student studying at Strathmore University Law School. It is part of a research initiative hosted by the Strathmore Law Review on the legal implications of the COVID-19 pandemic.

  1. Introduction

The past couple of months have been a startling time for many people in the world. Some businesses, schools, sporting events and many other events have been shut down because of the novel Coronavirus disease (COVID-19). For many, this kind of disruption is unlike anything they’ve experienced and only the survivors of the last world war can perhaps claim to have experienced something similar. 1 If one was to interview these survivors, they would tell tales of people trying to profit off the crisis. 2

From global crises such as the World War II to regional -specific crises such as hurricanes, instances of raising prices of essential items in an attempt to make supernormal profits abound. 3 In that sense, the COVID-19 pandemic is not very different. This unconscionable raising of prices during times of disaster is what is known as price gouging. 4 In Kenya, an instance of price gouging during the COVID-19 pandemic occurred when Cleanshelf supermarkets caught media attention for raising hand sanitiser prices. 5 This was met with public outrage prompting the President to issue a statement warning those ‘unscrupulous traders’ that ‘their days are numbered’. 6 He also termed it criminal for traders to hike prices and make supernormal profits in this unfortunate time. 7 The Competition Authority of Kenya (CAK) also lent its voice to the issue by invoking the Competition Act; 8 it ordered Cleanshelf supermarket to refund all customers who had bought the hand sanitisers at an inflated cost. 9

The CAK, in their statement, relied on Section 56 of the Competition Act which states that ‘it shall be an offence for a person in trade in connection with the supply or possible supply of goods or services to another person, to engage in conduct that is, in all the circumstances, unconscionable’. The CAK continued to say that the supermarket normally sold the sanitisers at Ksh 800 but raised the price to the Ksh1000 which elicited remedial action by the Authority. 10 In addition, the United Nations Conference on Trade and Development identified Kenya as one of the countries where price gouging for essential hygiene products has been on the rise and called for firmer action by governments to protect consumers. 11 One of the firmer actions may be a resort to anti-gouging legislation (laws which make price gouging illegal).

In this article, it is argued that a price control cap, as an anti-gouging measure, should not be adopted in Kenya. This measure may have many negative effects such as increasing shortages. For this reason, it is proposed that the distribution of essential goods through national and county channels may be a better way to ensure citizens with the least means have access to these goods. Despite this, anti-gouging legislation is by no means uncontroversial. It is therefore important to analyse the arguments made by those in support of such legislation and by those against. This discussion will be important in deciding whether anti-gouging legislation is the best way to ensure access to essential items by all Kenyans, especially underprivileged ones during the COVID-19 pandemic. This is done in Sections II and III. Thereafter Section IV investigates the existing price gouging laws in Kenya. Finally, Section V concludes and gives some thoughts on the way forward.

  1. Arguments for Anti-Gouging Laws

Justifications for anti-gouging laws are often morally grounded as some view price gouging as predatory behaviour which constitutes a moral wrong. 12 The first reason put forward for the immorality of price gouging is that it undermines equitable access to goods. 13 If during a disaster, like the COVID-19 pandemic, vendors raise the prices of hand sanitisers, masks and other essential goods needed to combat the virus, the less privileged in society may lack access to these goods. Therefore, the proponents of this argument argue that a regime with anti-gouging laws is better as it promotes equitable access to goods and prevents merchants from profiteering off the backs of the vulnerable. 14

More so, Snyder invokes a deontological explanation to surge pricing. The author asserts that in an ideal world, people would charitably go out of their way to help others in an emergency. From this ideal logic, Snyder formulates a concept of ‘moral duty’: traders have a duty of beneficence to maintain usual prices and not to take advantage of consumers who are undergoing distress and vulnerable. 15

Taking an extreme position against price-gouging, Sandel condemns and morally equates price-gouging to a greedy and vicious act. Sandel states:

“Greed is a vice, a bad way of being, especially when it makes people oblivious to the suffering of others. More than a personal vice, it is at odds with civic virtue. In times of trouble, a good society pulls together. Rather than press for maximum advantage, people look out for one another. A society in which people exploit their neighbours for financial gain in times of crisis is not a good society. Excessive greed is therefore a vice that a good society should discourage if it can.” 16

Not all those in support of anti-gouging laws use arguments grounded in morality to defend these laws. Some believe that anti-gouging laws cannot be justified solely on the grounds of fairness and thus extend the argument to economic efficiency gains associated with such laws. One such justification is that markets may overreact to the news of a disaster and overestimate the impact leading to the increment of prices beyond a market equilibrium. 17 They argue that anti-gouging laws may be useful for preventing this kind of overreaction.

All in all, the author posits that the grand objective of anti-gouging law proponents is the equitable distribution of resources across all classes of people in a situation of shortage.

  1. In Defence of Price Gouging

There are several reasons to despise price controls of any kind, let alone anti-gouging laws. 18 The first is that the increased prices merely represent increased costs of supply (due to the disaster) and the market reacting appropriately to shortages. 19 For those in support of this argument, it is not a matter of suppliers taking advantage of disaster victims but a manifestation of a perfect free market economy. 20 For example, during the COVID-19 pandemic, since the supply of masks and hand sanitisers remained the same as the demand for these products shot up dramatically, there was a shortage and consequently an increase in prices. This pandemic has also brought about movement restrictions particularly in and out of Nairobi. 21 Therefore, it might be more difficult and expensive for suppliers to access goods which would also cause an increase in prices. 22

Similarly, allowing the rise in price in the market sends important messages to the many stakeholders. In one study, 51 percent of surveyed economists opposed a state of emergency anti-gouging law in the state of Connecticut. A strong reason for this is because they believed that optimum allocation of resources should be left to the market. 23 For instance, manufacturers will understand the increased demand and increase production and outside entrepreneurs will be encouraged by the increasing prices causing them to bring additional supply. 24 This is not to encourage exploitation but to incentivise supply of goods. If there exists anti-gouging legislation which lowers the price, sellers will be less willing to sell. 25 Those in this line of argument believe that keeping the price at pre-disaster will not incentivise manufacturers to produce more stock. It is also argued that the consumer will learn that the product is valued higher and therefore must be conserved and used efficiently. 26

Finally, the anti-gouging laws aggravate the inequality between the wealthy and the poor. This can be construed as a direct response to the earlier claim in Section II that anti-gouging laws reduce the inequality by ensuring distribution to both the wealthy and the poor. The argument is that the poor will eventually pay a higher price due to having to wait longer in line while the rich utilise black markets. 27Therefore, those against anti-gouging laws will argue that they have too many negative effects on the market and that the increase in prices is not fraud by sellers but merely a reflection of a perfect free market economy that is driven by uninterrupted forces of demand and supply. Michael Brewer demonstrates in his article how the price ceilings introduced by these laws only serve to exacerbate the shortages that led to high prices. 28 Taking the stance that the disadvantages discussed in this section outweigh the arguments for anti-gouging laws, this article analyses anti-gouging laws in Kenya to argue that they should not be invoked.

  1. Price Gouging in the Kenyan Law

It can be said that there are three legal regimes that exist to protect consumers against predatory pricing: general anti-trust laws (competition law) to protect consumers against predatory behaviour, contract law and laws that are specific to anti-gouging. 29

Anti-trust laws have been termed as the first line of defence against price gouging during and after disasters 30 and this was very true for Kenya during the COVID-19 pandemic. The CAK responded swiftly to the first alleged price gouging incident involving Cleanshelf Supermarket. 31 The Competition Act lists what the CAK may consider when determining unconscionable conduct; (a) the relative strengths of the bargaining positions of the person and the consumer; (b) whether, as a result of conduct engaged in by the person, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the person; (c)  whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services; (d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the person acting on behalf of the person in relation to the supply or possible supply of the goods or services; and (e)  the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from another supplier. 32 The CAK, in their statement, rely on first circumstance – the relative strengths in the bargaining position of the seller and the consumer. The CAK states the bargaining strength of the buyers has changed detrimentally due to the COVID-19 pandemic and thus the conduct was deemed unconscionable. 33

The other regime is contract law but this might not be as effective in the scenario as it is likely to involve a lengthy litigation process. Consumers might need to institute a class action suit which may also prove difficult. 34 For these reasons, contract law is not discussed further in this piece.

This brings the author to specific anti-gouging laws. This regime is at the centre of this analysis. In Kenya, the relevant is the Price Control (Essential Goods) Act. 35 Section 2 of the Act gives the Minister of Finance power to, from time to time, declare any goods to be essential goods and set their maximum price. 36 Although it is not a specific post-disaster anti-gouging law, the wording ‘from time to time’ would fit a scenario like the COVID-19 pandemic. At the time of writing, no minister has utilised this power. Instead, the government has resorted to pleas such as when Cabinet Secretary for Health, Mutahi Kagwe asked matatu owners to avoid hiking fare prices. 37 Instances of The Price Control Act being invoked were not found in conducting research for this article. Even when the price of maize was set at Ksh 75 by the then Cabinet Secretary for Agriculture Mwangi Kiunjuri, he did not utilize this law nor did he gazette the policy. 38 The little use of this law in Kenya gives this article small room to predict what impact it might have if invoked during the COVID-19 pandemic. However, drawing lessons from the discussion in Section III, due to the many negative effects of such a legislation, it may not be the best way forward to providing access to essential goods during this time. Some of the negative effects seen include shortages.

Currently, the approach taken by the Kenyan government has been to directly distribute these essential items to the less privileged. 39 It is the author’s view that so far, the national and county distribution of essential goods has had some success. For example at least 300,000 litres of sanitizer has been distributed and 10 tonnes of relief food has also been distributed. 40 An added advantage to emergency relief in a post disaster period is providing goods quickly to disaster victims. 41 One may argue that the institutions tasked with that are not entirely effective and they may be right. However, the answer to that problem is not to be found in anti-gouging legislation, especially those effective in Kenya today.

 

  1. Conclusion

In conclusion, this article has tried to provide a balanced view on the issue of anti-gouging in determining whether the present anti-gouging legislation in Kenya can be utilised to ensure that the underprivileged have access to essential goods during the COVID-19 pandemic. It suggests that the non-involvement of the Price Control Act is prudent. This is because as discussed in Section III, such laws have many negative effects such as exacerbating shortages and thus may not increase access to essential goods by the less privileged. For this reason, this article suggests that the current national and county distribution of essential goods may be a better way to ensure citizens with the least means have access to these goods.

 

  1. Nevins J, ‘The imperative of personal sacrifice, today and during World War II’ The New York Times, 3 April 2020- <https://www.nytimes.com/2020/04/03/magazine/personal-sacrifice-coronavirus-world-war-ii.html> on 20 April 2020. While there have been other pandemics none of them have caused the disruption of ordinary life that is comparable to a world war like the COVID-19 Pandemic.
  2. Earley J and Lacy W, ‘British War time control of Prices’ 9(1) Law and Contemporary Problems, 1942, 160. See also Campbell D, ‘Blitz Spirit? It’s another bonanza for spivs and thieves’ The Guardian, 28 March 2020-<https://www.theguardian.com/world/2020/mar/28/blitz-spirit-its-another-bonanza-for-spivs-and-thieves> on 20 April 2020.
  3. Wilson D, ‘Price gouging, construction cartels or repair monopolies? Competition law issues following natural disasters, 20(1) Canterbury Law Review, 2014, 54. The author discusses this phenomenon starting with the Great Fire of London of 1666 which saw prices of some items go up 300%.
  4. Snyder J, ‘What’s the matter with price gouging’ 19(2) Business Ethics Quarterly, 2009, 275.
  5. Amadala V, ‘Cleanshelf Supermarket ordered to refund customers for overpriced sanitisers’ The Star, 16 March 2020-< https://www.the-star.co.ke/business/kenya/2020-03-16-cleanshelf-supermarket-ordered-to-refund-customers-for-overpriced-sanitisers/> on 20 April 2020.
  6. Omulo C, ‘Uhuru warns traders against hiking prices’ Daily Nation, 18 March 2020-< https://www.nation.co.ke/business/Uhuru-warns-traders-against-hiking-prices/996-5495452-992p4wz/index.html> on 20 April 2020.
  7. Omulo C, ‘Uhuru warns traders against hiking prices’ Daily Nation, 18 March 2020-<https://www.nation.co.ke/business/Uhuru-warns-traders-against-hiking-prices/996-5495452-992p4wz/index.html>on 20 April 2020.
  8. Competition Act of Kenya (Act No. 12 of 2012).
  9. <https://www.cak.go.ke/sites/default/files/202003/CAK%20Remedial%20Order%20to%20Cleanshelf%20Supermar kets.pdf> on 20 April 2020.
  10. <https://www.cak.go.ke/sites/default/files/202003/CAK%20Remedial%20Order%20to%20Cleanshelf%20Supermarkets.pdf> on 20 April 2020.
  11. Munda C, ‘Act against price hikes on essential goods, UN says’ Business Daily, 9 April 2020-<https://www.businessdailyafrica.com/economy/Act-against-price-hikes-on-essential-goods-UN-says/3946234-5519516-ev6oq5/index.html> on 20 April 2020.
  12. Zwolinski M, ‘Dialogue on price gouging: Price gouging, non-worseness and distributive justice’, 19(2) BusinessEthics Quarterly, 2009, 295.
  13. Snyder J, ‘What’s the matter with price gouging’, 279.
  14. Suranovic S, ‘Surge Pricing and Price Gouging: Public Misunderstanding as a Market Imperfection’, Institute for International Economic Policy Working Paper Series Elliott School of International Affairs The George Washington University, Working Paper Number 20, 2015, 6. -<https://www2.gwu.edu/~iiep/assets/docs/papers/2015WP/SuranovicIIEPWP2015-20.pdf> on 24 May 2020.
  15. Snyder, J, ‘What's the Matter with Price Gouging?’ 19(2) Business Ethics Quarterly, 2009, 275-293.
  16. Sandel J, ‘Justice, What's the Right Thing to Do?’ Farrar, Straus and Giroux, New York, 2009, 7.
  17. Rapp G, ‘Gouging: Terrorist attacks, hurricanes, and the legal economic aspects of post disaster regulation’ 94(3) Kentucky Law Journal, 558.
  18. See Rapp G, ‘Gouging: Terrorist attacks, hurricanes, and the legal economic aspects of post disaster regulation’, 535 and Bae E, ‘Are anti-price gouging legislations effective against sellers during disasters’, 82.
  19. Wilson D, ‘Price gouging, construction cartels or repair monopolies? Competition law issues following natural disasters’ 20(1) Canterbury Law Review, 2014, 54.
  20. Suranovic S, ‘Surge Pricing and Price Gouging: Public Misunderstanding as a Market Imperfection’, Institute for International Economic Policy Working Paper Series Elliott School of International Affairs The George Washington University, Working Paper Number 20, 2015, 6. -<https://www2.gwu.edu/~iiep/assets/docs/papers/2015WP/SuranovicIIEPWP2015-20.pdf>- on 24 05 2020.
  21. Kinyanjui M, ‘Uhuru Spells out tougher measures to contain COVID-19’ Daily Nation, 6 April 2020. President Uhuru announced the cessation of movement in and out the Nairobi Metropolitan Area.
  22. Bae E, ‘Are anti-price gouging legislations effective against sellers during disasters’, 81.
  23. IGM Economic Experts Panel, ‘Price Gouging’, 2012 <http://www.igmchicago.org/surveys/price-gouging/> on 27 May 2020.
  24. Wilson D, ‘Price gouging, construction cartels or repair monopolies? Competition law issues following natural disasters’, 55.
  25. Skarbek B and Skarbek D, ‘The Price is Right: Regulation, Reputation, and Recovery’ 6 Dartmouth Law Journal 2, 2008, 241.
  26. Wilson D, ‘Price Gouging, construction cartels or repair monopolies? Competition law issues following natural disasters’, 55.
  27. Bae E, ‘Are anti-price gouging legislations effective against sellers during disasters’, 82.
  28. Brewer M, ‘Planning disaster: Price gouging statutes and the shortages they create’ 72(3) Brooklyn Law Review, 2007, 1137.
  29. Rapp G, ‘Gouging: Terrorist attacks, hurricanes, and the legal economic aspects of post disaster regulation’, 559.
  30. Rapp G, ‘Gouging: Terrorist attacks, hurricanes, and the legal economic aspects of post disaster regulation’, 539.
  31. The Competition Authority of Kenya issued a press release explaining its remedial order. It can be accessed here; <https://www.cak.go.ke/sites/default/files/202003/CAK%20Remedial%20Order%20to%20Cleanshelf%20Supermarkets.pdf > on 20 April 2020.
  32. Section 56, Competition Act of Kenya (Act No. 12 of 2012).
  33.  < https://www.cak.go.ke/sites/default/files/2020-03/CAK%20Remedial%20Order%20to%20Cleanshelf%20Supermarkets.pdf> on 20 April 2020.
  34. Rapp G, ‘Gouging: Terrorist attacks, hurricanes, and the legal economic aspects of post disaster regulation’, 540.
  35. Price Control (Essential Goods) Act (Act No. 26 of 2011).
  36. Price Control (Essential Goods) Act (Act No. 26 of 2011).
  37. People Team, ‘Be reasonable, PS Kagwe tells PSVs over fare hikes’ People Daily, 24 March 2020. https://www.pd.co.ke/news/national/be-reasonable-ps-kagwe-tells-psvs-over-fare-hikes-29618/ on 20 April 2020.
  38. Omondi D and Guguyu G, ‘Return of Price Controls in Kenya’ The Standard, 18 October 2018< https://www.standardmedia.co.ke/article/2001299241/is-kenya-sliding-into-scary-market-controlled-economy> on 17 May 2020.
  39. Mueni J, ‘Government disburses 10-Tonne Relief Consignment for Nairobi’s Mukuru kwa Njenga Slum’ Capital News, 9 May 2020< https://www.capitalfm.co.ke/news/2020/05/govt-disburses-10-tonne-relief-consignment-for-nairobis-mukuru-kwa-njenga-slum/> on 17 May 2020.
  40. Njugunah M, ‘300,000 litres of sanitizer produced and released for distribution’ Capital News, 11 April 2020. < https://www.capitalfm.co.ke/business/2020/04/300000-liters-of-sanitizers-produced-and-released-for-distribution/> on 28 May 2020. Mueni J, ‘Government disburses 10-Tonne Relief Consignment for Nairobi’s Mukuru kwa NjengaSlum’ Capital News, 9 May 2020< https://www.capitalfm.co.ke/news/2020/05/govt-disburses-10-tonne-relief-consignment-for-nairobis-mukuru-kwa-njenga-slum/> on 17 May 2020.
  41. Brewer M, ‘Planning disaster: Price gouging statutes and the shortages they create’, 1136.

 

One Comment

Leave a Reply