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Job loss fears as firms issue profit warnings

Protesters march in Nairobi urging the government to lift a ban on labour export, especially to the Middle East. PHOTO | FILE | NMG
Protesters march in Nairobi urging the government to lift a ban on labour export, especially to the Middle East. PHOTO | FILE | NMG 

Kenya’s unemployment crisis is set to worsen in the near term as the fallout from a protracted electioneering and recent policies that have upended the economy becomes clear.

With thousands of jobs having been lost so far this year in the banking and manufacturing sectors, analysts said the private sector will at best freeze new hiring, but could well embark on a new round of retrenchments to survive the storm.

The gloomy jobs outlook comes on the back of one of the worst corporate earnings season that has already seen five Nairobi Securities Exchange-listed firms issue profit warnings.

Bamburi Cement #ticker:BAMB, Standard Chartered Bank (Kenya) #ticker:SCBK, Family Bank, Standard Group #ticker:SNG and BOC Kenya #ticker:BOC have announced that their earnings for the full year ending this month will be lower by at least a quarter compared to the year before.

Scores of other firms are in losses, including publicly traded East African Cables #ticker:CABL, Unga Group #ticker:UNGA, Mumias Sugar #ticker:MSC and the privately-held retailer Nakumatt Holdings, which is fighting bankruptcy proceedings in court.

“A few factors have ganged up to make it very hard for companies to retain the people they have or even review their terms,” said Jacqueline Mugo, executive director of the Federation of Kenya Employers (FKE).

Ms Mugo, citing economic paralysis brought by the recent poll and a virtual shutdown of the plastics manufacturing industry in the wake of an official ban on use of carrier bags, says labour market recovery is likely to be prolonged.

She said FKE has noted significant job cuts in agriculture, service and tourism among other sectors.

With an estimated one in every five Kenyan youth of working age unemployed, the soft jobs market signals a worsening of a crisis that can only feed back into the overall economy through weaker demand for goods and services.

Combative politics

Official statistics show that employment momentum loses steam at electoral cycles, underlining the pernicious effect of combative politics and the attendant private sector risk aversion.

The total number of new jobs created, for instance, surged to a record 1.2 million in 2012 but tapered off to 755,800 the next year when Kenya held a General Election.

A similar slump is expected this year once national employment statistics are compiled. In addition to the impact of political uncertainty, the weaker jobs market has been harmed further by policies that have hit banks and some manufacturers.

Formal motor vehicle dealers shed at least 300 jobs this year in the wake of sales declines that saw the industry’s total order book shrink 18.7 per cent to 8,427 units in the nine months ended September.

Hundreds of jobs have been lost at manufacturers of plastic bags which were banned in a move the government said was meant to protect the environment.

Banks

Banks, reeling from a rising tide of bad debt and narrower lending margins thanks to the capping of interest rates, have let go of at least 1,000 employees.

Family Bank, which slipped into a net loss of Sh743 million in the nine months ended September, expects to end the year in the red having booked a net profit of Sh352.2 million in 2016.

StanChart now expects to make a maximum net profit of Sh6.7 billion this year compared to net earnings of Sh9 billion the year before.

Both lenders, reflecting reduced profitability in the wider banking industry, attributed the anticipated lower earnings on the rate cap and reduced economic activities.

Bamburi says its net profit this year will fall by more than 25 per cent compared to Sh5.8 billion in 2016.

Standard Group, which made a net profit of Sh198.5 million last year, now expects to post maximum net earnings of Sh148.8 million.

BOC Kenya also expects a lower earnings ceiling of Sh95 million this year, having made a net profit of Sh126 million in 2016.

The three companies also cited general economic slowdown in their forecast though BOC’s results will also take a hit from accounting changes.

The task of creating more jobs has become even harder amid adverse long-term structural changes in the economy.

The labour-intensive agricultural and manufacturing sectors are growing at a slower pace compared to service industries which are riding on automation to eliminate the need to hire more people.

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