Companies

Industrialists warn of increase in prices after wage changes

Manufacturers on Thursday warned of higher consumer goods prices following President Uhuru Kenyatta’s directive to increase the minimum wage by 14 per cent from this month.

The President, during Labour Day celebrations on Wednesday, raised the minimum wage by between Sh600 to Sh2, 700 for various categories of workers.

(Read: Uhuru hands workers 14pc raise in minimum wage)

Kenya Association of Manufacturers (KAM) says raising minimum wages annually has made their products uncompetitive against imports from Asian and other African countries, which they say enjoy lower staff costs.

These sentiments were also echoed by the employers lobby, Federation of Kenya Employers (FKE), which wants wage increments tied to productivity over cost of living measure.

“Any wage increments that are not based on productivity will always have negative effects... companies will just increase the cost of the final goods and this also affects the competitiveness of Kenyan goods on the international markets,” said Polycarp Igathe, the chairman of KAM.

An increase in price of manufactured goods will further raise the cost of living that increased marginally to 4.14 per cent in April from 4.11 per cent the previous month.

The industrialists reckon that the President’s position on minimum wage could derail revival of the industrial sector — which has been tipped as one to ease the rising unemployment.

(Read: Uhuru hopes to grow economy on strong industries)

The manufacturing sector’s contribution to the economy has stagnated at 10 per cent in the past six years even as the services sector — which employs relatively fewer people — grew.

Analysts say some manufactured goods may also come under higher taxation at the start of the next fiscal year, another factor that could compound the inflationary pressure.

“We expect inflation to start being a mild concern probably in July 2013 depending on the outcome of a requested electricity tariff increase by Kenya Power, VAT Bill, and the upcoming fiscal budget to be read in June 2013 which could see some tax increases,” the Standard Investment Bank said in a statement.

Trade unions have been the biggest agitators for raising the minimum wage by double digits each year, arguing that low-income earners have the biggest exposure to inflationary pressure. Last year, the government raised the minimum wage by 13 per cent at a time when inflation had rallied to a high of 19.7 per cent.

Employers, however, say that the annual increments should take into account the country’s global competitiveness where labour cost is one of critical factors in determining product pricing and margins.

The least paid workers, including drivers, cashiers, unskilled farm workers, and telephone operators, will now earn between Sh4,854.1 to Sh22,070.9 as a result of the 14 per cent increment.

KAM says this level of pay is too high compared to the current minimum wages in Bangladesh (Sh5, 719) Lesotho (Sh4,758), Ethiopia and Cambodia (Sh6,450).

“Some textile industries have already said that they have no clue as to how they can run their businesses in Kenya any more as they continue to face challenges competing with countries such as Bangladesh, Ethiopia, Cambodia and Lesotho whose minimum wage is much less than that of Kenya,” Mr Igathe said.

Industrialists at the Export Processing Zones (EPZ) say the government has failed to protect them from the annual minimum wage rates.

“The invitation to invest in the EPZ was under the pretext that the zone would be governed separately like a separate zone without being affected by unions and ceremonial wage increases,” said Pankaj Bedi, a director of United Aryan, a textile EPZ firm in Nairobi.

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