Kenya firms cut pay for new jobs to cope with Covid pain

Kenya’s job market conditions remained dark in December despite a slight improvement in recruitment, a monthly survey shows.

Companies weighed down by the economic knocks of the Covid-19 pandemic sustained pay cuts for existing workers while newly hired ones came in at lower pay.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) shows that though recruitment increased for the third month in a row in December on increased private sector activity, the take-home by workers remained downcast due to pay cuts and lower salary offers for fresh recruits.

Overall staff costs reduced at a faster pace in December than November despite firms hiring more workers—an indication of reduced earnings for employees whose incomes have further been chopped this month following the expiry of special tax reliefs to cushion them from the economic fallout of Covid-19.

“Efforts to lower wage bills led to a further drop in overall staff costs in December. The rate of decline quickened from November, but remained marginal and far softer than seen earlier in the year during the worst of the Covid-19 outbreak,” the survey says.

The drop in wages came ahead of the reinstatement of the normal pay as you earn (PAYE) tax bands by the Treasury, except for workers earning a monthly salary of up to Sh24,000.

Parliament has additionally revised the tax bands for salaried workers resulting in maximum PAYE tax of 30 percent applying from Sh32,333 compared with Sh47,057 in the pre-Covid period.

Pay cuts by private sector firms had intensified since November following a sharp jump in Covid-19 infection and deaths which prompted the State to tighten some of the regulations aimed at curbing the spread of the virus, hurting demand locally and abroad.

The PMI report — based on feedback from corporate managers in key sectors such as manufacturing, services and agriculture — shows that overall expansion in private sector activity such as output, new orders, employment and backlogs for December recovered marginally from a sharp deceleration a month earlier, largely helped by increased festive season sales.

The headline PMI reading rose slightly to 51.4 in December from 51.3 a month earlier and 59.1 in October.

This means that growth in business deals was nearly flat, just staying above the 50 mark that separates growth from contraction and that economic recovery from Covid-19 fallout was softer in November and December than the July-October period.

“The modest month-on-month improvement in the Stanbic PMI indicates that the pace of the post-pandemic recovery is slowing down. Rising input costs, partly caused by disruptions in supply chains as well as some input shortages, have also resulted in a slowdown in the growth in output,” Kuria Kamau, a fixed income and currency strategist at Stanbic Bank, says in the PMI report.

“This slowdown was inevitable following the significant improvements in economic activity witnessed in October after the relaxation of public health restrictions.”

Ministry of Health data shows the contagious coronavirus disease sickened 12,633 persons in December from a record 29, 821 persons in November, killing a further 198 from 488 a month earlier.

“Output rose at a slightly weaker pace in December, and the slowest seen in the current six-month sequence of growth,” analysts at Stanbic Bank and UK’s Markit wrote in the December PMI report. “Firms found that improved cash flow, looser restrictions and higher customer orders supported the expansion.”

The higher sales in December than a month earlier resulted in an increase in backlog of work, prompting firms to increase workers marginally for the third month in a row.

The modest rise in orders was supported by “improved cash flow and greater marketing activity” which included discount offerings during the peak of the festive season.

The sales were also lifted by recovery in orders from abroad from a five-month low in November after countries such as France and Ghana relaxed a second round of Covid-19 shutdown measures.