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Kenyan companies cut jobs for the third straight month

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Kenyan firms have shed jobs for the third month in a row on falling demand for goods and services. PHOTO | SHUTTERSTOCK

Kenyan firms have shed jobs for the third month in a row on falling demand for goods and services, which has prompted them to cut output, a monthly survey showed Tuesday, pointing to a tough business operating environment.

Findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) suggest that companies sustained layoffs into November on the back of persistently thinning consumer spending that has resulted in a drop in sales.

Respondents in the survey indicated that all key economic sectors — agriculture, manufacturing, construction, wholesale and retail, services, and mining— registered job cuts in November.

“Inflationary pressures and cashflow difficulties saw customer spending declining, and the rate of job losses increasing in the private sector because of weaker output and reduced workloads,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report.

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The construction sector, which President William Ruto has touted as the biggest job creator in his first term in office ending August 2027, suffered the “most severe” drop in output, according to the report based on feedback from about 400 corporate managers.

Firms have complained of rising operating expenses largely due to soaring fuel prices, fast-climbing electricity bills, and costly raw materials as a result of lingering global supply constraints amid a persistently weakening shilling against major global currencies and higher taxation.

The Federation of Kenya Employers (FKE) last month said the rising cost of doing business has pushed about 70,000 workers, or nearly three percent of the workforce, in the formal private sector out of employment between October 2022 and November 2023. The lobby for employers further warned that 40 percent of its members were planning to lay off workers to cope with the rising cost of operation and protect profit margins.

“The employment state is still very fragile. We are not yet back on track since Covid-19. Every day, we receive notifications from employers on their intent to declare redundancy,” FKE said in a statement on November 24.

“The increase in business costs has largely been driven by tax measures, global geopolitical developments, and climate change. The country may not have much control over global geopolitical developments and climate change, but we can work on our tax measures to reduce the cost of doing business.”

The overall PMI reading — a gauge for month-on-month private sector activity such as output, new orders, and employment — fell further to 45.8 in November from 46.2 the month before.

Reading below 50 signals a drop in business deals compared to the previous month, while levels above that mark denote growth.

“Driving the downturn in operating conditions was another historic increase in business costs during November,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for November.

“After reaching the highest level in the series' history one month ago, the rate of input cost inflation remained marked and was the second-fastest on record, with firms largely relating this to a further depreciation in the shilling against the US dollar, higher taxes, and greater fuel charges.”

The shilling has lost about 24.24 percent of value against the dollar year-to-date, with the Central Bank of Kenya (CBK) governor Kamau Thugge largely blaming the sharp decline on over-valuation of up to 25 percent in past years.

Stubbornly unrelenting inflationary pressures have prompted the CBK’s monetary policy committee to raise benchmark interest rates from 7.00 percent to 10.5 percent since May 2022.

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Increasing the benchmark lending rate makes borrowing to fund the purchase of goods and services more expensive as banks use it as a base onto which they load their margins and risk profile of individuals and firms when pricing loans.

PMI findings suggested companies largely did not adjust pay for employees to cater for inflation for the second month in a row.

Inflation — a measure of growth in average prices of goods and services over the last 12 months — eased marginally to 6.8 percent in November from 6.9 percent a month earlier on a slower rise in food costs.

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