Layoffs by NSE firms double to 7,000 in a year

The number of workers laid off by Nairobi Securities Exchange (NSE)-listed firms more than doubled to 7,000 last year on falling revenues, latest data shows, signifying the depth of the crisis in the jobs market which has worsened since the second quarter of this year due to the Covid-19 pandemic.

The size of lay-offs by NSE firms in 2019 represents a 143.39 percent jump compared to the previous year when the companies shed 2,876 jobs. Companies listed on the bourse cut 1,870 jobs in 2017.

“Declining profitability combined with falling revenues in 2019, saw a number of these firms resort to downsizing staff with over 7,000 staff laid off in 2019 compared to 2,876 in 2018 and 1870 in 2017,” the Central Bank of Kenya (CBK) says in an update released yesterday.

The disclosure paints a grim image of the jobs market which has plunged into further turmoil since March this year when the country reported its first case of Covid-19, triggering lockdowns that saw businesses either reduce operations or shut down altogether.

Data by the Kenya National Bureau of Statistics (KNBS) shows that about 1.72 million people lost jobs between April and June, mainly on the economic fallout of Covid-19.

The job cuts by NSE firms in 2019 came in the wake of multiple profit warnings due harsh economic times.

Seventeen companies or more than a third of all NSE firms issued profit warnings as net earnings tumbled by over 25 percent, prompting them to initiate lay-offs to manage expenditures.

In 2016, 11 firms issued profit warnings. The average earnings per share for select listed firms also declined from Sh7.2 in 2018 to Sh2.1 in 2019, hence a further decline in equity prices.

“Declining revenues and profitability for firms and furloughs of employees increase credit risks as those with outstanding debt will be unable to service them, hence a financial stability concern,” the CBK said in its newly released financial sector stability report.

The dwindling fortunes of NSE firms shine a spotlight on the health of the Kenyan business environment, even as the World Bank Ease of Doing Business index showed Kenya rose five places to rank 56 out of 190 in the world and third in Africa.

CBK governor Patrick Njoroge in October last year faulted the structure of Kenya’s economy for delivering economic growth without creating jobs or adding money in people’s pockets.

His comments came after Kenya’s economy recovered from a sluggish GDP growth of 4.9 per cent in 2017 to 6.3 percent in 2018 and slowed to 5.6 percent last year.

“It is true you have GDP numbers but you can’t eat GDP. At the end of the day, what is needed is specific income. That is what anybody else wants plus jobs,” Dr Njoroge quipped.

Last year’s job losses went beyond the NSE firms. Betting firms Sportpesa and Betin in September last year fired all their staff in Kenya as they closed operations over what they termed a hostile tax environment.

Firms which have cut staff size include East African Portland Cement Company #ticker:PORT, Sameer Africa #ticker:SMER, Stanbic Bank of Kenya #ticker:SBIC, East African Breweries #ticker:EABL, Ola Energy, Sanlam #ticker:SLAM, MediaMax, Radio Africa, Tala, Silverstone Air Services and Securex Agencies.

The CBK says that the rise in lay-offs is a threat to financial sector stability since thousands of employees who had drawn loans on the strength of their pay slips are likely to default on repayments.

The value of bad loans in the banking sector has risen by Sh53.95 billion since the onset of Covid-19 despite borrowers having applied to defer payments on nearly half of the current loan book, pointing to the deepening economic headwinds.

CBK data shows that gross non-performing loans (NPLs)— credit for which principal or interest has not been paid for 90 days or more— hit Sh403.9 billion in October, up from Sh349.9 billion in February.

This is the fastest 10-month period jump in at least five years and has also seen NPLs ratio jump to 13.6 percent—the highest since August 2007— when it stood at 14.41 percent.

The weakening ability of borrowers to honour loan repayment coincides with the prevailing tough economic times facing households since the first case of Covid-19 was confirmed in Kenya in March, triggering job losses, salary cuts and tight purses.

The mounting NPLs are despite banks having allowed customers to extend repayment periods on loans worth Sh1.38 trillion by end of October, an equivalent of 46.5 percent of the Sh2.97 trillion total loan book.

Dwindling fortunes for NSE firms also mean that investors are in for reduced returns on their investments.

For instance, average earnings per share (EPS) for select listed firms declined from Sh7.2 in 2018 to Sh 2.1 last year, pointing to declining valuation of companies.

EPS indicates how much money a company makes for each share of its stock, with a small value pointing to reduced corporate value.