The push for higher salaries is the latest driver of operational costs for Kenyan firms in a high inflationary environment which has shrunk staff pay, prompting them to seek a raise.
Several companies have reported a growing queue of workers asking for higher salaries amid the fastest climb in inflation in five years.
This is corroborated by findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) — a closely-watched monthly survey on the private sector — suggesting firms have raised expenditure on workers for five months, in a row, since March.
The salary raises cut across key economic sectors, with manufacturing, construction, agriculture, wholesale and retail as well as services featuring prominently on the list of sectors facing a wave of inflation-driven growth in labour costs.
“As Haco one of our biggest cost increases has been labour costs at about six percent [year-to-date]. Labour costs…will continue to be one of the key drivers of our operational costs for the remainder of the year,” said Mary-Ann Musangi, managing director of Haco Industries.
Inflation rose to 8.3 percent last month from 7.9 percent in June on persisting impact of Russia’s war on Ukraine, which has disrupted global supply chains and affected the availability of items such as wheat, edible oil and fertiliser.
That has been compounded by below-average rainfall since last year and a weakening shilling, which had by last Wednesday, shed 5.93 percent of its value against the bullish US dollar year-to-date in a net import economy.
“It’s a challenging time for everybody in the marketplace. We are aligned to the expectations based on a directive on May 1 on wage increase,” said Sekar Ramamoorthy, managing director for PZ Cussons East Africa.
“Fortunately, Kenya is a labour surplus market in terms of manufacturing and commercial skills. Therefore, labour supply is higher than demand.”
July marked the second month in a row that the year-on-year cost of living measure crossed the government’s upper limit target of 7.5 percent, a trend last witnessed five years in June 2017 when it hit 9.21 percent.
The jump in the cost of basic commodities has narrowed the shopping basket of households who have already been forced to cut non-essential expenditures amid negative growth in real wages.
President Uhuru Kenyatta on May 1 — workers’ day — raised minimum wages by a 12 percent rise, offering relief to workers who had gone for three years without a salary review despite protestation from employers.
Until this year, the government had failed to review minimum wages since 2018 despite rising inflation which averaged 5.53 percent between 2019 and 2021. The rise in inflation erodes the purchasing power of the workers if not compensated through a pay raise.
The Federation of Kenya Employers (FKE), a lobby, has insisted economic fundamentals do not support a raise on minimum pay — which largely affects low-cadre jobs like cashiers, drivers, security guards, messengers, cleaners, house helps and gardeners.
A growth in minimum wages usually forms the basis for the push for higher earnings by other cadres of workers through collective bargaining agreements.
“Labour is a fixed cost and so this (wage raise) is a monthly hit on the payroll, but we will do what we can to see what adjustments to make to comply with the Head of State’s directive,” FKE executive director Jacqueline Mugo said after the presidential directive.
“Employment is a big challenge for this country and we need to consistently strike a balance [between raising pay and hiring more workers].”
The Latest Kenya National Bureau of Statistics data shows average earnings in the private sector for the year through June 2021 fell 3.83 percent to Sh60,031 when adjusted for inflation.
That was marked the second year in a row the real wages for workers in the private sector fell, having dropped a marginal 0.59 percent in the prior year to Sh62,425.97.
Most employers have in the past adjusted pay to compensate for annual growth in inflation. However, the KNBS data suggests they are no longer keeping pace with the increase in the cost of living.
An analysis of the monthly PMI surveys — based on feedback from about 400 corporate managers drawn various key industries in private sector — suggests that firms which have marginally raised salaries this year have done so to “motivate workers” without matching changes in the cost of living. Majority of the firms have kept the pay steady.
“Employers usually try to adjust salaries in tandem with inflation, but this is proving a challenge. Since 2020, we have not been able to keep pace with increase in the cost of living when it comes to salaries,” a human resource director at one of the country’s largest profitable firms said recently on condition of anonymity because he is not allowed to speak to the press.
The KNBS data indicated basic earnings for workers in the private sector grew at the slowest pace in 11 years in 2021 after firms resumed hiring following pandemic-induced layoffs and salary cuts in 2020.
Workers in accommodation and food services — amongst the hardest hit by the pandemic-induced layoffs — got the highest raise in average monthly gross pay in the review period at the rate of 4.6 percent to Sh37,393.68.
They were followed by those in the education sector where employers raised average nominal monthly salaries by 3.06 percent to Sh84,223, mining (2.5 percent to Sh55,512.51) and manufacturing (2.16 percent to Sh47,530.92).
Workers in the agricultural sector, which contracted 0.2 percent last year due to bad weather, had the slowest raise on average monthly pay at the rate of 0.3 percent to Sh31,393.68 followed by construction at 0.77 percent to Sh63,693.73.
Workers in the transportation sector on average got a pay raise of 1.2 percent to Sh128,010.81, energy (1.2 percent to Sh173,103.54), real estate (1.24 percent to Sh27,280.03) and financial services (1.42 percent to Sh173,505.61).