Pay rises to 21-month high amid recovery from Covid

Kenyan private firms raised workers’ June pay at the highest rate in 21 months in a bid to boost productivity, signalling economic recovery from Covid-19 economic hardships.

Stanbic Bank Kenya’s Purchasing Managers Index (PMI) — which measures month-on-month changes in private sector activity output, new orders and employment —says last month’s pay growth was the highest since October 2019.

Corporate chiefs, under pressure to meet staffing needs, have in recent months preferred salary cuts to layoffs in anticipation of an uptick in demand in the coming months.

The rise in pay came in a month when firms slowed down the pace of hiring compared with May and instead focused more on efficiency in production of goods and services.

The Covid knocks saw economic activity contract 5.5 percent at the height of travel restrictions and trade shutdowns in the April-June 2020 period, before the slump slowed to a 1.1 percent in July-September after easing of some of the measures.

This period ushered in layoffs and pay cuts as firms grappled with flagging sales.

“Whilst only marginal, the pace of increase quickened slightly to the most marked since October 2019. Salary increases were mainly linked to efforts to boost productivity,” analysts at Stanbic Bank and UK researcher IHS Markit wrote in the PMI report for June.

The PMI index dropped to 51 in June from 52.5 in May, indicating that while business conditions remained positive last month, they were not as bright as in May. A PMI reading above 50 denotes improvement of business conditions compared to the previous month, while one below 50 points to deteriorating sentiments.

Eighteen percent of the 400 corporate managers polled in the survey — mainly drawn from agriculture, manufacturing, construction and services — reported an increase in demand, while 16 percent posted reduced orders as a result of weak spending power amongst customers.

“The pace of the recovery slowed in June following the strong improvement witnessed in May when some of the stringent public health restrictions were lifted,” Kuria Kamau, a fixed income and currency strategist at Stanbic Bank, wrote in the PMI report.

“Both domestic and export demand increased on account of higher customer numbers and increased cash circulation, but the increase was at a slower rate than in May.”

The number of outstanding orders—including those from the export market— rose for the first time in four months, partly due to the fact that companies did not add sufficiently to their employee numbers to match the increased demand for goods.

Higher demand from Europe was partly boosted by resumption of passenger flights between Nairobi and London after a three-month hiatus, with belly cargo accounting for 40 percent of the total freight.

Businesses, however, reported a rise in input costs for the second straight month, citing higher fuel and raw material costs.

The firms, however, raised selling charges to consumers of goods and services despite input cost inflation remaining steady to “sustain profit margins”.

Corporate managers said the outlook for business activity, including revival of expansion plans, in the next 12 months worsened in June on the back of fresh restrictions in the 13 counties in the Lake Basin region in a bid to contain the evolving nature of the pandemic.

“The surveyed firms’ outlook for the economy over the next year worsened after more stringent public health restrictions were imposed on 13 counties,” Mr Kamau said.