New president woes: Perennial lack of jobs to keep leader on his toes

Top presidential contenders in the August presidential election Raila Odinga (L) and William Ruto. FILE PHOTO | NMG

The revelation that half of jobless Kenyans have given up looking for work, disheartened by reduced opportunities in a tough economy, will worry the new man at State House.

Opposition leader Raila Odinga and Deputy President William Ruto, the two front runners in the race to succeed President Uhuru Kenyatta, have each promised to address the growing unemployment among the youth, if elected.

But this will be no mean task in an economy where the bulk of businesses are seeking to be lean after being hit by the effects of Covid-19, which delivered layoffs, business closures and pay cuts.

The lack of formal employment is a big issue. Many Kenyans aged between 18 and 35 have no jobs at all despite holding university degrees or other suitable qualifications.

Data by the Kenya National Bureau of Statistics (KNBS) covering the quarter ended March 2021 shows that 1.23 million out of the total of 2.49 million jobless Kenyans aged between 15 and 64 — and who qualify for the labour force — were not actively looking for employment.

The majority of those who have given up on employment are aged between 20 and 24 at 363,018, followed by 25- to 29-year-olds at 232,146.

The 20-24-year-old demographic consists mostly of fresh graduates whose job-seeking efforts are hurt by a lack of experience and mismatch between skills and job openings.

The large number of new entrants into the job market every year has also led to limited opportunities, forcing many to seek alternatives such as setting up small businesses.

Since March 2020, many businesses have been unable to take in more workers due to the economic problems caused by the Covid-19 pandemic, with many resorting to lay-offs or wage cuts to survive.

Kenya considers unemployed people as persons who do not have a job and have actively been looking for one in recent weeks and are currently available for work.

They are numbered 1.26 million in the review period, out of the total of 2.49 million who were out of work.

The remaining 1.23 million are classified as potential labour force, meaning they are people of working age who either did not make any effort to seek jobs even though they are available and willing to work. → BD TEAM

Magic bullet will lie in stretching shilling to buy more for Kenyans

The next President may have to come up with a way to help people afford some essential goods. Kenyans have been finding that their money is not going as far as it used to when it comes to buying the basics.

In July, annual inflation surged to multi-year high of 5.3 percent, but the increase in the price of some key food items, including maize flour and cooking oil, was much higher.

To ease the problems the outgoing government of President Uhuru Kenyatta subsidised the cost of maize flour in July, but it is not clear if this policy will be continued. The government has also been subsidising the price of petrol to keep it affordable.

The big question is what policy the new government will be put in place to ease the cost of essential items like cooking oil, fuel, soap and food, maize flour in particular.

Deputy President William Ruto has pledged to provide seeds and animal feeds to farmers to boost yield if he takes power, but was short on immediate solutions. Opposition leader Raila Odinga, on the other hand, has pledged to revive the agriculture sector, but has hardly fleshed out specific remedies in the near term, only promising to “put a smile” on vulnerable households through a Sh6,000 monthly stipend.

The monetary policy committee —the central bank’s top decision making organ —late last month kept the benchmark lending rate steady at 7.5 percent, arguing the “moderating” international prices of oil, wheat and edible oil will ease pressure on runaway inflation in the near term.

Sky-high inflation has forced many households, especially in low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from Covid-19 economic hardships.

The rise in the cost of essential commodities has forced workers to cut back spending on non-essential items such as beer and airtime, ultimately hurting firms like East Africa Breweries Limited and Safaricom. It has hit workers hard given that the average real wages, adjusted for inflation, stood at negative 3.83 percent last year compared to negative 0.59 percent in 2020. → BD TEAM

Why incoming head will have to go beyond the popular maize and fuel subsidies

The two kilogramme packet of staple maize flour and a litre of petrol would today be retailing at over Sh200 without a costly subsidy.

This scenario awaits the new president in the wake of lack of clarity over the subsidy policy, with withdrawal of the State support expected to draw consumer protest immediately it is made public.

It also looks set to put the government on a collision course with the International Monetary Fund (IMF), which has set a fresh loan condition requiring Kenya to drop the fuel subsidy programme by October, exposing motorists to a sharp rise in pump prices. To ease the problem of inflation the outgoing government of President Uhuru Kenyatta subsidised the cost of maize flour in July.

The government has also been subsidising the price of petrol to keep that more affordable. But this policy comes at a big cost – Sh17 billion in July - potentially adding to the huge debt the country owes.

However, both subsidies are stop-gap measures which are set to face headwinds under the new regime short of cash after failing to tap more than Sh180 billion of the budgeted foreign debt in the year ended June.

“Sustainability of subsidies really depends on the fiscal space that is available. As we all know, we have significant constraints on fiscal space…because there are some other urgent needs,” Central Bank of Kenya Governor Patrick Njoroge said on July 28. → BD TEAM

Failed rains dampen economic outlook with additional millions needed for relief food

Dry weather looks set to put a damper on economic growth this year as the country races to recover from Covid-19 economic hardships.

The country experienced low rainfall in the main planting season, coupled with exorbitant fertiliser prices that saw a lot of farmers cut on the use of this key supplement or abandon it all together.

Agriculture accounts for close to a third of Kenya’s annual economic output, and food prices are a key driver of inflation.

This will put pressure on the need for subsidies, particularly of the staple maize flour, additional government funding for relief food and reducing or eliminating import duty.

The rainfall stopped just as farmers in the country’s breadbasket of North Rift had planted, resulting in poor crop germination.

Kenya has had two failed rain seasons, piling pressure on the available food in the country and forcing the State to offer a subsidy last month to address the runaway cost of maize flour, which hit a record high of Sh210 for a two-kilogramme packet.

Kenya is a food deficit country and relies on cross-border imports to meet the annual demand.

Tim Njagi, a researcher with the Egerton University’s Tegemeo Institute of Policy, says the next government needs to invest more in climate-smart agriculture to mitigate the effects of drought.

“There is need now to invest more in climate-smart agriculture as this will help in overcoming the effects of drought,” said Dr Njagi. → BD TEAM

Salary, perk cuts risk the wrath of workers’ unions

The incoming administration has a task cutting approximately Sh100 billion annually or Sh2 billion weekly from civil servants’ pay, testing its relations with combative workers unions.

A bloated public wage bill that consumes more than half of taxes is impeding spending on development projects.

The Salaries and Remuneration Commission (SRC) reckons that the elimination and merger of some public servants’ allowances will start in October, leaving the new task to the new president.

There are currently over 247 remunerative and facilitative allowances, up from 31 in 1999, payable within the public sector and they have the effect of doubling a worker’s monthly pay and account for 48 percent of the State wage bill.

The State aims to cap allowances at a maximum of 40 percent of a public worker’s gross pay, shifting from the present unregulated model that inflates the workers’ take-home.

The allowance cuts and the freeze of pay increases until 2025 will dampen the civil servants’ prospects of better fortunes amid tough economic times due to the Covid-19 pandemic.

The allowances that look set to be chopped include entertainment, responsibility, medical and utility, which cover items such as water, electricity and phone calls.

The daily subsistence allowance or per diem, which the SRC says is widely abused to inflate pay, will also be reviewed. The cut in perks is one of the strategies, alongside a freeze in new hiring and removal of ghost workers, aimed at reducing Kenya’s ballooning public sector wage bill.

The SRC reckons many of the allowances being paid are already catered for through the workers’ basic pay, ultimately inflating salaries.

The wage bill for the 923,000 public servants stands at more than Sh890 billion, having risen from Sh458 billion in 2013. → BD TEAM

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.