Real wages shrink for the fourth consecutive year

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Elevated inflation wiped out a marginal 2.8 percent pay increase offered to Kenyan workers last year, making it the fourth year in a row when salary rises lagged behind the cost of living in a trend that continues to weaken purchasing power.

Findings of an annual economic survey by the Kenya National Bureau of Statistics (KNBS) show that workers in both the private and public sectors received lower pay increases compared with a 4.6 percent raise in 2022 as firms froze pay increases.

Adjusted for rising prices or inflation, Kenyan wages slumped to a negative 4.1 percent in a year when the cost of living remained elevated on costly fuel and food. This has left many households struggling to pay their bills despite Kenya's economy expanding at 5.6 percent in 2023 from a revised 4.9 percent in the previous year, driven by robust output in the agriculture sector.

The Economic Survey 2024 shows that overall, real wage earnings per employee, when adjusted for inflation, decreased to Sh667,300 in 2023, or Sh55,608 a month.

In 2022, real wages per employee was Sh696,144, or Sh58,012 in a month, which means they lost their purchasing power as the prices of products rose faster than their earnings. This was the fourth year since 2019 that real wages have contracted, pointing to a tough environment in which workers’ salaries have not kept pace with the spike in prices of basic commodities.

“The inflation rate remained at 7.9 percent in June 2023 as was in June 2022. Real average earnings decreased further by 4.1 percent in June 2023 compared to a decline of 3.2 percent in 2022,” says the Economic Survey 2024, which was released on Monday by Treasury Cabinet Secretary Njuguna Ndung’u.

“Real annual average earnings per employee in the private sector declined by 2.5 percent to Sh686.5 thousand in 2023 while those in the public sector declined by 7.8 percent to Sh625.9 thousand over the same period.”

The report shows that the annual inflation rate was 7.7 percent in 2023 as was recorded in 2022. An increase in rainfall has seen Kenya's inflation soften for the third month in a row in April to 5.0 percent from 5.7 percent in March. However, there are concerns that second-quarter performance could be affected by the effects of heavy rainfall. Floods across Kenya have killed at least 210 people and destroyed roads, houses, bridges and farms.

The economic growth saw the number of new jobs, both in the formal and informal sectors, rise to 848,100 last year from 816,660 in 2022

New formal sector jobs stood at 122,900 down from 109,300 recorded in 2022, a blow to the more than one million young people who graduate from colleges and secondary schools.

The Federation of Kenya Employers (FKE) said workers’ compensation to cover inflation will resume when productivity starts growing faster than the cost of living measure.

The employers’ lobby said productivity in Kenya was “not just low, but is actually decreasing.”

Sky-high inflation has forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from the Covid-19 economic hardships. The rise in the cost of essential commodities could force workers to cut back on non-essential items such as beer, ultimately hurting firms like East Africa Breweries Limited (EABL).

Employers are warning it will take longer for pay raises to return to pre-pandemic levels, with firms fretting over business uncertainties despite the economic rebound.

Kenya’s economy relies on farming, which contributes more than a fifth of annual economic output, and abundant rains after years of drought helped the sector to recover from contractions in the previous two years.

Tourism, which is another key sector, also posted growth, with visitor arrivals surpassing the annual pre-pandemic level of 2.035 million, to 2.087 million visitors last year.

Kenya's private sector activity was broadly steady in April, entering slightly into expansion territory after contracting marginally a month earlier, a business survey showed

The Stanbic Bank Kenya Purchasing Managers' Index (PMI) stood at 50.1 in April, up from 49.7 a month earlier but below February's reading of 51.3. Readings above 50.0 signal growth, while those below point to a contraction. February's figure was the first above-50 reading since August.

Prof Ndung’u decried the “persistent shocks which [had left] layers and layers of impact” on the economy.

But he said the 5.6 percent growth was a signal of economic recovery.

“The 5.6 percent growth is above the average in Sub-Saharan Africa. We need to defend this economic growth,” he said Njuguna on Monday.

The average formal worker’s pay increased to Sh74,519 from Sh72,062 the previous year.

Despite increased recruitment, wages in the public sector dropped from a monthly average of Sh70,239 to Sh69,894, which means they were hit the hardest by inflationary pressures last year.

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