Salaries plunge in real terms for three consecutive years

Inflation wiped out the 5.6 percent salary increase offered to the private sector workers last year, making it the third year in a row when pay rises lagged behind the soaring cost of living.

The findings of an annual economic survey by the Kenya National Bureau of Statistics (KNBS) show average earnings for workers in the private sector recovered from 2021 when it grew 2.6 percent and 3.6 percent in 2020.

However, when adjusted for rising prices or inflation, wages fell by 2.7 percent in a year when the cost of living measure rose to levels witnessed more than five years ago, largely due to the war in Ukraine and drought.

Energy and food prices have shot upwards, leaving many people struggling to pay their bills in an economy whose growth slowed last year.

Kenya’s economy grew 4.8 percent last year, down from 7.6 percent a year earlier, as a severe drought hurt agricultural output.

The economy also felt the effects of a weaker local currency and increased public debt load.

The 5.6 percent raise saw the average formal workers’ pay increase to Sh72,983 from Sh69,090 last year.

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Workers in the public sector saw their wages increase at a lower rate of 2.3 percent last year to an average of Sh70,239 on the back of larger salaries in parastatals.

The economic slowdown saw the number of new jobs, both in the formal and informal sectors, dip to 816,600 last year from 924,900 in 2021.

New formal sector jobs stood at 109,300, down from 163,500 recorded in 2021, a blow to the more than one million young people who graduate from colleges and secondary schools.

Last year marked the first time in a decade that real wages, adjusted for inflation, have contracted for three consecutive years, pointing to a tough environment in which workers’ salaries have not kept pace with the spike in prices of basic commodities.

Families are feeling the squeeze across Kenya, where rocketing food and fuel prices have propelled the rate of inflation above the government’s preferred cap of 7.5 percent since June last year.

Inflation eased to 7.9 percent last month from 9.2 percent in March on moderation of growth in food prices.

Employers are warning it will take years for pay raises to return to pre-pandemic levels, with firms fretting over business uncertainties despite the economic rebound following the easing of measures aimed at curbing the spread of Covid-19.

The private sector increased wages by an average of 8.1 percent in 2019, months before Covid-19 struck Kenya, triggering layoffs, pay cuts and business closures.

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”, citing findings of the 2022 Economic Position Paper on Wages by the Ministry of Labour.

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 and airtime, ultimately hurting firms like East Africa Breweries Limited (EABL) and Safaricom.

Real average earnings for all workers stood at negative 3.0 percent last year compared with negative 3.8 percent (2021), negative 1.4 percent (2020) and 2.7 percent in both 2019 and 2018.

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KNBS said in its 2023 Economic Survey that agriculture, forestry and fishing contracted 1.6 percent in 2022 from a 0.4 percent contraction a year earlier.

“This was attributed to drought conditions that characterised the period under review,” it said of the sector, which made up 21 percent of the overall gross domestic product (GDP).

In September last year, the Treasury forecasted 2022 growth of 5.5 percent.

The KNBS said some of the key sectors that contributed to last year’s growth were financial and insurance, information and communication, and transportation and storage.

“The year 2022 was covered with many persistent negative shocks,” said Njuguna Ndungu, the Cabinet Secretary for Treasury.

Prof Njuguna noted that most of the growth last year was pronounced in the service sectors such as hospitality.

Last year, for example, formal jobs in the hospitality sector, which includes accommodation and food services, rose the fastest at 23 percent from 61,700 to 75,900 -- highlighting the continued recovery from Covid-19 disruptions that had led to hotel closures as lockdowns kept visitors away.

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