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NEWS INDEPTH: Companies mull more job cuts on rising costs

job losses
Kenya is staring at more job losses in the corporate sector due to elevated operating costs, the business community has warned. GRAPHIC | NMG 
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Kenya is staring at more job losses in the corporate sector due to elevated operating costs, the business community has warned, aggravating the pain of growing unemployed graduate youth.

The signal comes on the back of a freeze on fresh employment by a significant number of private firms in recent years.

Treasury Secretary Henry Rotich is also yet to lift a December 2013 moratorium on new employment in civil service that restricted hiring only in essential sectors such as security, education and health.

The temporary ban, which has been renewed annually, is aimed at reining in on runway public wage bill.

The Kenya Private Sector Alliance (Kepsa) says local firms are yet to recover from a generally “tough economic environment” that started in late 2016 with a biting drought and legal caps on loan charges which hurt access to credit.

The umbrella organisation for businesses indicated some businesses have kept layoffs at bare minimum by putting on hold new investments, hiring of new employees and cutting budgets for corporate sponsorships.

Such cost-cutting measures, Kepsa’s head of policy research analysis and public-private dialogue Victor Ogalo says, are temporary and cannot be sustained for years.

“Normally, companies try to cushion their employees during hard economic times albeit in the short-term,” Mr Ogalo said.

“However if the situation persists, they are forced to make the hard decisions including downsizing, restructuring of operations, job cuts, suspending some projects, or closure and relocation. This is the risk we are staring at as a country.”

Power costs

Kepsa lists the burden of high power costs for large factories, increased tax and levies and recurring hurdles in clearing and moving cargo along the Mombasa-Nairobi standard gauge railway as some of the challenges keeping cost of doing business high.

Others are prolonged delays by national and county government in remitting payments for goods and services supplied by private firms, continued influx of cheap illicit imports into the country and a slowdown in orders from Kenya’s East African Community partners, partly due to trade barriers.

“For investors seeking to invest in the country, this negative investment environment scares them away denying even more Kenyans potential new jobs,” Mr Ogalo says.

“This also means local SMEs, which employ nearly 85 percent of the workforce, face low demand from Kenyans and the large companies they supply.”

Some 15 of the 62 companies listed on the Nairobi Securities Exchange (NSE) have reported net income reduced by at least 25 percent last year compared with 2017, offering a glimpse of performance in the private sector.

Corporate earnings

Reduced corporate earnings have sparked fears of another round of layoffs in the sector after banks let go of thousands of staff from 2016 as they moved to enhance efficiency through automation amid dwindling interest earnings and growing bad loans.

Markit Stanbic Bank Kenya Purchasing Managers Index (PMI), a measure of growth in business activities such as production and demand, has also dipped for the third month in a row to 51.0 in March.

That was the lowest level since 42.9 in November 2017 when the economy was in a gridlock due to a bruising presidential poll contest.

“The reasons there are shackles on private sector and subsequently job creation is on one hand, we have the government not paying contractors and suppliers and, on the other hand, there’s limited access to credit as a result of the rate cap,” Jibran Qureishi, the lead regional economist for Stanbic Bank, shares when the Business Daily contacts him on phone.

The 47 counties alone had by end of last financial year in June 2018 accumulated Sh108.41 billion claims from contractors and suppliers, a steep climb from Sh35.84 billion the year before, statistics by the Controller of the Budget show.

Treasury Chief Administrative Secretary Nelson Gaichuhie told legislators early this month pending bills at national level stood at Sh32.5 billion as at last December, while some 23 manufacturers were owed Sh3.59 billion in VAT refunds by last August, according to the Kenya Association Manufacturers (KAM).

Skilled population

Kenya has struggled to create modern decent job opportunities for her largely skilled youthful population in the last five years despite the economy expanding by more than five percent on average.

For instance, the informal sector accounted for 83.4 percent of the 897,800 new jobs created in 2017, the Economic Survey 2018 shows.

President Uhuru Kenyatta on April 4 raised hopes for job opportunities after he forecast the economy would grow 6.3 percent in 2019 from an estimated 6.1 percent last year, the highest growth since 8.4 percent recorded in 2010, if accomplished.

“The projections on strong growth in the economy will not be accompanied by a corresponding growth in jobs.

Certainly not for the formal sector where many jobs continue to be placed in jeopardy due to the tough business environment,” Federation of Kenya Employers (FKE) executive director Jacqueline Mugo says.

Jobless growth

“It is jobless growth. The policy, regulatory and ethical issues negatively impacting the business climate should be relaxed to protect jobs and enterprise.”

The government, Mr Qureishi says, should initiate far-reaching structural reforms and incentives to boost activities in labour-intensive manufacturing and agro-processing sectors to sustainably spur growth in jobs in the medium-term.

“Let’s face it: job growth is in those two sectors. There’s no significant job growth that we are going to see from, for example, building 10 more malls in this country.”

“You can’t have more malls than factories. There’s a fundamental problem there especially in regards to jobs.”

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