Data Hub

Executives reveal biggest risks to business in Kenya


Unemployment or underemployment ranks as the biggest risk to business in Kenya today, a new survey among executives revealed, turning the spotlight on the country’s training programmes and job skill gaps.

Although the Kenya National Bureau of Statistics (KNBS) in March this year claimed that the country’s unemployment rate declined steadily over the past 10 years to stand at 7.4 per cent at the end of 2016, placing the country among those with the lowest unemployment rates-- business leaders think otherwise and warn than joblessness poses a big threat to the economy.

The concern by the business CEOs in Kenya mirrors that of their counterparts globally and in the sub-Saharan Africa (SSA) region interviewed by the World Economic Forum.

“Of the 34 countries in sub-Saharan Africa that we surveyed, unemployment and underemployment was identified as the most pressing concern for businesses in 22 of them. No other region recorded anything like this level of consensus among respondents, highlighting the profound challenges that the region faces on this issue, particularly in light of the demographic changes that lie ahead” the forum said in a new report for 2018.

The UN projects that the working-age population of Africa will more than double to 1.6 billion by 2050-- a trend that could open new economic opportunities for the continent, but only if jobs can be created in huge quantities.

According to World Bank data, Africa’s official unemployment rate is just 7.3 per cent. However, this figure masks deep-seated problems. More than 70 per cent of the region’s workers are in vulnerable employment – compared to a global average of 46 per cent – and 37 per cent are in extreme working poverty, which is defined by the International Labour Organisation(ILO) as income of less than $1.90 per day.

Executives in Kenya listed terrorist attacks the second biggest threat to business. Terror remains a threat in Kenya although the country has taken major strides to limit it, including deploying its troops in neighbouring Somalia where the Al-Qaeda linked al-Shabaab militant group remains active. Kenyan troops are battling al-Shabaab in Somalia as part of an African Union (AU) peacekeeping force that has been deployed there for more than a decade.

The Kenya-based wing of Al-Shabaab, known as Al-Hijra, was in July this year added to the US list of groups it regards as terrorist organisations.

Cyber-attacks were ranked the third highest concern among business executives in Kenya—reflecting a trend globally where businesses have become wary of the huge disruptions caused by such acts. Kenya’s relatively high internet connectivity, with a penetration of more than 80 per cent, as well as high internet traffic from mobile devices has made it a target of cyber-attacks.

A number of massive cyber-attacks took place in 2017 — notably WannaCry, Petya and NotPetya – causing extensive operational disruption and financial losses for organisations around the world.

Failure of regional and global governance was ranked the fourth biggest business risk by executives in Kenya. Kenya has over the years borne the brunt of failed governance in several neighbouring nations such as South Sudan and Somalia which led to an inflow of refugees escaping violence back at home. Apart from putting strain on resources in Kenya, conflict in these countries have been blamed for the inflow of illegal firearms into Kenya resulting in increased insecurity.

The country’s systematic food crises was tiered as the fifth biggest threat to business in Kenya-- highlighting the continuing challenge of meeting basic needs against a backdrop of, among other things, drought, rising food prices, poor planning and the strains of rapid urbanisation.

Only last year, Kenya suffered a massive shortage of maize due to a prolonged drought that affected farming in key producing areas forcing the country to make huge and costly imports to cover for the shortfall.

Kenya’s food imports in the first four months of the year grew by a third to Sh68.63 billion compared to a year earlier, data by the Central Bank of Kenya(CBK) showed, reflecting the country’s strain on sourcing food from foreign markets.

The country is however projecting a record harvest of maize in 2018 on favourable weather. Kenya is expected to net 46.1 million bags of maize this year, according to estimates by Egerton University’s Tegemeo Institute.

Globally, the top-ranked risk across the world in 2018 was “unemployment or underemployment”, with “failure of national governance” in second position.

“The unemployment risk, in particular, needs to be cautiously interpreted, as it may reflect quite different challenges across countries and regions, such as weak growth, talent shortages or labour-market disruptions caused by automation” the WEF said.

“Regardless of these interpretative details, the fact that unemployment and governance failures top the list of global business risks should ring alarm bells about the strains on our basic political and economic systems” it added. The WEF said another prominent finding of this year’s survey is a jump in cyber-attacks, from eighth position according to last year’s data to fifth position this year.

“We will look back at 2017 as the year that the world began to take seriously the potential extent of our vulnerability to cyber-attack disruptions. In our survey, “cyber-attacks” tended to be flagged as a concern in the world’s more advanced economies” it said. Of the 19 countries that ranked cyber-attacks number one, 14 were from Europe and North America, the WEF survey showed. The others were India, Indonesia, Japan, Singapore and the United Arab Emirates. By contrast, of the 34 countries that ranked “unemployment or underemployment” first, 22 were from sub-Saharan Africa.

Ten years on from the start of the global crisis, financial risks slipped in the global rankings. “Fiscal crises” dipped from second place in last year’s Executive Opinion Survey to fourth place this year, and “failure of financial mechanism or institution” dropped from sixth to seventh.

“There were regional exceptions to this trend, such as “asset bubbles” jumping to second place in Europe, but overall the results of this survey do little to counter worries about economic and financial complacency that we voiced earlier this year in The Global Risks Report 2018” the WEF stated.

Geopolitical concerns were relatively muted, with “failure of regional and global governance” and “terrorist attacks” in ninth and tenth places globally, respectively. The starkest of geopolitical risks, “interstate conflict”, was ranked in the top three risks in 17 countries.

Most of these countries were in Eastern Europe and Eurasia, a pattern that reflects the increasing importance of that part of the world as global geopolitical balances are recalibrated. Environmental concerns did not make it into respondents’ global top 10 risks, in sharp contrast to recent editions of The Global Risks Report, where environmental risks have been increasingly predominant.

“This reflects the specifically business-focused framing of the risk-related question in the Executive Opinion Survey and also highlights the need for a diverse range of perspectives on which global risks are most pressing” the WEF further said.