The Federation of Kenya Employers (FKE) reports that 70,000 employees lost their jobs in the formal private sector between October 2022 and November 2023, and if the current economic situation persists, there’s a high likelihood of social unrest in Kenya.
Full statement from Habil Olaka, the president of FKE and Jacqueline Mugo the CEO and Executive Director.
Cost of doing Business.
The cost of doing business has become unsustainable since the enactment and implementation of the Finance Act 2023.
The employers’ view is that the changes have had an overall negative impact on cash flows and the financial positions of enterprises in various ways:
Direct impact on the payroll Impact on demand for General Wages review Risk of business closure and increased laying off employees.
The weakening of the shilling has aggravated the situation further and has adversely affected businesses that rely on imports, including imports of machinery and equipment necessary for our manufacturing industries.
The Kenya shilling lost 21% of its value between 13th September 2022 and 22nd November 2023. The exchange rate of Kenya shilling against the USD has hit a high of 152.45 compared to 121.05 at the same time in 2022.
This has been largely attributed to capital flight and reduced inflow of foreign currency due to the low value of exports.
The employment state is still very fragile. We are not yet back on track since COVID-19. Every day we receive notifications from employers on their intent to declare redundancy.
We are also conducting a survey on employers to determine the impact of the increased costs on jobs. Preliminary results show that it is significant.
It shows that between October 2022 and November 2023, we have lost 3% (70,000) of the jobs in the formal private sector and 40% of employers have reported that they are planning to reduce the number of employees to meet the increasing costs of operating in Kenya.
We will be launching the full survey report on Jobs Trends in the month of December 2023.
Cost Of Capital:
The cost of capital in the country remains high making it hard for the private sector to operate.
The cost of capital is affected by various factors such as interest rates, inflation, market conditions, and government policies.
On 26th June 2023, the Central Bank of Kenya raised its benchmark rate by 100 basis points to 10.5% 2023, bringing borrowing costs to their highest since August 2016.
This has made the cost of credit to businesses to go beyond reach thus affecting business growth.
The overall year on year inflation rate as measured by the Consumer Price Index (CPI) was 6.9 per cent, in October 2023.
Credit risk remains elevated with Gross Non-Performing Loans (NPLS) to Gross Loans Ratio standing at 15 percent at the end of the third quarter of 2023, an increase from 13.3 percent recorded at the beginning of 2023.
Risk of Social Unrest.
Kenya has enjoyed a relatively calm Labour environment, however if the high cost of living is not addressed, we see heightened agitation for wage increases. This will cripple the enterprises.
Dwindling Employee Productivity.
Productivity and performance are key factors directly linked to the country’s national goals.
A stressed worker cannot be productive.
The current cost of living coupled with recent additional taxes on the employees has resulted in shrinking pay slips.
This kind of environment compels workers to seek alternative sources of income and therefore leads to law productivity.
Kenya’s productivity is not only low, (but) it is also decreasing while in Tanzania and Uganda, Labour productivity grew by 8.4 per cent and 13 per cent respectively, and that of Kenya stands at 6.77%.
We cannot effectively compete with this level and type of productivity.
Tripartism and social dialogue is under threat in Kenya.
a) We are losing the spirit of tripartism. Tripartism has been and is at the heart of the proper functioning of the Labour sector and is even protected by the International Labour Convention Tripartite Consultation (International Labour Standards) Convention, 1976 (No. 144). Kenya ratified this convention, and it came into force on 6th June 1990. These are gains that
were even fought for by very prominent labour sector leaders like Tom Mboya. It is alarming that the current trend in the country is undermining this and even disregarding the international commitments we have made as a country. The law is clear, Constitution of Kenya Article 2(6) states “any treaty or convention ratified by Kenya shall form part of the law of Kenya under this Constitution.”
b) Employers play a significant role towards maintaining peaceful Labour relations and governance of tripartite boards. This should not be disrupted. There is need to respect the rights of Social Partners and strengthen tripartite institutions to play their role effectively. We are facing some challenges regarding our right to representation on tripartite boards arising.
c) The system of Labour administration should encourage consultation, co-operation, and social dialogue with the most representative organisations of employers and workers.
d) The changes in Law should not target weakening tripartism for example by removing employers from Tripartite boards, committees, and forums.
