•According to the Federation of Kenya Employers, about 40% of employers have reported that they are planning to further reduce the number of employees.
•This is to meet the increasing costs of operating in Kenya.
At least 70,000 jobs in the formal private sector have been lost between October last year and this month, employers now say, with more on the line.
This is on the back of a tough business environment where companies and businesses are grappling with a high cost of doing business, amid low returns, the Federation of Kenya Employers (FKE) said on Friday.
According to FKE, about 40 per cent of employers have reported that they are planning to further reduce the number of employees to meet the increasing costs of operating in Kenya.
This is in addition to the already three per cent (70,000 jobs) that have already been lost.
Speaking during a media briefing in Nairobi, FKE president Habil Olaka said 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, he said.
These include direct impact on the payroll, impact on demand for general wages review and risk of business closure and increased laying off employees.
The high cost of power in the country has also affected operating costs.
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 manufacturing industries.
The Kenya shilling has lost about 26.7 per cent of its value between September 2022 and November 2023, where it has weakened from Sh120.54 to the average Sh152.81 it was exchanging at yesterday – Central Bank of Kenya data.
“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,” Olaka said during the briefing at Waajiri House.
The cost of capital in the country also remains high making it hard for the private sector to operate, FKE said.
The cost of capital is affected by various factors such as interest rates, inflation, market conditions, and government policies.
On June 26, 2023, CBK raised its benchmark rate by 100 basis points to 10.5 per cent 2023, bringing borrowing costs to their highest since August 2016.
This as been retained twice with the most recent being October 3, with most banks charging interests above 18 per cent.
“This has made the cost of credit to businesses to go beyond reach thus affecting business growth,” said Olaka.
CBK data shows microfinance banks charge interests of up to 22 per cent, amid a high default rate.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 15.0 per cent in August 2023 compared to 14.2 percent in August 2022, CBK data indicates.
“ Increases in NPLs were noted in the manufacturing, mining and quarrying, real estate, and building and construction sectors,” CBK said in its recent Monetary Policy Committee statement, on October 3.
Tax measures
FKE executive director and CEO Jacqueline Mugo also noted the increase in business costs has largely been driven by tax measures, global geopolitical developments, and climate change.
“The country may not be able to have much control on global geopolitical developments and climate change, but we can work on our tax measures to reduce the cost of doing business in the country,” Mugo said.
She said the government needs to put in place measures that improve the purchasing power of citizens and the cash flow in enterprises.
This should specifically target reviewing taxes that have a high adverse impact on individuals and businesses.
The key taxes that need to be reviewed, according to FKE, are the VAT on Petrol, PAYE and Corporate tax.
The federation proposes that VAT on petrol revert to eight per cent (8%) as it was before the enactment of the Finance Act 2023, noting the increase to 16 per cent has a regressive effect on the economy.
“We also appeal to policymakers to consider reducing the PAYE to a maximum of 25 per cent. This is because food inflation remains the highest contributor to the cost of living,” FKE said in its statement.
With households spending about 60 per cent of their income on food, it is prudent that households are supported to increase their disposable income, the federation noted.
If not, important basic needs like healthcare, education and savings for old age will grossly suffer.
Employers also want corporation tax reverted to 25 to help attract investment and allow corporates to have money to plough back into their business, and create more employment.
They are also calling for the removal of the minimum turnover tax.
“This tax is going to exacerbate informality and destroy micro businesses that employ 84 per cent of wage employees in Kenya,” Olaka said.
FKE has also urged that the Affordable Housing Levy be capped at Sh5000 per month as it was originally proposed.
“We are currently in a situation where businesses are not able to meet their operational costs and at the same time employees are not able to make ends meet,” said Olaka.