The private sector plans to retrench at least 15 percent of their workforce. PHOTO | SHUTTERSTOCK
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Firms to lay off 15pc of staff on a tough economy - CBK
The private sector plans to retrench at least 15 percent of their workforce this year as the high cost of living, high taxes, a weak shilling and reduction in customers weigh down business, a new Central Bank of Kenya (CBK) survey has shown.
The businesses, excluding banks, indicated in the survey they “definitely” don’t expect to retain 15 percent of the workforce they had in 2023 in the current financial year.
This could translate to more than 300,000 workers that companies plan to lay off, going by Kenya’s employment statistics in 2022, which showed that the private sector employed 2,077,500 workers. Out of the workforce, the financial and insurance activities sector employed 70,000 Kenyans, the Kenya National Bureau of Statistics (KNBS) reported in last year’s Economic Survey.
Based on the employment rate by 2022, should the businesses classified as non-banks cut their employment (2,007,500 workforce) by 15 percent as the survey indicates, this would see 301,125 Kenyans rendered jobless.
The CBK last month commissioned the Market Perceptions Survey, which sought to understand from businesses, the number of employees they expect to retain in 2024 compared with 2023.
“The results showed mixed expectations between bank and non-bank respondents. Banks expect to hire in 2024 as they expand services and strengthen capacity to support business growth. Non-bank respondents, on the other hand, expressed mixed expectations on hiring, citing challenges in the economy including the high cost of living, reduction in customers, weak shilling, low activity, an unfavourable business environment, decline in business due to high taxation and high fuel prices,” the CBK survey report states.
The report adds that the businesses raised concerns over reduced output, poor cash flow, and increased cost of doing business as the cost of production rises with high taxes and a weak shilling that has increased input costs.
As a result of the challenges businesses are currently experiencing, the survey showed that the private sector businesses classified as non-banks indicate they can only strongly confirm to “definitely” retain 7.0 percent of the employees they had in 2023 and “probably” retain 31 percent.
However, the businesses indicated that they will “probably” not retain 47 percent and “definitely” won’t retain 15 percent of the employees.
The survey findings bring out the reality many businesses are living through, just three months after the Federation of Kenya Employers (FKE) revealed that employers had cut 70,000 jobs in the year to October 2023, mainly due to high costs of doing business, brought about by increased taxes and levies, and other macroeconomic challenges such as the weak shilling.
“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,” FKE stated, noting that the employment state in the country was “very fragile.”
Kenya had 2.077 million people employed in the entire private sector in 2022, out of whom 70,000 were employed in the financial and insurance activities sector. Within the banking sector, the survey found, institutions will this year definitely retain 28 percent of the workforce they had in 2023, probably half of the workforce.
Banks, however, indicated that they may not retain 19 percent of the workforce, and definitely won’t retain 3.0 percent. Based on the 2022 employment figures, this would mean that banks hope to retain about 54,600 of the 70,000 they employ and are only sure of laying off about 2,000.
Overall, respondents remained optimistic about Kenya’s economic prospects in the next 12 months, with non-bank firms expressing more optimism about Kenya’s economic prospects compared to the last survey. About 83 percent of the respondents cited improved agricultural production following the favourable rainfall, moderating commodity prices globally, and reduced international fuel prices as reasons for this optimism while 39 percent were optimistic about the resilient services sector driving growth in the economy.
“Nevertheless, 50 percent of respondents cited the following as risks to this outlook: weak local currency increased imported inflation, which is being passed on to consumers, the high cost of borrowing resulting from high-interest rates and increasing loan repayment costs further constraining disposable incomes for consumption and investments by households and MSMEs, and non-performing loans as economic actors struggle to repay existing facilities,” the CBK report says.
Within banks, 74 percent of respondents in the survey indicated optimism about economic prospects this year, 23 percent were pessimistic and 3.0 percent were very pessimistic.
Among the non-bank respondents, 7.0 percent of the respondents were very optimistic, 54 percent optimistic, and 30 percent and 9.0 percent pessimistic and very pessimistic about economic prospects in 2024, respectively.
Kenyans, including business entities, want a return to subsidies, payment of pending bills that have left businesses cash-starved and the government to spend on development heavily as opposed to the current scenario where development spending has been largely ignored.
“Respondents suggested that a healthy mix of fiscal policies to subsidise both consumption expenditure as well as business investments would improve the economy," the CBK report says.
In addition, respondents suggested that the business environment could improve if the government kept expenditure levels stable, and if expected inflows from development partners came through, which would bolster the economy’s ability to service its debts whilst maintaining a healthy liquidity level to enable enhanced business activity,” the CBK report stated.
