It’s been another challenging year with household feeling the hardest impact. PHOTO | FILE | NATION MEDIA GROUP
The year started with delayed onset of long rains and it now
closes with killer floods. A strange cocktail that has thrown Kenyans’
well-being and economic growth numbers worlds apart.
Many
top companies shed profits and laid off workers to stay afloat despite
government data showing that the economy was expanding. The cash crunch
among consumers only served to worsen the situation.
So
where did the money go? It’s a puzzle that the Central Bank of Kenya
(CBK) Governor, Dr Patrick Njoroge, was alerted to when he faulted the
structure of Kenya’s economy for delivering growth in Gross Domestic
Product (GDP) amid cash crunch and job losses among Kenyans.
This
Christmas, more than 1,000 workers who were earning income from
multinational firm Finlays have little to celebrate. Finlays is closing
down its flower farms and exiting Kenya due to reduced earnings.
NCBA
group managing director John Gachora, who oversees the third largest
lender in Kenya, told Smart Company in an interview that the economy is
at a standstill.
“The economy continues to be the talk
of town. We need to really think deeply about how to get this economy
restarted. I challenge all banks and government to reboot this economy
and it cannot be a piecemeal approach,” he said.
“We see buildings that are lying idle because prices are up. We
need a reboot button that moves the price within an affordable range.
Someone eyeing a Sh10 million apartment hasn’t bought it because the
price is stuck up there. That kills commerce.”
The
reboot has been suggested in many ways, including government agencies
being compelled to pay suppliers pending bills or lowering electricity
bills for small businesses.
INFRASTRUCTURE SPENDING
But
with poor and slow implementation standing in the way, it’s been
another challenging year with households feeling the hardest impact.
Central
Bank of Kenya Governor Njoroge said in October that the economic growth
had not trickled down, a situation he explained has been worsened by
the capping of interest rates and more dependence on State’s
infrastructure spending.
“It’s true you have GDP
numbers, but you can’t eat GDP. At the end of the day, what is needed is
specific income. That is what everybody else wants plus jobs,” Dr
Njoroge said.
Kenya’s economy recovered from a sluggish
4.9 per cent growth in 2017 to 6.3 per cent last year and has remained
strong at 5.6 per cent in the second quarter of 2019.
But
the rosy figures have coincided with a period of declining earnings for
many firms and job cuts, making life difficult for many families.
Government has been rolling out mega infrastructural projects such as the Standard Gauge Railway, pushing up the GDP growth.
However,
the number of firms announcing job cuts has been rising since last
year, making many critics question the health of the economy.
Dr
Njoroge explained that GDP growth that is based more on infrastructure
spending does not bring the impact that matters most to households — the
money that hits their pockets.
A 2019 survey by the
Financial Sector Deepening (FSD) showed that more than half (51 per
cent) of Kenyans reported a worsened financial status, with many having
soaked in excess debt from multiple sources. This contrasts with 2016
when 34.3 per cent had a similar view.
HOSTILE TAX ENVIRONMENT
It
further said that over 50 per cent of borrowers sold assets, borrowed
or cut back on expenses to repay loans, while a quarter were using over
half of their monthly income to service loans.
Betting
firms Sportpesa and Betin in September fired all their staff in Kenya as
they announced exit from Kenyan market over what they considered a
hostile tax environment.
Four firms — East African
Portland Cement Company, Telkom Kenya, Stanbic Bank of Kenya and East
African Breweries Limited — had in the space of three weeks to
mid-August notified employees of job cuts totalling nearly 1,700.
Other
firms that have cut staff sizes this year include Ola Energy, Sanlam,
Stanbic Bank, MediaMax, Radio Africa, Tala, Silverstone Air Services and
Securex Agencies, a security solutions provider.
The Building Bridges Initiative report released recently singled out jobs scarcity as the key thing worrying many Kenyans.
“The
single most important matter facing Kenyans when it comes to shared
prosperity is generating enough jobs and employment, particularly for
young people,” said the report commissioned by President Uhuru Kenyatta.
“It’s
not enough to merely improve our economic output and present rates of
investment, we must entirely transform the way our economy operates if
we are to deal with the present lack of jobs.”
BBI
proposes several things to reboot the economy, including giving a
seven-year tax holiday to new small and medium sized firms, as well as
the introduction of a flat tax rate for incomes above the living wage.
For
workers who have been lucky to keep their jobs, salaries have generally
stagnated even as a rise in inflation sliced the size of bread on their
tables.
Inflation has been relatively under check, averaging 5.56 per cent in 12 months to November.
And
yet the cost of 2kg maize flour had, for instance, shot up 55 per cent
to Sh125.40 by November compared to the same month last year.
The cost of 4kg tomatoes is up 43 per cent to Sh90.28 while that of 4kg charcoal shot up seven per cent to Sh147.20.
PURCHASING POWER
This
is happening against the backdrop of an economy where government failed
to announce any wage increase. In such a situation, the workers’
purchasing power could only worsen.
By the end of last year, the number of working Kenyans earning below Sh30,000 monthly had risen to nearly half of the total employed workers captured in government records.
By the end of last year, the number of working Kenyans earning below Sh30,000 monthly had risen to nearly half of the total employed workers captured in government records.
Data from the Kenya National Bureau of
Statistics (KNBS) showed the number of salaried workers taking home
below Sh30,000 had grown by 154,945 or 14 per cent to 1,279,982.
This
equals 46.3 per cent of the total 2,765,159 salaried workers captured
in the Kenya Revenue Authority database as at December 31, 2018.
The
KNBS report on the well-being of Kenyans released last year showed
expenditure per month per adult on food and non-food items averages
Sh7,811 nationally.
However, the report showed
residents of Nairobi County incur on average Sh4,239 monthly on food and
a further Sh8,158 on non-food items such as clothing, education,
health, transport and rent.
This gobbles up more than
48 per cent of the Sh30,000 earning when deductions such as income tax,
and contributions to the National Social Security Fund and National
Hospital Insurance Fund are factored in.
Job cuts in
the economy continued a trend last year where eight companies listed on
the Nairobi Securities Exchange (NSE) spent Sh2.7 billion to lay off
nearly 1,600 workers as others cut their employee numbers through
natural attrition.
Barclays Bank of Kenya, National
Bank of Kenya, Standard Chartered Bank of Kenya, KCB Group and Housing
Finance all spent money on layoffs as did Britam and British American
Tobacco.
Deacons East Africa and ARM Cement, which fell into administration, also laid off employees.
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