Mass sacking as firms downsize

An estimated 1,300 companies plan to lay off an unspecified number of workers this year as the effects of last year’s post-election violence sink in, and the ripples from the spiralling global economic crisis hit Kenya.

A preliminary assessment by the Federation of Kenya Employers (FKE) of labour turnover also cites the enactment of new labour laws as an additional factor that has contributed to the downturn in various companies in the last fiscal year.

In addition to retrenching staff, several companies are planning to freeze business projects, renegotiate salaries of top management and put off hiring new workers until conditions improve, the Sunday Nation has learnt.

The sector worst affected is the building and construction industry that has reported massive redundancies as early as mid last year.

Other hard-hit sub-sectors include manufacturing, agriculture and finance. The layoffs will be an additional burden to bear for Kenyans already struggling with double-digit inflation that has seen prices of the national staple foods -- maize and maize flour -- go through the roof over the past year.

They will also confound efforts by the government to grapple with a growing food shortage that threatens millions of Kenyans across the country.

Given that every working Kenyan has several dependants, it means that the layoffs could set off a ripple effect that could see the number of people seeking relief food from the government and donor agencies skyrocket.

Shedding

The number of unemployed youth is also expected to rise since most students graduating from institutions of higher learning are finding it especially difficult to find jobs in a market already shedding its present work force.

“We anticipate the situation to worsen this year due to the current unfavourable business climate. Companies are doing everything possible to cut operational costs and, unfortunately, workers will become victims,” said FKE chairperson Jackline Mugo. 

The 2,700-member federation says that at least 70 per cent of the companies interviewed so far reported a decline in profitability last year while 17 per cent had managed to break even. A mere two per cent managed to surpass their profitability projections.

The federation is yet to complete the survey and determine the exact number of workers to be affected as companies are still working through their individual assessments before giving their final numbers.

Fifty-five per cent of the companies reported a decline in growth and sales turnover compared to 22 per cent that barely managed to hold on to their margin lines. Only five per cent reported registering above-target growth.

Fifty-three per cent of the companies, mainly in the agricultural and manufacturing sectors, reported sharp declines in their productivity, while 47 per cent indicated that they barely managed to be in line.

Fifty-six per cent of the companies cited the downturn in economic growth and enactment of new labour laws as the principal factors contributing to the declines, while 40 per cent cited the post-election violence as the cause.

However, the Central Organisation of Trade Unions (Cotu) has strongly criticised Kenyan employers for adopting “an escapist attitude” toward the economic outlook. The union accused employers of looking for scapegoats.

“The belief by employers that the economy might not improve soon is a big fallacy given that global fuel prices have gone down and the cost of electricity reduced, thus pushing down the cost of doing business,” said Cotu secretary general Francis Atwoli.

The violence that rocked the country early last year led to serious disruptions in the labour market. Thousands of workers were displaced during the mayhem, forcing firms to scale down their operations or shut down altogether for several weeks.

The violence also paralysed transport services, making it difficult for several companies to access their markets. Roadblocks in the Rfit Valley area caused severe shortages that forced up the prices of basic commodities and raw materials.

The most significant increase, which affected nearly all sectors, was the sharp rise in the price of oil. This translated into higher production and electricity costs that significantly slashed profit margins of most companies.

Paternity

But before local companies could recover, they were hit again by the on-going global recession that was set off by the failure of major financial institutions in the United States.

A survey conducted by FKE last year reported that the average additional cost expected per company as a result of enhanced maternity leave would be Sh9.2 million, while that arising from the new paternity leave would be Sh2.1 million.

As a result of a combination of these factors, the country’s economic growth rate slumped from 7.2 per cent in 2007 to 2.2 per cent in 2008.

Several analysts led by AIG Investments estimate that this year’s growth will be between 3 and 3.5 per cent.