Kenya's economy grows as job losses soar

Thousands of families stare at bleak economic times following a wave of employee layoffs announced by leading companies in the past few weeks.

The job losses in commercial banks, breweries and cement manufacturing sectors sharply contrast the lauded economic growth painted by official data and present policymakers with the need to rethink a working solution for a country whose economic growth contradicts its job market.

In the past one month, at least six companies have signalled staff layoffs, which come with economic ripple effects given the number of dependents that rely on the close to 2,000 people set to lose their jobs.

East African Portland Cement Company (EAPCC), Telkom Kenya, Stanbic Bank of Kenya and East African Breweries Limited (EABL) have already notified employees of the looming layoffs, citing the need to trim their payrolls. Two other banks are said to have issued similar notices this week.

TOP-DOWN APPROACH

The difficult economic times cited by the affected companies is in sharp contrast to the improving business environment that has seen Kenya move several steps in the Ease of Doing Business ranking.

Those to be sacked now join a pool of other jobless youth at a time when universities are spewing at least 50,000 graduates per year into the job market.

While technological disruption and increasing automation in the service industry, which is a key sector in the country’s economy, may be blamed for the increasing unemployment, years of policy miscalculations, corruption and poor planning has driven Kenya’s job situation into the abyss.

MANUFACTURING

Economic analysts contend that Kenya has missed lots of job creation chances in the multibillion shilling projects it has been implementing in the past five years with deals entered without factoring in the country’s interests.

Dr Paul Gachanja, Kenyatta University School of Economics dean, says the country should have grabbed the opportunities presented by infrastructure projects to spur job creation, specifically in the manufacturing sector.

“If we used these projects to promote local industries in supplying raw materials alone, then you would have ended up with a longer benefit.

"It is these projects that give you that higher figure and the macro level that the economy is growing, yet the money made ends up going back in material purchases, loan repayment and in some cases labour costs,” Dr Gachanja told the Saturday Nation.

POOR PLANNING

The standard gauge railway (SGR), for example, presented an immense job creation and industrialisation opportunity for the country but this was missed at the negotiation table where Kenya signed for a loan compelling it to source labour and raw materials from China.

The result is failing cement companies, which would have reaped heavy benefits from the mega project that sourced cement from China.

The railway line, which is now temporarily halted at Naivasha as Kenya routes for financing to take it further west to Kisumu, has been running at losses, with piling operation and maintenance bills.

Analysts believe that Kenya could have planned well and prepared its local industries and labour market to reap maximum benefits from the project, ranked the largest since independence.

According to Nairobi-based economic analyst Robert Shaw, the economy got a double-edged sword treatment with relative calm from the political truce between President Uhuru Kenyatta and Opposition leader Raila Odinga, and the combination of a war on corruption and succession politics, which started ‘too early’.

PEACE DEAL

He cites the crackdown on illegal imports, the strict money transfer regulations and the uncertainties around regulations, as the government experiences increased pressure to build revenue and service debts, as some of the factors that have thrown cold water on the economy.

“If we had not had a ‘handshake’, we would have had a split in the country and it would have been a lot worse than it is right now.

"There are other factors that have not allowed much more improvements, like the weather, which has been bad, and the dislocation in the economy caused by the current crackdown on corruption and money flows,” Mr Shaw said, noting that the economic well-being of some businesses was largely reliant on informal trade.

AGRICULTURE

The rising political temperature, Mr Shaw notes, is making investors nervous as many adopt a wait-and-see approach on the end results in the war against corruption, three years before an election year.

On paper though, the economy is said to have performed very well last year, expanding by 6.3 per cent from 4.9 per cent in 2017.

The growth was attributable to increased agricultural production, accelerated manufacturing activities, sustained growth in transportation and vibrant service sector activities.

The difference in the microeconomic numbers that indicate a growing economy is sharply contrasted by the painful job losses, even as the country enjoys relative calmness that came with the March 2018 political truce.

Dr Gachanja believes the way forward for the country in creating jobs will be to make agriculture less reliant on rain and mechanise it.

LOW FUNDING

Availability of food and the lengthening of its value chain will create jobs and solve a recurring cycle of shortages that end up pushing Kenya into imports and further outflow of cash.

The sector, which was devolved in the current governance structure, has however suffered poor financial allocation, wrong priorities and lack of proper coordination from the national government.

The devolved units have particularly starved the sector of funding, leaving the country badly exposed to frequent food shocks like the one currently being faced.

The latest report by the Office of the Controller of Budget (CoB) shows that most counties allocated less than 20 per cent of their development spending to agriculture for the first half of the 2018/2019 financial year, with some not setting aside specific funds to support agriculture in the first place.

Counties like Narok, Kisumu, Siaya, Murang’a, Kiambu, Kericho, Bomet Migori and Homa Bay, which together with four others hold 57 per cent of land classified as high potential by the Ministry of Agriculture, Livestock and Fisheries, did very little to support agriculture in their budgets.

CORRUPTION

Out of the Sh3.4 billion Narok County spent on development for the year 2017/2018, only Sh504 million was spent on agriculture.

That the county, which has 908,000 hectares of high potential land for agriculture only used 14 per cent of its development finances to support the sector, presents the grim picture of financial starvation the industry has been subjected to over the years.

Poor attention to the sector, which accounted for 34.6 per cent of the GDP in 2017 (an increase from 32.1 per cent a year earlier), left Kenya poorly ranked at 77th out of 119 countries in the 2018 Global Hunger Index, a tool designed to comprehensively measure and track hunger at global, regional, and national levels.

With a score of 23.2, Kenya was still marked ‘serious’ in the ranking, making it largely food insecure.

Independence from rain to water crops will also need significant investment in dams, but such projects have been marred by corruption and wastage of funds.

SMEs

Although there exists a skills gap, with employers always pointing to a mismatch between the graduating workforce and their needs, those holding jobs now are not in any way included in the skills gap, but their companies can no longer sustain their earnings.

“Some employers are compelled to spend time and resources getting these graduates ready for the jobs they are given.

"Universities can help respond to these challenges by creating closer relationships with industry to shape curriculum development. The industry can also provide more students with opportunities for experiential learning through placements and internships,” Education Cabinet Secretary George Magoha advised in May.

There is also a need to support the informal sector, which accounted for 83.6 per cent of the total employment created (about 850,000) in 2018.

Small businesses have also been experiencing challenges, including lack of financing, with millions having closed down before five years in operation, according to a 2016 KNBS report.