Firms opt for layoffs as effects of economic slowdown emerge

Rift Valley Railways last week became the latest in a series of local companies that are cutting costs by sacking staff.

In the past year employees have borne the brunt of rapidly changing economic and market conditions that saw firms rush to save their bottom line by trimming their wage bills.

“The effects of last year’s economic slowdown are now being felt as pressure piles on companies. It is a contagion affecting many unrelated but interlinked sectors,” economic analyst Kariithi Murimi said.

World Bank data indicates that Kenya’s economic growth slowed to 4.3 per cent in 2011 down from 5.6 per cent in 2010.

This year the bank projects the economy will grow by at least 5 per cent. But for people who now find themselves without employment, the damage has already been done.

And nowhere has the havoc wreaked by the poor economic climate been more felt than on the Nairobi Securities Exchange. In December last year, the bourse hit a two-year low as concerns over inflation and high interest rates overwhelmed investors.

The impact of this decline became evident this year as stock brokerage companies cut staff costs by retrenching, restructuring and reorganising.

According to a report carried in our sister publication Business Daily, 10 of 21 intermediaries cut their employee costs in the first half of the year. Eight of them slashed costs by more than 15 per cent.

Although the banking sector has continued to thrive despite economic turbulence, Equity Bank last month announced that it would freeze recruitment of full time employees as its net profit growth slowed.

Declining passenger numbers due to tough economic conditions around the world have been partly to blame for a recent move by national carrier Kenya Airways to cut costs by retrenching 599 workers.

The subsequent highly publicised saga, experts say, is symptomatic of a deeper crisis that is forcing Kenyan companies to hedge their bets by going after employees.

“Retrenchment is usually the easiest way to cut costs. Human resources spending is most often the highest cost that a company has to cover,” noted Manpower Services senior consultant Patrick Mutisya.

He added that harsh economic conditions are not the only factors that have conspired against employees. Both public and private sector workers have periodically taken to the streets demanding higher wages and benefits.

Firms unprepared to meet these higher costs therefore find themselves obliged to let some employees go.

Revenue for firms in some sectors has slowed down, not because of prevailing macro-economic conditions but because of changing industry dynamics that are rendering them uncompetitive.

Such was the case of Kenya Data Networks (KDN) which announced in May that it would retrench 51 employees.
The company had lost a major client in 2011 as new players entered the data scene. But the poor financial performance had also been attributed to shortcomings in its management team.

“In certain situations, it is simply a matter of technological advancement. If a computer or a machine can do what an employee does, then there is no need to maintain the redundancy,” said Kenya Institute of Management (KIM) chief executive David Muturi.

The concept of being overtaken by technology has been cited by Rift Valley Railways (RVR) which is seeking to retrench 100 employees in Kenya and 200 in Uganda. The company has a 25-year deal to manage the 1,400 kilometre railway between Mombasa and Kampala.

Although employees seem to lose the most when companies undertake retrenchment exercises, employers do not remain unscathed.

A situation that degenerates into an ugly court battle can have devastating effects on a company’s image and its attractiveness as a potential employer.

Even investors are wont to shy away from a company that is wrangling with former employees.