Increase of minimum wage can scare away investors

President Uhuru Kenyatta (right) with Cotu-K secretary-general Francis Atwoli at the Labour Day celebration at Uhuru Park in Nairobi on May 1, 2017. PHOTO | SAMUEL MIRING'U | PSCU

What you need to know:

  • In May, President Uhuru Kenyatta announced an 18 per cent increase on the minimum wage.

  • Was there due consultation with all the relevant stakeholders before settling on this percentage?

  • What economic indicators or variables were used to conclude on 18 per cent?

At the Labour Day celebration at Uhuru Park in Nairobi on May 1, President Uhuru Kenyatta announced an 18 per cent increase on the minimum wage. He further waived taxes on bonuses and overtime of up to Sh100,000. While the news about the increase was met with a lot of jubilation from workers, employers retreated to brainstorm on how to sustain their businesses.

The Central Organization of Trade Unions - Kenya had earlier proposed a whopping 22 per cent increase on the minimum wage, meaning that the lowest paid employee would earn Sh15,372. This would have sent many companies to closure.

In as much as the current 11.7 per cent inflation rate has hiked the cost of living, I don’t believe that increasing the minimum wage will in any way ease the burden on the common man. In fact, the effects can scare away both current and potential investors.

Instead of looking at this as a way of combating the rising cost of living, increasing the minimum wage may have ramifications beyond just adding more money to the employees. Many businesses may now be forced to downsize their workforce in order to conform to the law. Others may opt to close shop and relocate.

COST RISE

Another sad reality that Kenyans may face going forward is the rise of costs for goods and services. Businesses are profit-oriented and in order to achieve this plus pay employees more, the burden will have to be shifted to the consumers, who include the same workers. This in turn will increase the cost of living which, essentially, takes us back to where we were.

A number of businesses are considering relocating to Ethiopia, Rwanda, Egypt and other countries where labour is cheaper. The minimum wage in Kenya is now Sh14,420, up from Sh12,221. By comparison, the minimum wage in Ethiopia is Sh5,000 while in Egypt it’s Sh6,500.

Locally many companies have been hard hit by the increase of the minimum wage. The private security industry is one such example.

Just like their counterparts in the civil service, private security officers are supposed to work eight hours per shift every day with one day off every week. However, given that security is 24 hours, security officers work in 12-hour shifts which result in overtime of four hours every day. This is compensated at 1.5 times the regular hours’ rate. Additionally, they are entitled to a housing allowance of 15 per cent of their basic salary and compensation should they work on public holidays. All this pushes one’s gross pay to over Sh25,000, excluding overheads.

RATE INCREASE

The 18 per cent increase has had a huge impact on the sector, leading to an increase in the guarding rates. Clients are now opting for security firms that are cheaper and often may not conform to quality standards. This leaves the clients exposed to security risks. Additionally, sometimes these firms do not conform to the minimum wage policy.

According to the Federation of Kenya Employers, the cost of doing business in Kenya has risen by 30 per cent. Earlier in the year, the FKE had raised an alarm on labour costs and other utilities such as electricity.

The situation, therefore, belies a few questions. Was there due consultation with all the relevant stakeholders before settling on the 18 per cent? What economic indicators or variables were used to conclude on 18 per cent?

For the longest time this country has been held to ransom by a huge wage bill that has sliced almost a third of our national budget. We have still not solved that puzzle. I firmly believe that a long-lasting solution can be crafted through the involvement of all stakeholders.

Tony Sahni is the group managing director of Securex Agencies.