Why economy is growing but there are no jobs to show for it


Why economy is growing but there are no jobs to show for it

Universities are producing graduates faster than the number of jobs being created in the formal sector annually while many companies are laying off workers

Massive job losses under the watch of the Jubilee government sticks out against impressive reports of constant economic growth, casting doubt on the government’s commitment to create employment.

Last year, 78,400 new jobs were created in the formal sector, fewer than the number of students that graduated from public and private universities in 2016 which the Commission for University Education put at 88,773.
It was also a six-year low and a 42 percent drop from 134,200 in 2013, according to the Economic Survey 2019.

Even as worrying as the 2018 jobs dip or the overtime diminishing capacity of the economy to churn out formal jobs is, nothing should have come as a surprise following the frequency of reports in the past few years of companies laying off workers in big numbers.

''Jobless recoveries of the economy are a result of the government spending a lot more on mega projects that do not easily and quickly spread wealth across the country,'' says Mr Ken Gichinga, chief economist and CEO at Mentoria Consulting.

Today Mumias Sugar Company has only 500 employees, down from about 1,500 in 2017. The cash-strapped firm had a turnover of just Sh1.4 billion and recorded a loss of Sh15.1 billion in the fiscal year ending June 30, 2018, more than what it lost the previous financial year (Sh6.8 billion). The losses have continued into the current fiscal year. Other state-owned sugar firms including Sony, Nzoia, Chemelil, Muhoroni and Miwani are also insolvent.

Collectively, banks’ staff numbers in management and non-management posts reduced by 5,309 or 15 percent in the three years between January 2015 to December 2017, according to the Central Bank of Kenya (CBK) supervision annual reports.

In 2014, Uchumi Supermarket, Kenya’s oldest supermarket chain and a leading brand for many years, began falling again after making a comeback in 2011. The giant was not to rise again – today it has only seven branches out of the 37 in operation in 2015. In 2017, Nakumatt, which operated a total of 64 outlets across East Africa as of December 2016, too, began closing its struggling branches in Kenya and Uganda. By last year it had just less than 10 outlets in operation. The shake-up at the two supermarket chains saw off 1,010 and 3,525 employees, respectively, in Kenya, according to the Kenya Union of Commercial, Food and Allied Workers. From 2015 to 2018, East African Portland Cement retrenched 1,000 workers, more than two-thirds of its staff, Kenya Airways let go 600 employees, Sameer Africa 600, Telkom Kenya 500, Kenya Power 302 and Airtel 144. In 2014, battery manufacturer Eveready East Africa closed down its dry cell plant in Nakuru town. Ninety-nine employees were sent home.

Within the same period, a number of global firms have wound up their local subsidiaries, taking with them more than 600 jobs. They include Nestlé, Tata Chemicals Magadi, Sher Karuturi and Cadbury. Some did not close shop altogether but restructured their operations to cut down costs which included retrenching employees. Coca-Cola laid off employees after moving their Africa office to Johannesburg. American manufacturers of software and computer services Microsoft and HP have also retrenched a large number of local staff in the last two years.

These are just but a few businesses sampled by the Nation Newsplex from annual companies’ and media reports that sent home significant numbers of employees during the Jubilee government era.

More than 900,000 youths enter the job market annually, a number higher than the overall 840,600 informal jobs, 91 percent of all jobs created last year. At 18 percent in 2013, new formal jobs made up a larger share of new opportunities compared to last year. Jobs in the modern sector are largely longer-term, better-paying with other benefits such as health insurance.

In the last six years, real average monthly earnings figure has stagnated at between Sh30,000 and Sh31,000.

Unemployment rates

Kenya has among the highest youth unemployment rates in the region, a 2016 World Bank report found. Unemployment among Kenya’s youth aged 15-24 stood at 17 percent compared to six percent for both Uganda and Tanzania, according to the report.
In contrast to the employment numbers, the Gross Domestic Product (GDP) growth averaged 5.6 per cent over the last six years, settling at 6.3 percent last year. It is this continued growth, emphasised by the release of the Economic Survey 2019 last week, that has escalated the baffling economic growth-unemployment mismatch that Kenyans have been grudgingly trying to put up with.

''Jobless recoveries of the economy are a result of the government spending a lot more on mega projects that do not easily and quickly spread wealth across the country,'' says Mr Ken Gichinga, chief economist and CEO at Mentoria Consulting.

He points out that the government needs to engage in broad-based growth where investment priority is given to sectors that directly impact a majority of the population such as agriculture. He also believes that using the GDP alongside other indicators such as consumer confidence index, Human Development Index (HDI) and a business owners’ survey could be a better metric for gauging economic performance and national wellbeing.

For instance, HDI is a summary measure for assessing long-term progress in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standards of living.

Seemingly aware of the jobless growth debate, Treasury Cabinet Secretary Henry Rotich mentioned, during the launch of the Economic Survey, that the government was committed to ensuring that the economic growth is felt by all Kenyans. ''Even with the growth of 6.3 percent, we have been spending in such a manner that we can redistribute this growth so that all Kenyans can enjoy or feel it. Government is also investing heavily in education, we now have free-day secondary school education and also in health,'' he said.

Tough times

Indeed, Mr Gichinga is right to say that the economic growth has not been felt across the economy. A 2017 analysis by Newsplex revealed that two-thirds of companies that were active on the Nairobi bourse reported losses or reduced earnings in their previous financial year. Fifteen of the 64 companies that traded on the stock exchange reported losses while 25 of the firms, or 39 percent, recorded falling after-tax profits. Another 23 firms, or a third, declared increased profits.
The total wage employment last year stood at 2.8 million, a 21 percent rise from 2.3 million in 2013, according to the latest economic survey.

Despite manufacturing being one of the leading contributors to the GDP, its share of contribution has steadily fallen for more than five years, standing at eight percent in 2018 from 11 percent in 2013. This suppressed growth in the sector has translated to a meagre two percentage point annual manufacturing jobs growth.

Manufacturers have consistently maintained that government policies which reduce cost of production will trigger growth in the sector and hence enable the creation of the expected jobs.
At present, manufacturing in Kenya generally costs 12 times as much as it does in competitor countries, according to the Kenya Association of Manufacturers.

Mega corruption and an erratic policy and legal environment have been the major hindrances to the growth of companies and their capacity to employ, according to the Federation of Kenya Employers (FKE). ''There are many laws coming from the national and county governments that are not friendly to investment and the massive scale of corruption in the country only sends the government taxing manufacturers and consumers further instead of plugging the hole, which hurts business and employment,'' says FKE Chief Executive Officer Jacqueline Mugo.

This is so even as manufacturing remains one of the items in President Uhuru Kenyatta’s Big 4 Agenda. Some companies have stopped manufacturing locally and resorted to contract manufacturing, with their goods produced in other countries, especially China and India, then shipped into the country for sale. Companies that have taken this route in the past include Eveready, Cadbury Kenya, Sameer Africa (tyre business) and Interconsumer Products.

New sector, old skills

While the high cost of production takes toll on manufacturing, the financial sector attributes its many job cuts to a major ICT disruption.

The total number of people working in the financial services sector grew at a slow pace from 56,300 in 2013 to 64,000 in 2018. The number actually shrunk by two percent in 2017 when it had 63,500 employees down from 65,000 the previous year as banks shifted from brick-and-mortar operations to technology-based transactions, according to CBK.

Co-op Bank recovered from a 12 percent profit dip it had posted in 2014 to record a 46 percent profit jump in 2015, a fit achieved after letting go of 160 managers, many of whom were casualties of automation.

A survey released by the Kenya Bankers Association (KBA) in October 2017 showed that banks had fired 1,933 employees, both in management and non-management positions, between August 2016 and June 2017.

And the shedding off did not stop. Last year alone, KCB Group cut its payroll costs by Sh2.14 billion as staff size dropped for the third year in a row to 6,220 employees from 6,483 — the lowest in six years.

With efficiency being the mantra currently driving business, employees and job seekers in the banking sector must be following with bated breath discussions on what has been termed an impending takeover of the workflow by artificial intelligence (AI). But KBA Chief Executive Officer Habil Olaka believes that there is no need for anxiety as long as people tune their skills to the new reality. ''Automation has not just taken over people’s jobs but also come with new ones that did not exist before. The challenge is that we are still equipping students with the old skills that had a place in the last century,'' he says.

Despite the shakeup in the job market, quite a few global product brands and companies identified opportunities in the country and moved in. However, these have largely been retailer churning out jobs at a much lower scale compared to the manufacturers and bankers that have either wound up or scaled down.

When it took office in 2013, the Jubilee government pledged to create a million jobs yearly but by the end of the first term, they were 800,000 jobs short of their promise, having created only 4.2 million jobs within that period, assuming they were referring to both formal and informal jobs. But if only modern sector jobs are considered then they delivered only about 610,000.