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Unemployment crisis: Thousands of workers left to drown as firms fight to stay afloat

By Dominic Omondi | Updated Tue, November 29th 2016 at 00:00 GMT +3

There are thousands of seafarers lost in the treacherous deep-blue sea. These sailors are former Kenyan workers left to drown in the murky waters of unemployment.

The captains of the ships they were sailing in, finding it difficult to surmount the raging storm, resolved to push them overboard so the vessels could stay afloat. Not that the captains delighted in this. A few had to be sacrificed for the good of the many.

Similarly, to stay afloat, corporations this year have been forced to offload thousands of their employees as they grappled with a tumultuous business environment in what is fast turning into one of the largest labour crises since independence.

The captains (employers) insist they issued a distress call, but it is not clear if the coast guard (the Government) heard it. After all, the sea was calm, seemingly bereft of any storm.

According to the Government, there is no storm in the country’s economic waters. The economy is doing pretty well, and the business environment is at its very best. In fact, there are facts and figures to shore up this claim.

In 2015, the country’s macroeconomic environment was anything but enviable with inflation staying within the Central Bank’s target. Gross domestic product (GDP), or the country’s total output, grew by 5.6 per cent up from 5.3 per cent in 2015, according to the Kenya National Bureau of Statistics (KNBS).

The economy churned out about 824,000 jobs while total exports rose by 8.2 per cent. 2016 looked even rosier. The economy has already expanded by 6.2 per cent during the second quarter compared to 5.9 per cent during the same quarter in 2015.

And then in October came the icing on the cake. The World Bank unveiled the Ease of Doing Business report which showed that Kenya had retained its position as the third most improved country globally, thanks to a raft of regulations the Government put in place making it easier for businesses to operate. The country also continued its upward trend moving up 21 places in the ranking and joining the coveted league of top 100 countries with a favorable business environment.

But even as the Government delights in the billions of shillings being pumped into the economy and the accolade it is getting for improving the business environment, hundreds of thousands of families are wrecked by an ‘unprecedented’ loss of jobs.

This is the mystery of an economy that is growing at an impressive rate, even as the private sector —the biggest producer of jobs and contributor of taxes — is struggling to stay afloat.

Since January 2016, over twenty companies have either folded and shipped out or simply downsized leaving more than ten thousand employees without jobs. They have cited a tough business environment as their main reason.

Cement manufacturer East African Portland Cement is the latest in a long list of companies that have retrenched as a cost-cutting measure. The Athi-River based cement maker announced that it would send home about 1,000 of its workers as it sought to navigate the tough business environment.

Oserian Limited in September said it would send home 400 workers due to suppressed European market demand and high cost of production. Karuturi Flower Farm, another flower company, sent 2,600 employees packing as the flower firm shut down operations in Kenya.

Yana tyre manufacturer Sameer Africa Limited announced that it would shut down its Nairobi factory after a bruising competition from cheap tyres from China and India which left it bleeding profusely. Hundreds of jobs were lost.

Owners of Kenya Fluorspar Company also resolved to wound up operations in the country following prolonged global slump in prices of fluorspar, leaving more than 700 people in the larger Kerio Valley in the cold.

Banks have literally gotten into a new sporting game of laying-off. It is as though lenders are trying to find out who can out-do each other in retrenchment. Some analysts have noted that this is the effect of the controversial Banking Act 2016 which capped interest rates thus denying lenders the discretion to charge exorbitant interest rates. What the Government saw as an instrument to achieve financial inclusion is turning out to be a bitter pill for hundreds of bank employees.

Standard Chartered Bank sent home 167 employees in what it described as a cost-cutting measure. Also, the lender recently announced that it has outsourced non-core functions to India in a move that is expected to render some 300 employees redundant.

Equity Bank also sent home 400 employees, though it attributed it to natural attrition. Sidian Bank retrenched 108 employees. Family Bank also joined the fray, dangling the not-so-painful option of voluntary early retirement programme to its employees.

In January, Barclays Africa announced that it was closing down its Nairobi office and shifting all its operations to South Africa. It is not clear how many jobs were lost, if any.

Other companies that have jumped into the retrenchment bandwagon include Telkom (500 employees), Kenya Meat Commission (118), Airtel (more than 60).

And this is certainly a conservative list. Hundreds of other companies, especially those which are not publicly listed, must have done this away from the glare of the media.

According to Adams Baraza, the personal assistant for Central Organisation of Trade Union (Cotu) Francis Atwoli, this job hemorrhage is “unprecedented.”

“This is very unusual. For the first time every company that we have CBA (collective bargaining agreement) with is retrenching workers,” said Baraza. He added that each one of these companies is directing them to its balance sheet and proclaiming: ‘See, we are drowning.’

This has gotten the attention of the Government. The ministry of labour has all but admitted that the level of job losses in the country was fast hurtling towards a crisis.

Labour Cabinet Secretary Phylis Kandie said they would hold consultations with employers to draw “sustainable measures” in a move to contain what is fast turning into a labour crisis.

She told Business Beat that the Government is studying the situation and assessing the impact to come up with mitigating measures. “We will be holding consultations with representatives of both the workers and employers as well as industry players to come up with sustainable measures going forward,” said Ms Kandie.

This is a departure from the lofty campaign rhetoric of 2013 when the Jubilee Party promised to create at least a million jobs every year. They also promised a double-digit growth of 10 per cent for the first two years. Four years later, the economy has managed a sputtering five per cent growth, and the Jubilee Government is busy trying to stem job losses rather than creating them.

According to economist David Ndii, the Government never even created the 824,000 jobs in 2015 (85 per cent of these jobs were menial jobs in the informal sector which can’t dent unemployment and underemployment, according to the World Bank).

“It is not jobs being created, it is people creating jobs for themselves,” said Ndii. Mr Ndii notes that the 800,000 jobs that are reported every year are not actually jobs being created but mostly the number of people leaving school and joining the labour market. These people, according to Ndii, are doing all sorts of things of their own. He says that the 800,000 people that are allegedly getting employed actually tallies with the number of people leaving school every year.

“You are reporting that the people who joined the labour market from school are involved in the economy somehow,” adds Ndii who is also the Managing Director of Africa Economics. On economic growth, Ndii doubts the economy is growing to the extent that it is in effect also creating jobs.

According to him the Kenya National Bureau of Statistics has for long computed the country’s GDP, by looking at expenditure side as opposed to production side.

“If you look at what is accounted for in what you are calling ‘economic growth,’ it is public investment mostly. It does not create jobs, it is not the production economy,” said Ndii. Ndii says that the mega infrastructural projects currently being undertaken by the Government, rather than private investment, is what is fuelling growth.

Mark Bohlund, the Middle East and Africa economist at Bloomberg Intelligence, agrees with Ndii. He does not understand how the economy can be doing so well while the private sector is struggling, especially with the low uptake of credit. “If the private sector is not borrowing to spend and invest, what is actually driving growth?” wondered Mr Bohlund, in an interview with Business Beat.

Joy Kiiru, an Economics lecturer at the University of Nairobi, is not really questioning the growth trajectory of the country’s economy. The economy, according to Dr Kiiru is doing well and productivity has since improved. However, she says the country is experiencing what she describes as a “job-less growth.” This is because most of the country’s growth is ICT-driven, with computers snapping up all the jobs.

Perhaps lenders are not drowning, they are just eager to maintain maintain their huge profit margins. Thus they are voraciously replacing costly human labour with inexpensive machines.

To Kiiru, corporations are just not making as much jobs as they are making profits. But the bottom line is that firms are closing down, and others are offshoring. Perhaps the business environment has truly improved. What then is missing? Corruption.

Corruption is one of the parameters that the World Bank’s report on ease of doing business does not look at when ranking countries’ ease of doing business. Never mind that in Kenya, corruption is arguably the biggest cost to doing business.

And Cotu believes it is high-level graft that is turning off corporations. “It has become very expensive for you to do business in Kenya. Why? Because you must bribe a stream of individuals. You will first bribe the national government for the licences, the county governments for licences there,” says Baraza.

“The language of businesses is that they are cutting down on costs, but in real sense they just can’t keep up with the level of corruption,” says Baraza who regrets that Kenya has become “a cartel country.”

Just as the sailors thrown overboard are handed swimming suits, fins, snorkel masks, and oxygen tubes hoping that the articles will see them through the treacherous high seas, employers promise the retrenchment will be painless.

Meanwhile, employers, through their umbrella body the Federation of Kenya Employers (FKE), want the Government to acknowledge that there is a storm and expeditiously move to action.

Closing shops

Felix Otiato, FKE communication manager says there is need for an environment that will guarantee businesses efficient production of goods and services, one which will ensure employers remain in the country while also ensuring that workers are able to produce more by working hard. “On one hand, the Government is doing a good job like increasing the tax band, trying to address the plight of workers without necessarily increasing wages. But on the other hand we must really look at why companies are closing shops and laying off workers,” says Otiato who adds in the last six months there have been 16 strikes.

The Government should start working on modalities of ensuring that there are not only new ships to salvage the lost sailors, but such a disaster does not recur. It is not enough to reduce taxes, make it easier to access electricity or start a business; there is also need to fight graft.

A good number of these lost sailors might want to try their hand on their own ships, or start their own businesses. But it will not be a smooth-sail either. On average, more than 400,000 micro, small and medium-sized enterprises (MSMEs) die annually due to high cost of operation, according to KNBS. The Government also needs to also enhance entrepreneurship.

Something has to be done. If nothing is done, hundreds of thousands of these lost seafarers will just drown to death.

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