Dark clouds build up from the slums to posh offices as economy tumbles
There is an economic storm coming. From clothes market in Kibera to the stock market in the plush suburbs of Westlands, the fear of an impending financial slowdown dominates conversation.
You can see it in many employees’ faces who, having been entertained to a series of lay-offs, are forced to hold their breath every working day.
You could see it in the manner in which desperation among small traders in Kamukunji Market morphed into protests only to give way to resignation.
It is a fear that is poignantly being blown across the Atlantic Ocean by merchants and venture capitalists from the United States of America, Europe and other developed countries where the count-down to a global recession has earnestly started.
To some, the bad news is already here. Firms, responding to policy changes and a tough business environment have desperately restructured their operations to remain afloat. They have slashed production and fired workers to remain afloat.
Eighty eight employees at Stanbic Bank are among the latest victims of a technological maelstrom that has violently swept the banking landscape as lenders respond to an interest capping law which has restricted them from applying a liberal interest rate regime.
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As a means to circumvent what they believe is an illiberal piece of legislation, banks have been firing workers and replacing them with mobile phones with reports showing that in 2018 about 39 bank branches went down with more than 1,620 employees.
While announcing that it had put eight of its workers on the chopping board, Stanbic noted that this was part of its “Digital strategy” that would see it “create new jobs in different areas of the bank.”
Telecommunication provider Telkom, which is ganging up with Airtel-Kenya for a face-off with Safaricom, East Africa’s largest telecommunications company, also sent home 575 workers this month. The retrenchment took the tally of job-cuts at Telkom to over 1,000 after another 500 were sent home in 2015.
Airtel Kenya, which in two years has retrenched more than 100 workers, has played its card close to its chest. It is not immediately clear whether the Indian-based telco will follow Telkom’s route.
And with the construction and real estate sectors struggling, cement manufacturer, East African Portland Cement (EAPC), surprisingly declared all its 1,000 employees redundant before it back-tracked and announced that it would retain 600. Cement consumption and production, a leading economic indicator, has declined.
Duty has gone up
Generally, decent jobs in the formal sector have not been forthcoming. Even as economic output, Gross Domestic Product, expanded by a 6.3 per cent, fewer formal jobs were created.
Data from the Kenya National Bureau of Statistics indicates that only 78,400 new formal jobs were created in the economy last year compared to 114,400 in 2017. It was the slowest increase in formal jobs since 2012.
Poor performance in formal employment has not augured well with the Kenya Revenue Authority (KRA), with taxman noting that collection of PAYE on permanent employees and corporation tax on profits was doing badly last year.
With the private sector struggling amid a tough operating environment, the taxman has found it even harder to meet its targets.
KRA Deputy Commissioner Strategy, Innovation and Risk Management, Joseline Ogai, said at a recent press briefing that with firms laying off, the taxman has been left with the option of squeezing as much as they can from legible taxpayers.
Small traders, who for a while have appeared as though they were shielded from the gyrations of the formal economy- business cycle-are no longer immune, after all.
With a number of them having found a new market called national and county governments, failure of the latter to pay in time has left them without cash. It was the clarion call, Controller of Budget Agnes Odhiambo who is to exit the office later this month after an eight-year stint, had for county governments.
“Small and medium enterprises have died and it pains me at a personal level to see mwananchi who’s struggling to survive fail to get paid and lose a piece of land or a house,” said Ms Odhiambo. It is estimated that counties owe suppliers around Sh104 billion.
But small traders have also been affected by such directives as forceful use of the Standard Gauge Railway to transport their goods from the port of Mombasa. They estimate that they have paid more compared to using private Container Freight Stations and trucks for clearing and transport respectively. Moreover, import declarations levy and import duty have also gone up, eating into their profitability.
That an economic storm is building up can be seen in the manner in which investment confidence has been ebbing away. Few investors have had the money to buy stocks, either in Gikomba or stock market. For those investors who are still moneyed, even fewer have been willing to tie up their wealth in Kenya’s stock market.
Activities at Nairobi Securities Exchange (NSE), critical for telling the pulse of the economy, are generally subdued.
Demand for shares being traded on NSE has been depressed, resulting in what is technically known as bear-market. A bear market is in which prices are falling, encouraging people to sell.
Kenyans who sunk their money in stocks and shares have helplessly watched as most counters at the city bourse have turned ominously red, wiping out billions of their paper wealth.
A bear market has also affected pension schemes. Part of the workers’ savings which they intend to use after retirement has been wiped out by a bear market.
A recent report by Zamara Actuaries showed that in the second quarter of 2019, retirement schemes saw their returns increase by 2.5 per cent compared to a higher performance of 6.3 per cent in the first quarter of 2019. The dampener was the equity class- stocks or shares like those being traded at NSE.
Almost all indices at the securities exchange are pointing northwards. The NSE 20, a benchmark index that tracks activities of some 20 blue-chip companies, has been on a free-fall. And even more telling, foreigners have been frantically disposing their stocks.
The bond market -- where people trade in debt securities such as Treasury bills and Treasury bonds as well as corporate bonds issued by companies -- has also not faired any better. Since January, the secondary bond market has been erratic, with yields, returns, on both long and short-term government papers falling.
Yields on the country’s 10-year Eurobond have also continued to fall below those of their peers, Ghana and Angola.
At the start of the year, experts warned that things wouldn’t be as good as they were in 2018 when the economy recovered after crippling drought of 2017. Experts warned that things wouldn’t be as good as last year.
Razia Khan, Chief Economist, Standard Chartered, noted that unlike in 2018 when the economy was boosted by recovery of the agricultural sector and pent-up demand released after a long period of election-related political uncertainty in the first half of 2017, it would be a different ball-game in 2019.
“These growth drivers will be absent in 2019 and 2020, when fiscal consolidation plans mean that the private sector will have do the heavy lifting to support growth,” said Khan. Not only has the government failed to invest as it goes on with its austerity plans to reduce the levels of debt, it the skies have refused to open up impacting the agricultural sector which constitutes more than a third of the economy.
Then the government, besides giving maize farmers a poor price for their produce, delayed to procure cheap fertiliser. The planting season began with sulking maize farmers reducing acreage of maize. Agricultural experts have forecast lower harvests this year.
The full effect of erratic rains is just beginning to be felt as food leaves the farms for the forks. It is not just the prices of maize flour that have gone up, the price of almost every foodstuff, especially Irish potatoes, has skyrocketed hitting hard poor households for whom more than a third of their expenditure is on food.
As a result, inflation, overall increase in prices of goods and services in the economy, went up by a higher rate of 6.58 per cent in April, 19-month-high. National Treasury’s decision to introduce 16 per cent value-added tax (VAT) on petroleum products in the Financial Year 2018/19 increased prices of consumer products, especially transport and electricity.
“The slowdown in agricultural growth somewhat affected agro-processing and consequently led to slowed manufacturing activities during the review period,” said the Kenya National Bureau of Statistics (KNBS).
The entire economy also took a beating, growing at a slower pace of 5.3 per cent in the first three months of 2019 compared to a robust growth of 7.5 per cent in the same period in 2018.
Pushed to the wall by higher prices, analysts fear that employees are likely to demand higher wages from cash-strapped firms grappling with high cost of production and a dwindling market. For example, poor prices of tea in the global market have not stopped workers from demanding huge pay perks.
A struggling agriculture has had a contagion effect on GDP. In the first three months, GDP has grown at a slower pace of 5.3 per cent compared to a robust growth of 7.5 per cent in the same period last year.
The real estate sector has also taken a drubbing. Prices of houses have slumped as demand for residential and commercial housing units continue to fall. In the first three months of 2019, the Nairobi County Government approved building of houses worth Sh48.5 billion compared to Sh60 billion in the same period in 2018.
And because Kenya is part of the global economy, the trade war between the United States and China, the Brexit impasse and the looming global recession, will certainly affect Kenya.
And this time round, with Kenya plugged into the global financial system having been addicted to the dollar-denominated sovereign bonds, the impact will be more painful.
Already, exports to Far-East, including Pakistan, Kenya’s leading destination of tea, have gone down. A global recession will mean reduced demand for the country’s exports. There will be fewer tourists coming into the country. Remittances from Kenyans working in the diaspora, which have become critical in shoring up the Shilling, will dry up. Getting loans from the international capital market will be costly.
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Kenyan economyEconomyLay offs