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Covid-19 jobs cuts: How companies are throwing workers under the bus for profits

FINANCIAL STANDARD
By Dominic Omondi | September 7th 2021
By Dominic Omondi | September 7th 2021
FINANCIAL STANDARD

Close to 1.7 million Kenyans were rendered jobless between April and July. [Courtesy]

The onset of the Covid-19 pandemic violently shook businesses the way a powerful storm buffets ships in the high seas.

Many of them - particularly small and medium-sized enterprises (SMEs) with very little working capital as well as big establishments in hospitality, aviation, education and entertainment - helplessly capsized.

Close to 1.7 million Kenyans were rendered jobless between April and July last year as the pandemic whipped businesses, according to official data.  

However, large listed firms with fat balance sheets managed to brave the storm, with some recording super-normal profit growth in the first half of this year.

But this was after they hastily carried out painful surgery in the middle of the Covid-19 onslaught in 2020.

Fearing that the ferocity of the pandemic would sink them, the firms sought to reduce the weight they carried on their balance sheet by offloading thousands of their employees.

Analysis of the annual reports for the 20 most valuable firms listed at the Nairobi Securities Exchange (NSE) by the Financial Standard shows that at least 14 of them laid-off workers.

Consequently, there was a net reduction of 1,905 employees even as companies such as British American Tobacco (BAT), Equity Bank, Co-operative Bank, Britam and NSE increased the number of their workers during this turbulent period.

While the austerity was aimed at helping the businesses to navigate the pandemic, it might also have touched off one of the largest labour crises since Kenya’s independence.

SMEs with very little working capital helplessly capsized. [Courtesy]

Nonetheless, due to the restructuring, most of the companies managed to hang on until calm returned as people found ways of co-existing with the disease and economies began to recover.

Job-cutting eased the pressure on their bottom lines, with the benefits of reduced staff costs beginning to bear fruit in the financial results for the first half of this year.

Although the belt-tightening exercise cut across virtually every sector of the economy, it was more pronounced in the financial sector.

This is due to the critical intermediation role banks play in the economy - savings for those with money to spare and lending to those who need cash.

The year 2020 was a period of survival, not just for banks but for the entire economy.

Kenya Bankers Association chief executive Habil Olaka noted that banks did not post any growth last year as they looked for ways to support the economy to survive the pandemic.

Thus, they were forced to support their customers by rescheduling loans for businesses and individual borrowers distressed by the pandemic.

“Most of the companies were not looking for additional credit,” said Mr Olaka, noting that most of the companies were keen on getting help to survive the pandemic.

Unfortunately, employees had to be sacrificed.

Seven months after Kenya recorded its first case of coronavirus disease in March, NCBA, the fourth-largest bank by asset value, started the process of restructuring its local business that would see 153 employees leave the company by end of 2020.

“As part of this process, we executed a voluntary exit programme for employees who wished to consider opportunities outside the organisation,” said NCBA in its annual report.

The process would see a number of the bank’s senior executives opt to leave.

NCBA Group Managing Director John Gachora. [Boniface Okendo,Standard]

“We thank them for the indelible mark they left, having served the organisation for many years,” the bank said. “Thanks to the depth of our talent pool, we were able to appoint new executives who continue to execute strongly on our strategic journey.”

The restructuring process cost the lender, which is associated with the Kenyatta family, Sh700.7 million.

Reorganising NCBA’s workforce, the bank’s managing director John Gachora noted, was meant to protect the company’s future.

He explained that while it was the intention of the bank to retain all staff from the combined entities of NIC and CBA, this had been disrupted by the pandemic.

“We have had to defer our plans to scale our branch network and have taken unprecedented steps to support our customers in weathering this storm through loan moratoriums and fee waivers,” said Mr Gachora.

He said recovery from the pandemic’s blow will be slow. “There are businesses that may never re-open and many of our customers will require support for a longer period to come.”

KCB Group chief executive Joshua Oigara confirmed to Financial Standard in an interview that the lender also had plans to reduce staff.

Although he talked of starting the review this year, the bank’s annual report for 2020 shows that its workforce reduced by 59.

Mr Oigara said that with a lot of transactions being digitised, it is inevitable that there will be some reorganisations in employment for most banks.

“This is a global development,” he added.

KCB Group chief executive Joshua Oigara. [Wilberforce Okwiri,Standard]

Absa Kenya’s profitability in the first half of this year, for example, grew more than nine-fold to Sh5.6 billion largely on aggressive cost management, including retrenchment.

The lender is one of the companies that dangled a voluntary exit scheme (VES) to its employees and many, especially in management, jumped at the offer.

This saw its workforce reduce by 161 to 1,991 by end of last year.

“We took the opportunity of increased automation and improved digitisation to further simplify our organisational structure,” said ABSA Kenya in its annual report for 2020, adding that this was achieved through a VES, which was followed by a redundancy programme.

The exercise cost the lender Sh1.06 billion in redundancy costs, nibbling into its profitability. However, it started to register the benefits of the layoffs in the first half of this year.

NCBA’s profit also grew by almost 77 per cent to Sh4.7 billion, while that of KCB more than doubled in the period under review.

Most of the lenders attributed the growth in profit to a reduction in loan-loss provisions - the amount of money set aside as insurance against possible loan defaults - but many of them also benefited from a reduction in staff costs.

Other firms such as Britam, UAP Old Mutual, and Nation Media Group have moved out of the loss-making zone following a reduction of workers. The rest have cut their losses due to belt-tightening measures.  

But it was not a good story for investment company Centum Group, which is associated with late tycoon Chris Kirubi.

The staff cut was deep as its workforce across its many subsidiaries reduced by 61 per cent, 1,703 employees, to 1,082.

Centum employed 2,785 people directly by 2019.

Nonetheless, the company still made its first loss in four decades, pointing to the magnitude of the downturn occasioned by the pandemic on the investment climate.

The property market, which Centum has sought to exploit, has particularly been hit hard by the pandemic.

Kenya Power and Lighting Company shed 435 workers in the period under review but still sank deeper into loss.

Kenya Power and Lighting Company sank deeper into loss. [Caleb Kingwara, Standard]

Another loss-maker that also put a lot of its workers on the chopping board was Kenya Airways.

Not only did the airline substantially slash the salaries of its employees following a ban on both domestic and international passenger flights as countries sought to curb the spread of the disease, the national carrier also sent home a lot of its workers.

By end of June 2020, it had reduced the number of its employees by 23 per cent to 3,652 from 4,775 in the same period the previous year.

Although this did not lift the airline from turbulence, it narrowed its net loss to Sh11.5 billion for the first half of 2021, a 19.5 per cent improvement from Sh14.3 billion loss recorded during a similar period in 2020.

Most of the gains were in operating costs as revenues continued to decline.

Even Safaricom, the region’s most profitable company, could not escape the temptation. About 79 permanent employees left the company last year.

The telco did not indicate whether or not it carried out a restructuring programme, which means most of the reduction could have been through natural attrition as the telecommunications provider automated most of its operations.

However, there were 19 employees who were dismissed due to fraud.

For Standard Chartered Bank, the redundancy costs increased from Sh289 million to Sh1.35 billion after the lender laid off 117 employees.

At East African Breweries, the average number of employees in management and administration reduced from 148 in June 2020 to 85 in June this year. The huge reduction saved the brewer some of its staff costs.

Power producer KenGen staff count declined by seven, but the biggest casualties were contract workers who were chopped from 326 to 157.

Covid 19 Time Series

 

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