Worst year for workers even as the economy bounces back

Construction works ongoing on the Sondu- Kipsitet Road. [File, Standard]

Workers last year endured one of the harshest conditions despite a resurgent economy that seemed to shrug off the negative effects of the Covid-19, a report by the Kenya National Bureau of Statistics (KNBS) shows.

Gross domestic product (GDP)—value of all goods and services produced within Kenya—grew by 7.5 per cent last year compared to a negative growth of 0.3 per cent in 2020, according to the 2022 Economic Survey.

Kenya's national cake was thus valued at Sh12.1 trillion last year from Sh10.8 trillion in 2020. 

Published by KNBS, the Economic Survey is an annual publication that provides socio-economic information covering a five-year period.

While this might go down in history as one of President Uhuru Kenyatta’s best performances, only overshadowed by a growth of 8.1 per cent in 2010, a high cost of living that eroded the purchasing power for workers might have spoiled the party for Kenya’s fourth Head of State.

Economist Ken Gichinga said the 7.5 per cent growth must also be looked at the in the context of coming from a low-base in 2020 when the economy actually contracted.

The survey shows that the rate at which consumer prices increased—the inflation rate—was faster than the rate at which workers' earnings increased, which weakened the purchasing power for most families.

Inflation rate last year was at 6.3 per cent while average earnings for workers increased by a slower pace of 2.9 per cent.

This means that real wages—those which have been adjusted for inflation— reduced by 3.8 per cent.

If you add another negative real wage of 1.4 per cent in 2020, this means that for two years the average worker's purchasing power has been eroded by 5.2 per cent.  

The resurgence of the economy follows renewed economic activities particularly in the service sectors such as transport, education, tourism, retail and wholesale, which had been muted by the stringent containment measures against Covid-19 in 2020.

National Treasury Cabinet Secretary Ukur Yatani said yesterday while launching the Economic Survey 2022, and other four reports, that the recovery was a result of measures the government had put in place to turbo-charge the economy.

“Indeed, as evidenced by the findings of the 2022 Economic Survey, these measures have borne fruit with all sectors, except agriculture, forestry and fishing activities recording positive growths,” he said.

Nearly all the sectors grew, and even recorded better performances compared to their pre-pandemic levels.  

However, agriculture—the backbone that supported the economy in 2020 as other sectors crumbled under the weight of the pandemic—contracted last year due to poor rainfall.

The agricultural sector contracted by 0.2 per cent compared to a growth of 4.6 per cent in 2020, largely due to poor rains in both short and long-rain cycles.

Pre-pandemic performances

A total of 923,000 new jobs were created, most of them in the informal sector where wages are erratic.

There were three million people in the formal sector last year, an increase from 2.74 in 2020 when many Kenyans lost their jobs.

The informal sector had 15.3 million workers, or 84 per cent of total employment. This pushed up the total number of those in employment to 18.3 million compared to 17.4 million in 2020.

The hospitality sector, which is yet to fully recover from the pandemic, grew by 52 per cent and was also the sector in which its workers had improved real wages, with most of them coming from joblessness.

Mining and quarrying grew by 18.1 per cent compared to 5.5 per cent. Education, which suffered in 2020 as schools remained closed for the better part of the year, grew by 21.4 per cent last year.

With banks posting record profits as credit began to flow into the economy, financial and insurance activities grew by 12.5 per cent last year.

Manufacturing, which had contracted by 0.4 per cent in 2020, bounced back to grow by 6.9 per cent, according to the survey.

And with the government going slow on its construction activities, the sector grew at a slower pace of 6.6 per cent compared to 10.1 per cent in 2020.

Retail and wholesale, transport and storage, and entertainment came out of the negative territory to record growths as the economy was opened up.

Save for transport and storage, accommodation and professional services, all the sectors have reverted to their pre-pandemic performances.

Nonetheless, the highlight of the survey will be the high cost of living, which is likely to get worse this year, a paradox amidst economic growth.

“It is a worrying trend. For me it shows the structure of growth is not broad-based,” Gichinga said, noting that the economy is still being supported largely by public investments as opposed to private sector activities.

A litre of petrol, for example, retailed at Sh125.80 in December last year, an increase of over a fifth compared to an average of Sh103.30 in 2020.

One kilogramme of cabbages retailed at an average of Sh45.30, up from Sh38.50. A litre of kerosene rose by 18.5 per cent to retail at Sh100.18 while that of diesel went up by 15.6 per cent to Sh108.60.

Other products whose prices rose substantially last year include electricity, cooking gas, wheat flour, sukuma wiki, bread and meat.

Prices of commodities continued to rise into this year, catching the attention of President Kenyatta.

In his speech during Labour Day celebrations at Nyayo Stadium, Uhuru directed employers to increase the minimum wage by 12 per cent, citing high prices of goods and services.

“As a caring government, we find there is a compelling reason to review the minimum wages to cushion workers against further erosion of their purchasing power while also guaranteeing the competitiveness of our economy,” he said.

Uhuru said the surge in food and fuel prices was occasioned by the adverse effects of the Covid-19 and the ongoing war in Eastern Europe.

He said just when the economy was recovering from the negative effects of the pandemic, Russia attacked Ukraine, a conflict that has led to the increase in prices of fuel and food.

Yatani said the economy is projected to grow at a slower pace of 6.7 per cent this year, although other forecasters such as the World Bank and the International Monetary Fund have not been as optimistic.

Besides the ongoing global crisis, which has pushed up the prices of food, the upcoming elections are also expected to dampen economic prospects as investors tend to take a wait-and-see approach.