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New labour laws in Kenya raise fears of higher costs

By Frankline Sunday | April 5th 2016
By Frankline Sunday | April 5th 2016

NAIROBI: Employers have warned that amendments to the Employment Act are populist and likely to worsen the country’s unemployment issues.

They said the revisions, which were signed into law by the President last week, would increase the costs of doing business and reduce the attractiveness of the country as an investment destination.

Some of the clauses in contention include Section 29, which has been amended to exclude weekends in the calculation of paid maternity leave days for working women.

Instead of providing 30 calendar days, employers will now provide 30 working days, which adds at least 24 more days of paid maternity leave to the 90 days set out in the Employment Act of 2007.

Section 30 has also been amended and now requires employers to give employees a maximum of 30 days of sick leave with full pay, and thereafter a maximum of 15 days on half salary in one calendar year.

Cost component

“In 2007 when new labour laws were introduced, the labour cost component of doing business went up by 30 per cent, according to our calculations, and this time we are estimating an increase of at least 15 per cent,” said Jackline Mugo, the CEO of the Federation of Kenyan Employers (FKE).

She added that the laws would further jeopardise the chances of women getting jobs.

According to the World Bank, Kenya’s labour reforms introduced in 2007 were done primarily as a political move without stakeholder approval, and increased the cost of doing business.

“The 2007 changes to the labour code seem to have disincentivised formal employment, and many of the changes that were introduced have been disputed by employers and their business associations, who continue to voice their concerns about the strict regulations,” said the World Bank in the Kenya Country Memorandum study released last month.

In 2007, only 4 per cent of firms in Kenya found labour regulations to be a major constraint to doing business, far less than the sub-Saharan average of 12 per cent.

By 2013, this rose to 20 per cent while in the rest of the continent, concerns remained unchanged at 12 per cent.

The World Bank further states that the strict regulations partly explain the rise in labour disputes, with the number of work days lost from this shooting up from 15,000 in 2008 to 175,000 in 2011.

In addition, Kenya now has the highest minimum wage among comparator countries, a factor that might seem positive at face value but comes with underlying policy weaknesses.

“An investor looking at setting up shop in Kenya will look at the labour laws and the amendments will have an impact to those on the outside looking in,” Kariithi Murimi, a former board chair at the National Social Security Fund, said.

“However, local firms have their arrangements in-house that are already existing, so the new laws might not lead to drastic changes in the workplaces.”

Mr Murimi said instead of targeting renumeration or incentives in making labour policy reviews, the focus should have been turned on labour productivity.

“Kenya’s labour productivity is at 30 per cent meaning that investors lose 70 per cent of the value of their investments,” he said.

“This makes it extremely difficult to generate new gross domestic product and absorb more people into the labour market, hence the prevailing unemployment numbers.”

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