Massive layoffs fail to turn around fortunes for companies as prolonged electioneering period and rate cap take a toll

A Kenyan worker wears a dust mask as she works at the Hela intimates export processing zone (EPZ) limited factory in Athi River July 27, 2017. Most companies have recorded profit drops (Photo: Reuters)

Even after massive job cuts throughout the year, most firms are still staring at losses as revenues fall.

This is mainly on the back of reduced business activities in an electioneering year, which were aggravated by a court petition that led to a repeat presidential election in October.

Staff costs often are the easiest target for companies in a struggling economy, explaining why many firms have laid off their workers this year.

On Friday, cement maker Bamburi joined BOC Gases and Standard Chartered Bank in issuing profit warnings while Consolidated Bank, Sidian Bank, Family Bank, Athi River Mining and East Africa Portland Cement slipped into the red, according to their financial results for the nine months to September this year.

Mortgage lender Housing Finance Group’s net profit also fell 81 per cent while Centum’s was down 21 per cent as I&M Bank’s earnings dropped 22 per cent in the third quarter.

Several businesses such as Nakumatt Supermarkets have also taken a hit from the credit squeeze as lenders refrain from extending loans in the wake of the rate cap law limiting the maximum they can charge on loans at 14 per cent.

“It has been a very difficult year for most of our members who have sadly have had to let go of some workers, but we are hugely optimistic about the economy picking up. We have every reason to look forward to a better 2018 partly because consumers are expected to restart spending and this should translate to momentum for different sectors,” said Richard Ngatia, chairman of the Kenya National Chamber of Commerce Nairobi chapter.

He said business is slowly beginning to pick up, but was quick to add that the earliest they are likely to regain some semblance of normalcy is February.  

“First quarter should kick-start businesses. The earlier the Government starts settling pending bills, the faster money will be in circulation,” said the businessman.

There are expectations businesses could start hiring in the New Year, with political temperatures tipped to cool off after a bruising campaign and election period.

The Stanbic Bank’s Purchasing Managers Index (PMI) survey, which is done on procurement officers in the private sector, dropped to the lowest point last month in its first review of an election year.

The PMI, developed in 2014 and an indicator of the economic health of the manufacturing sector, fell to 42.0 in August, down from 48.1 in July, consistent with a sharp deterioration in business conditions across the country’s private sector.

“The Stanbic Bank PMI has now been in contractionary territory for four consecutive months. Notably, the anxiety around a tense General Election in August was one of the major factors that weighed down the private sector,” said Regional Economist for East Africa at Stanbic Bank Jibran Qureishi.