Job losses rise to decade high as private sector output falls

A man walks along the Temple Road in Nyeri hawking his wares to eke a living. [Kibata Kihu, Standard]

Layoffs by Kenyan firms rose to the highest in about 10 years in November as companies tried to contain the cost of operations in the face of reduced demand from consumers, who are grappling with the high cost of living and reduced earnings.

A new survey further shows that formal sector companies have been reducing jobs for three months consecutively, with layoffs in November being the worst in years.

Stanbic Bank's Purchasing Managers' Index (PMI), shows that business conditions in the country remained on a steep decline, with companies exhibiting a sizable fall in output, new orders and employment.

Survey respondents across the private sector noted that rapid inflation had again suppressed demand and created cash flow challenges, leading to further cuts in activity, staffing and purchasing.

The survey noted that aside from the job losses experienced in 2020 following the outbreak of Covid-19, jobs losses in November this year were the worst over the last 10 years.

"November data pointed to a reduction in workforce numbers at Kenyan firms for the third month in a row, which panelists largely related to weaker sales and a corresponding drop in workloads," said Stanbic in the report.

"Furthermore, the degree of job shedding was the greatest recorded in the series' near-decade history when excluding the initial Covid-19 lockdown in 2020. Job levels fell in all five of the monitored sectors."

The Kenya Federation of Employers (FKE) recently said more than 70,000 Kenyans employed in the formal private sector had lost jobs in the last one year due to the rising cost of doing business.

It warned warned of more layoffs if the situation does not improve.

The PMI survey is conducted by interviewing managers across different sectors on key business areas such as employment, production levels and new orders received.

Headline PMI stood at 45.8 in November, dropping from 46.2 in October.

Stanbic explains that readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

"At 45.8, the headline index pointed to a sharp decline in the performance of the Kenyan private sector in November," said the survey.

"The reading marked the third contraction in as many months, and was among the weakest seen in the index's near decade-long history."

The report said among the factors driving the downturn was another historic increase in business costs during November, which was pushed up by higher input cost inflation, a further depreciation in the shilling against the US dollar, higher taxes and greater fuel charges.

The cost of goods also went up as firms passed on these high costs of doing business to their clients, which had the impact of decline in demand.

"After indicating a sharp drop in new order inflows in October, the seasonally adjusted New Orders Index fell further in November to signal the fastest decline in four months.

"Panelists often noted that higher prices and the cost-of-living crisis limited customer spending."

Like output, construction faced the worst drop in new business out of the five monitored sectors, while agriculture was the only category to see a rise.