The Federation of Kenya Employers (FKE) held a Board meeting on 24th November 2023 at the FKE Headquarters, which was followed by a Press Briefing where Dr. Habil Olaka, National President, FKE issued a press statement.
The press statement covered the below:
THE STATE OF BUSINESS
Cost of Doing Business
The Finance Act 2023 has led to unsustainable business costs, negatively impacting cash flows, payroll, general wage demand, and business closures. The weakening of the Kenyan shilling has further exacerbated the situation, negatively impacting businesses reliant on imports, including machinery and equipment. The exchange rate has reached a high of 152.45 against the USD, largely due to capital flight and reduced foreign currency inflow.
The Impact on Jobs
The employment state is still very fragile. We are not yet back on track since COVID-19. Every day we receive notifications from employers on their intent to declare redundancy. We are also conducting a survey on employers to determine the impact of the increased costs on jobs. Preliminary results show that it is significant. It shows that between October 2022 and November 2023, we have lost 3% (70,000) of the jobs in the formal private sector and 40% of employers have reported that they are planning to reduce the number of employees to meet the increasing costs of operating in Kenya. We will be launching the full survey report on Jobs Trends in the month of December 2023.
Cost of Capital
The Kenyan private sector faces challenges due to high capital costs, influenced by factors like interest rates, inflation, market conditions, and government policies. The Central Bank raised borrowing costs to 10.5% in June 2023, causing business growth issues. Inflation reached 6.9% in October 2023, and credit risk remains high with a 15% Gross Non-Performing Loans to Gross Loans Ratio.
Drivers of High Costs
The increase in business costs in Kenya is largely due to tax measures, global geopolitical developments, and climate change. To reduce the cost of doing business, the government should focus on improving citizens' purchasing power and cash flow in enterprises. Key taxes that need review include VAT on petrol, PAYE, and corporate tax. Reverting the VAT to 8% and reducing PAYE to 25% is crucial for addressing food inflation and supporting households' disposable income. Reverting the corporation tax to 25% and removing the minimum turnover tax will help attract investment and create more jobs. The Affordable Housing Levy should be capped at Ksh. 5000 per month to address the situation of businesses closing down and employees becoming working poor. High energy costs are also affecting Kenya's attractiveness as an investment destination, leading to lower foreign investment inflows.
Investor Flight
The country is experiencing a high outflow of investors from Kenya due to continued negative investor sentiment on emerging and frontier markets, high cost of doing business as well as depreciating Kenyan shilling against major world currencies.
Kenya’s stock market recently suffered steep losses, making it the worst-performing globally. The weak performance has persisted.
Market capitalization has declined by 5.1 percent, while equity turnover and total shares traded declined by 67.9 percent and
29.6 percent respectively.
REGULATORY ENVIRONMENT
Unpredictability in the Regulatory Environment
Kenya's economy is becoming more expensive due to unplanned taxes, fees, levies, and charges. Changes in government policies create uncertainty for businesses, threatening the Made in Kenya goal and allowing cheaper imports. Private sector growth is hindered by high taxes. Kenya needs to focus on long-term prosperity and better coordination in policy formulation and implementation.
THE LABOUR SECTOR
Risk of Social Unrest
Kenya has enjoyed a relatively calm Labour environment, however if the high cost of living is not addressed, we see heightened agitation for wage increases. This will cripple the enterprises.
Dwindling Employee Productivity
Productivity and performance are crucial for a country's national goals. Kenya's low productivity is decreasing, while Tanzania and Uganda have seen growth in labour productivity, highlighting the need for a competitive approach to meet the country's high standards.
Tripartism and social dialogue is under threat in Kenya.
The spirit of tripartism, a key aspect of the Labour sector, is being undermined by the current trend in Kenya. The International Labour Convention Tripartite Consultation Convention, 1976, was ratified in 1990. Employers play a crucial role in maintaining peaceful relations and governance of tripartite boards. Strengthening tripartite institutions and respecting social partners' rights are essential. Labour administration should encourage consultation and social dialogue with representative organizations. Law changes should not target weakening tripartism.
TO ACCESS THE FULL PRESS STATEMENT CLICK HERE.