Nightmare for workers as economy stumbles

Kenyan workers face massive lay-offs, no salary increments and a freeze on new jobs as companies struggle to survive in a bad economy, according to a new survey. Already, 7,300 workers have been sacked this year and a further 6,000 are likely to lose their jobs by December, the survey by the Federation of Kenya Employers says.

The study, intended to find out how the international economic crisis has affected Kenya, also discovered that many companies will pay out a smaller dividend to shareholders and are rescheduling their debts to stay afloat.

Closed outlets

The majority of the 500 companies surveyed over the last five months said they had increased their marketing budgets, increased short-term borrowing, sold some of their assets, cut capital growth, and out-sourced some of their non-core services, while others have closed at least one of their outlets to save money.

The federation is now asking the government to reduce the cost of electricity and fuel to help the struggling firms. FKE’s executive director Jacqueline Mugo asked the government to come to the aid of firms with incentives to rescue the economy from collapse in the face of one of the worst economic crises to hit the world in 15 years.

“The ripple effects of the economic downturn are quickly affecting Kenya, and companies have been compelled to employ coping measures,” she said at a press conference at Waajiri House in Nairobi. However, Cotu, the trade unions umbrella organisation, hit back at employers, arguing that the recession should not be used as an excuse to sack workers.

Mr Francis Atwoli, the secretary-general of the Central Organisation of Trade Unions, said: “The net impact of the recession will not be as big as employers are trying to portray.” Ms Mugo had said that even though the survey sampled 500 companies in all sectors of the economy, the outcome showed that employers had resorted to survival tactics.

The worst lay-offs were in manufacturing, transport and communication, hotels and tourism. The federation established that since the start of the year, 7,300 jobs had been lost in the 500 companies surveyed. Employees who survive the job cuts will have to contend with lower salary increments at the end of the year while others will get none.

According to the survey, staff in the transport and communication sector will get the highest salary increments of 6.6 per cent this year, while manufacturing and agriculture will offer a slight increment of 6.5 per cent. Half of the companies interviewed said they would freeze hiring of new staff and seek new ways of doing business.

“Nearly 70 per cent of companies have been forced to change their marketing ways to enable them cut costs,” the report said. FKE also told the government to review taxes in the Budget for the 2009/2010 financial year. “The government should implement ways of tax reduction to increase business cash flow and provide incentives to the private sector to diversify products and markets.”

The government, too, has frozen employment until July 1 when the new financial year starts. The employers’ umbrella group called on the government to cut its expenses and pay attention to the private sector, which contributes more than 90 per cent of the country’s revenue.

Business models

Ms Mugo reiterated key proposals that African employers endorsed last week in Nairobi where they pledged to “employ prudent management of resources, review business models and introduce new work practices to increase productivity and remain competitive.”

In the survey, the clearest indicator of how the financial crisis is being felt in Kenya is the reduction in earnings from tourism, which have come down by 30 per cent from Sh49.3 billion to Sh34.5 billion in the past year. The shilling has also lost value against world currencies, while the demand for tea, coffee and flowers in the international market is said to have declined.

This report echoes the National Economic Survey, released last week, which showed a significant slump in the economy from a growth rate of 7.1 per cent in 2007 to 1.7 per cent last year. There are also reduced remittances from Kenyans abroad and donors have been unable to meet their pledges.

“As employers’ representatives, we therefore call upon the government to reduce local and external borrowing,” Ms Mugo proposed. The country now ranks at position eight in Africa’s states with the highest rate of unemployment. All key sectors of the economy were adversely affected by high costs of fuel and poor road network and high costs of transport.

The financial sector was dogged by corruption in government and a lack of trust by investors. More than 50 per cent of the companies that took part in the survey said their sales and turnover growth went well below their expectations. “However, there were no cases of collapsed companies reported yet,” the survey noted.

The current global financial crisis started in the US mortgage market late last year. Increased number of defaulters in big mortgage companies led to the collapse of giant American companies and financial institutions such as Lehman Brothers and Morgan Stanley. The effects of this crisis are now being felt the world over.

“In sub-Saharan Africa, we may take longer to recover from the crisis,” Ms Mugo said. Only last week, Vice-President Kalonzo Musyoka asked employers to spare workers the painful loss of jobs, noting that “deliberate efforts should be made to explore other alternatives that can realise reduction in operational costs.”

Preserve skills

“By looking for alternative ways of continuing employment, you will preserve skills, expertise and experience — which have taken effort, time and money to develop,” Mr Musyoka told employers who were attending the African Employers Forum on The Financial Crisis, Economic Recovery and Employment in Africa.