Puzzle of tough year amid growing economy

It’s been another challenging year with household feeling the hardest impact. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • NCBA group managing director John Gachora, who oversees the third largest lender in Kenya, told Smart Company in an interview that the economy is at a standstill.
  • Rosy figures have coincided with a period of declining earnings for many firms and job cuts, making life difficult for many families.

The year started with delayed onset of long rains and it now closes with killer floods. A strange cocktail that has thrown Kenyans’ well-being and economic growth numbers worlds apart.

Many top companies shed profits and laid off workers to stay afloat despite government data showing that the economy was expanding. The cash crunch among consumers only served to worsen the situation.

So where did the money go? It’s a puzzle that the Central Bank of Kenya (CBK) Governor, Dr Patrick Njoroge, was alerted to when he faulted the structure of Kenya’s economy for delivering growth in Gross Domestic Product (GDP) amid cash crunch and job losses among Kenyans.

This Christmas, more than 1,000 workers who were earning income from multinational firm Finlays have little to celebrate. Finlays is closing down its flower farms and exiting Kenya due to reduced earnings.

NCBA group managing director John Gachora, who oversees the third largest lender in Kenya, told Smart Company in an interview that the economy is at a standstill.

“The economy continues to be the talk of town. We need to really think deeply about how to get this economy restarted. I challenge all banks and government to reboot this economy and it cannot be a piecemeal approach,” he said.

“We see buildings that are lying idle because prices are up. We need a reboot button that moves the price within an affordable range. Someone eyeing a Sh10 million apartment hasn’t bought it because the price is stuck up there. That kills commerce.”

The reboot has been suggested in many ways, including government agencies being compelled to pay suppliers pending bills or lowering electricity bills for small businesses.


But with poor and slow implementation standing in the way, it’s been another challenging year with households feeling the hardest impact.

Central Bank of Kenya Governor Njoroge said in October that the economic growth had not trickled down, a situation he explained has been worsened by the capping of interest rates and more dependence on State’s infrastructure spending.

“It’s true you have GDP numbers, but you can’t eat GDP. At the end of the day, what is needed is specific income. That is what everybody else wants plus jobs,” Dr Njoroge said.

Kenya’s economy recovered from a sluggish 4.9 per cent growth in 2017 to 6.3 per cent last year and has remained strong at 5.6 per cent in the second quarter of 2019.

But the rosy figures have coincided with a period of declining earnings for many firms and job cuts, making life difficult for many families.

Government has been rolling out mega infrastructural projects such as the Standard Gauge Railway, pushing up the GDP growth.

However, the number of firms announcing job cuts has been rising since last year, making many critics question the health of the economy.

Dr Njoroge explained that GDP growth that is based more on infrastructure spending does not bring the impact that matters most to households — the money that hits their pockets.

A 2019 survey by the Financial Sector Deepening (FSD) showed that more than half (51 per cent) of Kenyans reported a worsened financial status, with many having soaked in excess debt from multiple sources. This contrasts with 2016 when 34.3 per cent had a similar view.


It further said that over 50 per cent of borrowers sold assets, borrowed or cut back on expenses to repay loans, while a quarter were using over half of their monthly income to service loans.

Betting firms Sportpesa and Betin in September fired all their staff in Kenya as they announced exit from Kenyan market over what they considered a hostile tax environment.

Four firms — East African Portland Cement Company, Telkom Kenya, Stanbic Bank of Kenya and East African Breweries Limited — had in the space of three weeks to mid-August notified employees of job cuts totalling nearly 1,700.

Other firms that have cut staff sizes this year include Ola Energy, Sanlam, Stanbic Bank, MediaMax, Radio Africa, Tala, Silverstone Air Services and Securex Agencies, a security solutions provider.

The Building Bridges Initiative report released recently singled out jobs scarcity as the key thing worrying many Kenyans.

“The single most important matter facing Kenyans when it comes to shared prosperity is generating enough jobs and employment, particularly for young people,” said the report commissioned by President Uhuru Kenyatta.

“It’s not enough to merely improve our economic output and present rates of investment, we must entirely transform the way our economy operates if we are to deal with the present lack of jobs.”

BBI proposes several things to reboot the economy, including giving a seven-year tax holiday to new small and medium sized firms, as well as the introduction of a flat tax rate for incomes above the living wage.

For workers who have been lucky to keep their jobs, salaries have generally stagnated even as a rise in inflation sliced the size of bread on their tables.

Inflation has been relatively under check, averaging 5.56 per cent in 12 months to November.

And yet the cost of 2kg maize flour had, for instance, shot up 55 per cent to Sh125.40 by November compared to the same month last year.

The cost of 4kg tomatoes is up 43 per cent to Sh90.28 while that of 4kg charcoal shot up seven per cent to Sh147.20.


This is happening against the backdrop of an economy where government failed to announce any wage increase. In such a situation, the workers’ purchasing power could only worsen.
By the end of last year, the number of working Kenyans earning below Sh30,000 monthly had risen to nearly half of the total employed workers captured in government records.

Data from the Kenya National Bureau of Statistics (KNBS) showed the number of salaried workers taking home below Sh30,000 had grown by 154,945 or 14 per cent to 1,279,982.

This equals 46.3 per cent of the total 2,765,159 salaried workers captured in the Kenya Revenue Authority database as at December 31, 2018.

The KNBS report on the well-being of Kenyans released last year showed expenditure per month per adult on food and non-food items averages Sh7,811 nationally.

However, the report showed residents of Nairobi County incur on average Sh4,239 monthly on food and a further Sh8,158 on non-food items such as clothing, education, health, transport and rent.

This gobbles up more than 48 per cent of the Sh30,000 earning when deductions such as income tax, and contributions to the National Social Security Fund and National Hospital Insurance Fund are factored in.

Job cuts in the economy continued a trend last year where eight companies listed on the Nairobi Securities Exchange (NSE) spent Sh2.7 billion to lay off nearly 1,600 workers as others cut their employee numbers through natural attrition.

Barclays Bank of Kenya, National Bank of Kenya, Standard Chartered Bank of Kenya, KCB Group and Housing Finance all spent money on layoffs as did Britam and British American Tobacco.

Deacons East Africa and ARM Cement, which fell into administration, also laid off employees.