Kenyan firms slow hiring, freeze salary increases

Kenyan firms have slowed down hiring of workers and frozen pay raises, citing reduced demand for goods and services amidst biting cash flow problems in a tough economy.

Findings of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) suggest companies in March grew workforce numbers at the slowest pace since the beginning of the year.

The slowdown reversed a course that had started taking shape, with February hiring growing the fastest in 13 months.

Companies had relied on growing orders to hire more workers (largely casuals) and had raised budgets for marketing campaigns in a bid to stimulate demand further on the back of easing inflationary pressure.

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Demand for goods and services, however, dropped in March, prompting firms to cut output, according to the findings of the PMI. The report is based on feedback from about 400 panellists drawn from key economic sectors of agriculture, manufacturing, construction, wholesale & retail, services, and mining.

“The degree to which staff numbers rose was the softest recorded in the current sequence and only slight,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for March.

Firms had reversed a four-month straight decline in workforce which started taking root last September after the second round of new taxation measures were enforced.

Companies had complained of rising operating expenses largely due to soaring fuel prices, fast-climbing electricity bills, and costly raw materials as a result of lingering global supply constraints amid a persistently weakening shilling against major global currencies and higher taxation.

The Federation of Kenya Employers (FKE) had in November reported that the rising cost of doing business had pushed about 70,000 workers, or nearly three percent of the workforce, in the formal private sector out of employment between October 2022 and November 2023.

The lobby for employers further warned that 40 percent of its members were planning to lay off workers to cope with the rising cost of operation and protect profit margins.

“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,” FKE said in a statement on November 24.

“The increase in business costs has largely been driven by tax measures, global geopolitical developments, and climate change. The country may not have much control over global geopolitical developments and climate change, but we can work on our tax measures to reduce the cost of doing business.”

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The headline PMI — a measure of private sector activity such as output, new orders, and employment— for March fell to 49.7 compared with 51.3 in February.

PMI readings above 50 signal growth in business deals over the previous month, while levels below that mark point to a contraction.

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