Kenya’s unemployment rate will worsen in 2024 compared to last year, reflecting a difficult economic environment marked by slowing business activity and a hiring freeze, a World Bank assessment showed.
In a new report, the World Bank estimated the unemployment rate at 5.7% in 2024, slightly higher than the 5.6% recorded last year.
This is because gross domestic product – or the sum of all goods and services produced in the country – is also expected to slow to five percent from 5.6 percent last year.
Data released by the Kenya National Bureau of Statistics shows that real GDP underperformed in the first and second quarters of this year due to contraction in sectors such as building and construction and flat growth in manufacturing.
The Stanbic Kenya Purchasing Managers’ Index, which measures the performance of key private sector indicators such as production, new orders and employment, fell slightly to 49.7 from 50.6 in August.
“Companies cited recent declines in production as the reason for the headcount cuts. Although hiring declined, it did so at only a marginal pace,” analysts at Stanbic Bank and US analytics firm Standard & Poor’s Global said in their August PMI report. Most of it is in the agricultural sector.
This year, the economy was rocked by month-long youth-led anti-tax protests, creating economic uncertainty and delaying consumer spending decisions.
The resulting political uncertainty, which has roiled President William Ruto’s administration, has exacerbated the cash flow challenge as interest rates rise amid rising cost-of-living pressures.
The World Bank’s unemployment rate of 5.7 percent is the same as in 2022, a period in which the economy was characterized by drought and high inflation and high interest rates.
Youth unemployment
The unemployment rate in Kenya is highest among youth in the informal sector, the largest employer, where income is low and irregular.
The Kenyan government has also been a victim of slowing private sector growth, as layoffs and a freeze on bonus payments to workers at Kenyan companies have resulted in lower-than-expected payroll tax collections.
The Kenya Revenue Authority failed to meet its payroll tax targets by Sh25.8 billion in the year to June, reflecting the impact of the weak Kenyan economy on jobs and wages.
Income tax collections fell by Sh49.9 billion in the financial year ending June, as the private sector faced a turbulent environment characterized by shrinking sales and rising operating costs, the National Treasury said.
Companies analyzed included Safaricom, Equity Group, EABL, KCB, Cooperative Bank and Absa Kenya. Other banks include Standard Chartered Bank Kenya, NCBA Group, I&M Bank and BAT Kenya.
Companies reward their executives with performance-related bonuses primarily to protect shareholder returns through improved profitability, thanks to their role as strategic leaders in the executive suite.
Bonuses are based on business performance criteria such as growth in profits and cash generated by the business, performance of the company’s stock market share, shareholder returns such as dividends, and development of new revenue streams.
Bonuses, overtime allowance and retirement benefits paid are tax deductible if they are paid to an employee whose salary before bonus and overtime allowance does not exceed Sh11,180 per month (Sh134,164 per annum). This means that bonuses received by senior executives are subject to tax.
The tightening global financial market led to the closure of many startups, most of which found it difficult to obtain credit to continue their operations. The closures have left thousands of employees without good formal jobs, even as the economy continues to create informal jobs that are difficult to tax.