New jobs added by Kenyan companies dropped to a seven-month low in December despite employers in the top agriculture and manufacturing sectors recording improved sales during the month.
A report by Stanbic — which tracks monthly business activity as well as employment — shows that most companies maintained their cost-cutting strategies last month, hurting jobs.
The reduced new jobs come in an environment where firms are laying off staff and keeping wages stagnant due to the slow growth of the economy.
The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) for manufacturing and services rose to 53.3 in December from 53.2 in November. Readings above 50 indicate growth.
“Sales growth remained sharp, but output increased only slightly as heavy rains delayed activity and input deliveries,” the survey says. “Job numbers were subsequently raised, albeit at the softest rate in seven months. Notably, some companies reduced their workforces as part of cost-cutting measures.”
The index is based on data compiled from purchasing executives drawn from diverse sectors such as agriculture, mining, manufacturing, construction, retail and services.
The Kenyan economy grew 5.1 percent year-on-year in the third quarter of 2019, compared with 6.4 percent in the same period in 2018, the Kenya National Bureau of Statistics (KNBS) said in December.
The KNBS said agriculture, forestry and fishing, manufacturing, construction, electricity and water sectors had all recorded slower growth during the period.
The agriculture sector at Sh3 trillion accounts for 34 percent of the country’s Sh8.9 trillion gross domestic product (GDP) and employs the bulk of Kenyans, making it critical in putting money in people’s pockets.
A robust performance in agriculture is needed to boost the other sectors. However, poor weather patterns adversely affected farming activity and this in turn affected other auxiliary sectors, especially agro-processing.
The Markit survey shows that businesses were concerned about cashflow problems, especially from delayed government payments.
Business owners have accused the national and county governments of delaying payments to suppliers totalling more than Sh150 billion, forcing small traders to shed jobs, cut back production as some face the threat of property auctions from banks.
The Treasury recently said it would stop releasing funds to a number of counties and government ministries until they start paying billions of shillings owed to suppliers.
“Private sector arrears should be the main priority for the government in order to alleviate severe cash flow shortages which firms are grappling with,” Jibran Qureishi, the regional economist for East Africa at Stanbic, said.
Central Bank of Kenya data shows that money circulating outside banks, which means cash in Kenyans’ pockets, dropped to Sh176.9 billion in October — the lowest since July 2015. The effects of this have been reduced demand for goods and services. In turn, this has set the ground for layoffs and near stagnant wages in the race to protect profit margins.
“After falling to a near three-year low in November, the outlook for business activity improved only slightly in December,” the report says. “Where firms gave a positive forecast, this was attributed to new products, branch openings and advertising efforts.”