Kenyan businesses prepare for a possible economic downturn

By Steve UMIDHA

A growing number of Kenyan businesses are once again applying the brakes on hiring as they contend with sluggish consumer spending, higher interest rates and the impact of a strong dollar in the local market.

Latest labor market survey by GeoPoll is now projecting a decelerated employment rate – noting in its analysis that the situation could last several months amidst uncertainty over the frail economy. And recruiters are now becoming more tentative over hiring new staff.

The Africa MSME Pulse Survey Report 2023 by the firm, which sampled 110 Kenyan companies between mid-December 2022 and mid-January 2023, also cited inflation rate, lingering effects of COVID-19, political uncertainty and supply issues as some of the other reasons employers were trimming their workforce.

“The likelihood of businesses hiring staff in the next 3 months varies dramatically by country. The percentage of businesses saying they are “very likely” to hire staff ranges from 45 percent in South Africa and 43 percent in Nigeria all the way down to just 7 percent in Ethiopia. In Kenya, the largest segment 45 percent claim it is “not likely,” reads the report in part.

Such challenges, according to the report’s drafters, has seen business owners chip in personal savings to support their fraught businesses on reduced economic activities as they cope with the impacts of high cost of living.

Even worryingly, most firms are gradually reducing the number of their workforces with as many workers obliging pay cuts.

Large-scale signs of widespread economic disruption in the markets where the survey was conducted (Kenya, Nigeria, Ethiopia and South Africa), according to GeoPoll metrics, has also seen businesses – particularly in Kenya abandon agency marketing models in favor of their own internal team to market their products and services, mainly via social media outlets to cut costs.

With just five months into the new administration, the William Ruto – led regime is no closer to solving one of the economic debates of 2023, according to local economists, and signals from the economy are mixed, but the answer from small business owners has changed significantly from three months ago.

“The situation has been compounded by the low cash circulation in the economy. This is because Counties are yet to pay suppliers and development projects have also dried up, meaning less money in the hands of people to go around,” offered Peter Macharia – an economic expert.

Economists have been forecasting an economic downturn for months now, and most like Macharia, see no sign of letting up, at least not just yet.

“The government relies heavily on tax collection to oil its operations, but the manner in which it is overtaxing Kenyan businesses could see more companies fold altogether. They are shooting themselves in the foot,” stated Macharia who also runs a digital lending firm Jijenge Credit limited.

Whether the economic downturn is deep or shallow in these early weeks of 2023, long or short, is up for debate, but the idea that the economy is going into a period of contraction is pretty much the consensus view among economists.

“What you will see if this carries on (choking taxation) is capital flight where investors will look to markets like Rwanda, DRC or Ethiopia where profit margins are likely to be realized,” argued Dr. Samuel Nyandemo – an economist and a University don, in a telephone interview.

Indeed, consumer and business activity have weakened as a result of domestic headwinds such as continued drought conditions and fiscal consolidation, as well as slowing global growth.

Kenyans are still grappling with sky inflation in the middle of a sluggish economy with reduced cash flow circulation that has forced many workers to cut demand for non-essential items like booze and entertainment.