Retrenchment fears as East African economies slow down

As the region’s economic fortunes continue to wane, several companies keen to cut costs and return profits have turned to retrenchment, rendering at least 6,000 employees jobless in the past three years.

The high cost of credit, reduced spending power, a high cost of living coupled with non-performing stocks due to low investor appetite, have seen companies rethink their strategies, with employees becoming the easy targets.

The Kenyan banking sector, with several operators having a regional presence, has been in the lead in shedding jobs for the third year in a row, with 2017 likely to witness even more job losses as the country heads into elections, in a market where investors are already jittery.

The shift by most businesses to digital platforms has seen an uptake of mobile and online banking, which in retrospect has now been a key contributor to the job cuts. In 2015 alone, the banking sector recorded 711 job losses, data from the Central Bank annual survey report shows.

Equity Bank led the others, including Standard Chartered Bank, Co-op Bank, Bank of Africa, NIC, National Bank, sharia-compliant First Community, Family and Sidian Bank, in cutting their workforce.

“There will be continuation of the reorganisation of banks where institutions will be looking at their business models to ensure they are operating sustainably in the new environment,” said Kenya Bankers Association chief executive Habil Olaka.

Outlets shutdown

In the first quarter of this year, Bank of Africa, National Bank and Co-operative Bank will be carrying out retrenchment as they seek to adopt digital platforms in provision of services. Already, Bank of Africa has announced the shutting down of 13 branches in Kenya.

“This move is not linked to the rate cap law, but we are trying to save up to nine per cent of our Ksh2.5 billion ($25 million) in operational costs. We took this move as we saw over the years fewer traffic in our halls as customers embraced digital banking,” Bank of Africa’s chief executive Ronald Marambii said.

National Bank has opened a second window for exits beginning this month to all staff who have worked with the bank for more than a year, while Consolidated Bank’s announced that it would cut jobs in the first quarter of 2017.

In a previous interview, Federation of Kenya Employers boss Jacqueline Mugo said employers had resorted to the retrenchment in a bid to stay afloat.

“What we are seeing are employers trying to limit their operational costs. Sadly, this involves loss of livelihoods for the workers but the firms are just trying to stay afloat,” Ms Mugo said.

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Within the manufacturing sector, data from the Kenya National Bureau of Statistics shows that about 2.2 million small enterprises have closed shop over the past five years, with the wholesale, retail, motor vehicles and motor cycles repairs sectors accounting for three-quarters of these losses.

Most of the closures were as a result of high operating costs, diminishing income and incurred losses.

Profit warnings

On the corporate scene, Sameer Africa in September announced it had closed its Yana tyres manufacturing factory in Nairobi, citing increased competition from cheaper imports, mostly from China.

“The board of directors resolved to cease the manufacture of tyres and allied products at the Sameer Africa in Nairobi and commence offshore production by tyre manufacturers domiciled in China and India,” the firm said.

The operating environment for most firms has been harsh, with 18 of them, among them Sameer, issuing profit warnings in 2016. Already this year, five firms, of the 20 listed at the Nairobi Securities Exchange have issued profit warnings.

Deacons East Africa, Sanlam Kenya, Family Bank, Sameer Africa and Sasini have warned their investors of possible lower net corporate earnings for last year, with Family Bank blaming the one-off costs of its retrenchment programme for its margin dip.

In November last year, state-owned East African Portland Cement (EAPC) surprised the market with the announcement that it would be laying off 1,000 of its employees —the biggest single layoff in the region — in order to get back to profitability.

EAPC chairman Bill Lay cited a “bloated unsustainable staff” as the reason behind the massive layoff, adding that the restructuring plan will cost $20 million.

“We are overstaffed, with our employee numbers at over 1,500 and close to 2,000. Benchmarking with the rest of the industry, we need only 500,” Mr Lay said.

Government austerity

For most manufacturers, including cement players, the cheap imports from China, high cost of credit and operational costs have seen them record reduced margins, leading to cost optimisation measures, resulting in job losses.

“By and large, the money from the government is not coming through as expected, which is pushing companies to borrow money to finance their operations so there is an overall scaling down of economic activity in the several sectors and the ripple effects are worrying,” said Phyllis Wakiaga, chief executive of the Kenya Association of Manufacturers.