In just one year, Kenya has witnessed the formal private sector losing a staggering 70,000 jobs, revealing the harsh realities of the challenging business environment that local companies currently face. The Federation of Kenya Employers (FKE) emphasizes that these job losses directly result from formidable hurdles, including soaring taxes, exorbitant power bills, and the depreciation of the national currency.

According to FKE, approximately 40% of employers are actively considering further reductions in their workforce. They grapple with the escalating costs of conducting business in Kenya, a situation exacerbated by the implementation of the Finance Act 2023. President Habil Olaka from FKE notes that this recent legislation renders operational expenses unsustainable for these entities.

During a media briefing in Nairobi, Olaka underscored how these changes detrimentally affect enterprise cash flows and financial positions. Notable ramifications include payroll influence, triggering demands for general wage reviews, escalating business closure risks, and precipitating a surge in employee layoffs.

The exorbitant cost of power in the country significantly contributes to high operational expenses. Furthermore, businesses relying on imports have suffered due to the weakening Kenyan shilling, intensifying the situation. Between September 2022 and November 2023, currency depreciation reached approximately 26.7%, with an average exchange rate against the US dollar being Sh152.81.

Expressing concern over the fragility of the employment state, Olaka emphasized that full recovery from Covid-19’s impact remains elusive for the nation. He highlighted this point by referencing employers’ daily notifications to declare redundancies, emphasizing the need for urgent remedial measures.

Another hurdle for the private sector in Kenya is the high capital costs. Interest rates, inflation, market conditions, and government policies collectively contribute to this challenge. In June 2023, The Central Bank of Kenya elevated its benchmark rate to 10.5%, signaling the highest borrowing costs since August 2016. Coupled with the high-interest rates that banks impose, this move renders credit inaccessible for many businesses, consequently impeding their growth.

Jacqueline Mugo, the FKE Executive Director and CEO, attributes the escalating business costs to tax measures, global geopolitical developments, and climate change, acknowledging that global factors are beyond their control. Nonetheless, she calls for focused efforts on amending tax measures to alleviate the burden on individuals and businesses.

FKE, in particular, suggests reevaluating the VAT on petrol and proposes a reversion to 8%, emphasizing that the current rate of 16% has regressive impacts. Furthermore, advocating for reduced PAYE to a maximum of 25% is their response to soaring food inflation, which significantly contributes towards increased living costs.

FKE urges a return to 25% for Corporation tax under their scrutiny, aiming to attract investments and foster job creation by enabling corporates to reinvest in their businesses. Similarly, in an effort to prevent further damage inflicted upon micro-businesses (which employ an impressive 84% of wage employees in Kenya), the proposal includes removing the minimum turnover tax.

FKE further advocates for an Affordable Housing Levy cap of Sh5000 per month, underlining the imperative to balance businesses’ operational costs and employees’ livelihood maintenance.