Increases in the minimum wage in Kenya have led to higher cost of doing business. This is causing a number of firms to consider relocating to Ethiopia, Rwanda, Egypt, Malawi and other neighboring countries where labor is cheaper.
According to Jacqueline Mugo, the chief executive of Federation of Kenya Employers (FKE), the Kenya’s employers’ lobby, the companies are finding the labor costs among others such as electricity, way too high and unsustainable.
Comparing the minimum wage in Kenya and neighboring countries
The current minimum wage in Kenya currently is Sh12,600. This is expected to rise to Sh15,372, according to recommendations from the Central Organization of Trade Unions (Cotu) secretary-general Francis Atwoli. In addition, President Uhuru Kenyatta has also said that he will urge the private sector employers to increase the minimum wages. Noting that there has been no increase in the last two years.
Already, the Kenyan minimum is already too high compared to Ethiopia, whose minimum wage is SH 5000 and Egypt’s Sh 6500.
Reducing cost of living vs. increasing minimum wage
Adding salaries to cope with the cost of living may look as an option, but this is only temporary. Instead, the government should also consider the impact it has on the employees. Increasing the cost of labor means adding operational costs and reduced revenue, and companies may be tempted to relocate to countries where labor costs will be reduced by more than half. The low labor costs in Egypt, Ethiopia, Uganda Tanzania, Rwanda, and Malawi seems more sustainable compared to Kenya.
Speaking at the annual general meeting of the FKE’s Rift Valley branch, held in Nakuru, Ms. Jacqueline Mugo said that the solution is to reduce the cost of living. Otherwise, increasing wages slows down job creation and may further increase the rate of unemployment.
Salary raises are usually accompanied by other increased costs such as the statutory deductions as well as the other indirect benefits that the employer may be giving to the workers. These include medical covers, insurance, house allowance and others.
With many employers struggling with the higher cost of doing business, competition, reduced profits and other challenges, few can afford to pay more wages without passing the extra cost to the consumers. Others may be forced to reduce their workforce, close business, or relocate.
The increased cost of goods and services affects everybody, including the workers whose wages has been raised. As such the net effect may be very little.
During the meeting, Mr. Apollo Kiarii, the outgoing regional president FKE Rift Valley branch, said that the employers are already under pressure to reduce their workforce in order to sustain their businesses. He further added that between 4000 and 5000 workers have been laid off in the tea sector alone during the period from June 2016 and January 2017.
Instead of looking at wage increases as the solution, the government should reduce the cost of essential commodities such as flour, milk, sugar, transport, energy and others. This will ease the pressure on the current incomes that employees are currently getting.