Settle pending bills, employers tell State as thousands laid off

A disapointed employee after being fired at her work place. [Getty Images]

The Federation of Kenya Employers (FKE) has urged the government to urgently settle over Sh1 trillion in pending bills owed to businesses, warning that delayed payments are severely impacting operations and contributing to job losses.

In a statement released yesterday, FKE, which represents employers across the country, expressed concern over the current economic climate, noting that 5,567 Kenyans have been declared redundant from their workplaces over the past three years, with the manufacturing sector bearing the brunt of the job losses.

The federation also urged the government to adopt a “stable, predictable, and progressive tax regime” to foster business planning and long-term investment.

“We appeal to the government not to introduce any new taxes that could burden businesses and increase payroll deductions,” said FKE executive director Jacqueline Mugo during a press briefing in Nairobi attended by FKE national president Gilda Odera and other officials.

She said such measures would further harm the Kenyan economy and hinder job creation.

FKE emphasised the need to lower administrative, production, and service taxes while streamlining regulatory requirements to reduce compliance costs.

Economic development

These measures, employers argue, are crucial for creating a more conducive environment for businesses to thrive and contribute to long-term economic development.

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President William Ruto’s administration has introduced a raft of taxes and is eyeing new ones to boost revenue and reduce borrowing.

But FKE warned that any new tax hikes are detrimental to the business environment and will further stifle economic growth.

The federation said the business environment has posed significant challenges, including low demand, liquidity constraints, rising costs, frequent legislative changes, and a shrinking market, which have strained employers, reduced productivity, and hindered job creation.

According to FKE, 57 companies declared redundancies in the last three years. About 20 declared redundancy last year, 26 the prior year, and 11 in 2022.

The companies cited various reasons for redundancy, including sustained market slowdown, the effects of the Covid-19 pandemic, and the importation of goods from neighbouring countries.

Other factors included an increasingly challenging external operating environment in both domestic and export markets, unpredictable fiscal frameworks, and, for manufacturing companies, increased levels of illicit trade.

FKE warned that Kenya has also lost its competitive edge, becoming less attractive to high-net-worth individuals and businesses compared to its East African neighbours.

The FKE also highlighted several other challenges facing businesses in Kenya, particularly urging the government to address “significant teething challenges” with the Social Health Insurance Fund and Social Health Authority. It called for transparency and clarity in the governance and efficiency of the new healthcare system.

Scaling down

“Transparency, inclusivity, and clarity in governance and efficiency in operation remain key areas of concern for us,” FKE said.

Kenya has in recent years witnessed a concerning trend of businesses, both local and multinational, exiting the market or significantly scaling down operations. This includes multinational giants CMC Holdings, Procter & Gamble, Reckitt Benkiser, and GlaxoSmithKline, which have either relocated manufacturing operations or adopted distribution models.

The manufacturing sector, once a cornerstone of the Kenyan economy, has seen its contribution to the country’s gross domestic product decline significantly, from 11.8 per cent in 2011 to 7.6 per cent in 2023.

FKE asked the government to implement policies that support business growth and sustainability to spur job creation and improve living standards. It also called on the government to maintain fiscal responsibility in the upcoming 2025-26 budget.

“Some of the steps the government needs to take to ensure fiscal responsibility are prioritising efficiency in public service delivery, honouring contracts, and ensuring timely payment of bills, including clearance of pending bills,” the FKE statement said.

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It has also asked the government to strengthen accountability and transparency in budget-making and execution to curb waste, fraud, and abuse.

Other measures would include prudent debt management, reducing government bureaucracies, and streamlining government scope.

The employers also raised concerns over delayed Value Added Tax refunds. “Delayed VAT refunds, totalling over Sh12 billion, continue to strain the agricultural sector,” which disrupts operations, hinders growth, and reduces employment opportunities.

The employers also raised concerns over illegal activities that have threatened tea operations in Nandi and Kericho.

“We urge for the rule of law to be observed and for the government to ensure that the regulatory environment is preserved in these critical sectors,” said FKE.

“Disruptions in these sectors stand to worsen the unemployment situation in the country.”

FKE, however, acknowledged that some government initiatives have yielded positive results, especially for the tourism and hotel sector, which has experienced growth.

“The post-Covid-19 recovery activation plan has worked. We now have a full recovery in the sector,” the officials said.