BY ZIPPORAH MAINA
One of the perennial bugaboos of the manufacturing sector in Kenya is the ceremonial wage increment announced by Government annually on Labour Day which are not productivity based.
Last year, the Government announced a 14pc ceremonial minimum wage increment and that dealt a heavy blow on the profitability and existence of some industries. It has become tradition for Kenyans to expect the President to set a ceremonial wage increment, which the government argues is meant to cushion the working population against the rising cost of living.
The voices of industry notably the Kenya Association of Manufacturers (KAM) have argued that the domino effect of ceremonial wage increases is increased inflation. This is based on a simple fact that wage increments that are not based on productivity will have negative effect on the productive sector and consequently affect the country’s competitiveness on the international market. This ultimately robs the national fiscus of the much needed inflows.
Industry has always argued, and rightly so, in support of wage increments that are based on productivity. Any increments outside this are tantamount to putting Kenyan industries out of business. A perfect example is that of the textile industry, which Government is trying to save due to the effects of last year’s ceremonial wage increment among other ills that bedevil the sector, which resulted in more than 1000 employees being retrenched and a textile factory closed in Nairobi as it could not sustain its operations due to a ballooning wage bill.
This becomes untenable for such a sector, which competes with products produced from countries such as Bangladesh and Cambodia where salaries range from $50 to$75 compared to Kenya’s average of $150. If one factors in other input costs such as high cost of electricity it becomes practically impossible to sustain the industry. Government has a goal of creating one million jobs and for as long as industries cannot sustain the employment rates then the goal will remain a pipedream.
In as much as Government is trying to cushion the high cost of doing business in Kenya by fast tracking projects such as energy transformation programs in power generation, transmission, supply including drastic reduction in cost of power and new connections all estimated at Sh8 billion much more needs to be done to save the manufacturing industry in Kenya. Strategies to support Leather and Textile sectors through the development Special Economic zones, support to new emerging industries and reduction in cost of doing business all budgeted at over Sh5.5 billion are a welcome development but this could all be futile efforts if ceremonial wage increments continue.
All these projects are meant to help the economy grow and create an enabling business environment but with the looming call for a ceremonial wage increase all this is bound to bring gaps in the implementation of the said projects. Moreover cabinet recently rejected the bid to reduce the Value Added Tax on some basic commodities, which as a result continues to hurt industry and the common Mwananchi.
Some companies have already closed shop due to the high cost of doing business in the country, whereas the textile industry is on its knees. This is attributed to high taxation, high energy costs and poor infrastructure, among other major factors. This in turn, defeats the dream of countering unemployment due to the high costs incurred by industry.
The manufacturing sector has strongly called for consultation with industry before announcements of such as this that have a potential to cripple industry are made. In all fairness there is need to cushion the general populace from rising cost of goods but ceremonial wage increments are just as good as shooting ourselves in the foot.
One may say that inflation based increments are the way to go however it still goes back to the same one size fits all solution which has never worked anywhere in the world. Some large companies may be able to sustain this but it would be disastrous for some infant and small industries.
An increase in productivity lowers inflation and increases purchasing power due to lower prices. This can be done through the adoption of piece-rate pay measures where workers are paid per unit to motivate them and boost production
In the interest of creating more jobs and retaining the ones that are there, productivity based wage increments are the way to go!
(The writer is the Head of Finance at Kenya Association of Manufacturers and can be reached on email@example.com)