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The employers lobby has fingered the Finance Act 2023 and the prevailing taxation structure as the major cause of challenges in the business landscape.

Federation of Kenyan Employers (FKE) says the hurdles, compounded by issues with labour unions, have recently affected the textile sector, resulting in the loss of over 2000 jobs in one Export Processing Zone (EPZ).

A reduction in disposable income, high borrowing costs due to elevated bank interest rates, and escalating fuel and pump prices, have significantly increased overall expenses, having strongly affected sectors such as food, energy, and transport.

At the 63rd annual general meeting of FKE Coastal Branch AGM held at the Reef Hotel in Nyali, Mombasa, Executive Director and CEO Jacqueline Mugo underscored the tough operating environment faced by businesses.

Influx of foreign goods

However, she said the influx of foreign goods into the region and the shortage of dollars, further exacerbated by the depreciation of the local currency against global currencies, further affecting the economy which has been grappling with prolonged economic challenges over the past 18 months, especially micro-economic performance at the grassroots level.

In the first quarter of 2024, many enterprises either downsized or relocated to neighbouring countries due to the high cost of doing business, particularly affecting the manufacturing sector.

Elevated operational costs resulting from currency fluctuations and broader global economic factors have been cited as major contributors to this trend.

Contrasting trends across different sectors, with the agriculture sector experiencing a surge in demand, production, and sales supported by favourable weather conditions. However, the manufacturing and services sectors witnessed lower production volumes due to subdued consumer demand.

“In contrast, input and purchase prices saw a decrease in 2024 Q1 compared to the previous quarter, attributed to easing commodity prices. The agriculture sector experienced a surge in demand (39.6%), production (24.7%), and sales (33.6%) supported by favourable weather conditions, although full-time employment remained largely unchanged (16.6%) due to increased costs of farm inputs,” the executive director observed.

Industrial actions

Regional President of the Coast Branch, Sam Ikwaye, echoed similar sentiments, emphasizing the challenges posed by rising fuel and pump prices, dollar shortages, and currency depreciation. He highlighted the struggles faced by the textile sector, citing industrial actions by unions as exacerbating the situation.

A case in point is Ashton Apparels in Mombasa (EPZ) Limited which registered seven days of industrial action in January, 2024 resulting in significant ramifications.

“This included a substantial number of customer orders being cancelled, leading to considerable financial losses measured in dollars. Additionally, the company experienced intermittent go-slows, further impacting its productivity. The immediate consequence of the order cancellations was the loss of 2,000 jobs, as term contracts were not renewed,” Ikwaye said.

Ikwaye urged both workers and employers to adopt a broader perspective and resolve issues amicably through established mechanisms, noting the adverse impacts of industrial actions on businesses, such as the loss of jobs and financial losses.