How Kenya’s unemployment rate rose highest in East Africa

The number of Kenyans out of work has doubled over a decade of infrastructure-fuelled economic growth and faster adoption of technology that has left East Africa’s largest economy with the highest unemployment rate in the region.

World Bank data shows 5.7 percent of Kenya’s labour force was out of work in 2021, up from 2.8 percent when the Jubilee administration took over in 2013.

In the same period, unemployment as a portion of the labour force fell from 2.9 percent in 2013 to 2.6 percent in Tanzania while the rate went up in Ethiopia from 2.3 percent to 3.7 percent.

In Uganda unemployment rose from 1.9 percent to 2.9 percent while in Rwanda the rate rose from 1.2 percent to 1.6 percent.

The Kenyan economy has grown by an average of 5.0 percent but this growth has come from capital-intensive infrastructure projects which have not trickled down to the average citizen.

Analysts say the country’s private sector has also rapidly taken up technology that saw massive job cuts, especially in the services like insurance and banking.

Kenya’s unemployed is almost twice the 2.7 percent East African average, with Rwanda having the lowest rate of unemployment at 1.6 percent.

Tanzania, which had a higher rate of unemployment than Kenya in 2013, has lowered its rate below second-placed Ethiopia and third-placed Uganda in the region.

“One of the reasons is the greater adoption of technology which led to a rise in unemployment. Remember banks and fintech shedding jobs?” Prof XN Iraki, an economist at the University of Nairobi, said.

“Secondly, there has been less than expected economic growth, we never reached the magical 10 percent envisaged in Vision 2030. The growth has also been driven by large capital projects which are not labour-intensive.”

The incoming government has the difficult task of kick-starting an economy deeply troubled by high inflation and a lack of jobs.

The Kenya Kwanza administration faces the uphill task of delivering poll promises on jobs, cost of living, economic reforms, infrastructure and housing amid a public sector job freeze and a slump in the private sector due to the Covid-19 pandemic.

The situation is worsened by the more than one million young people who graduate from colleges and universities annually in an economic setting that is plagued by reduced hiring on the back of sluggish corporate earnings.

Companies have also been shedding jobs due to technology. For instance, the rise of mobile banking has allowed lenders to reach customers directly, reducing the need for physical locations in a move that has also led to massive job losses among clerical staff.

Banks shed 6,574 clerical jobs between 2014 and 2019 as they move towards digital banking over mobile phones, allowing lenders to employ technology to eliminate mundane tasks, manage costs and increase efficiency.

Prof Iraki says that over the last decade most of the country’s resources have also been spent unwisely, especially by county governments, which devolved corruption and failed to stimulate the economy by consuming Exchequer issues instead of funding development.

The Jubilee administration also failed to deliver job growth due to unfriendly practices like the failure to settle half-a-trillion shilling pending bills that killed many small businesses due to cash flow constraints.

Latest Treasury statistics show pending bills climbed to Sh504.7 billion at the end of the last financial year in June, a 40.39 percent jump over Sh359.5 billion the previous year, making it the biggest annual jump on record.

“Resources sucked into the public sector after devolution were not as efficiently used as expected. They would have created more jobs if they were in the private sector,” Prof Iraki said.

“The regulatory environment has also not been friendly to job creators. Beyond covid-19 stimulus, we have rarely stimulated our economy.”

Kenya has a youth bulge, with 18-34-year-olds making up 25 percent of the population, and those below 15 making up 43 percent.

This part of the population can be a blessing or a curse, for instance fuelling crime and social unrest. Without jobs, insurance or pension when they advance in age, they will weigh heavily on the state’s health and social spending.

Prof Iraki said for businesses the huge number of unemployed youth could bring labour costs down and would be ideal for companies producing goods for exports.

A large number of jobless youth, however, means companies do not see market potential as they will not be able to afford goods and services, thus making the country unattractive for investments targeting local consumers.

“High unemployment rate could put pressure to reduce wages and salaries and investors should be cheered by such low wages. But the low purchasing power would discourage them too unless they are producing for the export market,” Prof Iraki said.

“This might not have a big effect regionally because labour mobility is not that high in Africa. But we have seen Kenyans seeking jobs abroad.”

Kenyans are indeed going abroad in search of jobs with the Central Bank of Kenya Diaspora Remittance Survey indicating 63.6 percent of Kenyans in East Africa left their motherland in search of jobs.

The exodus has not always meant better fortunes given the Survey indicated that income levels are lowest in Asia and East Africa where the majority of respondents earn less than $2,000 per annum, which is a pointer to the type of jobs held by migrants.

SOURCE


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