Economic Survey
Kenya Association of Manufacturers
Uhuru Kenyatta
Value Added

Manufacturers oppose minimum wage increase

The Kenya Association of Manufacturers (KAM) has opposed the move to increase the minimum wage. Yesterday, President Uhuru Kenyatta ordered the increase by 5 per cent. But KAM argue that the move will be a huge blow to industry and will negatively impact the livelihood of workers.

The manufacturers’ body said that the Big Four Agenda has singled out manufacturing as one of the key drivers of economic growth that the country intends to invest in for the next five years. To achieve this growth, they say the sector has to grow at 36 percent every year.

Specifically, the Agenda focuses on sectors such as textile and apparel, leather, iron and steel, which are all labor-intensive sectors, to drive the contribution of manufacturing to 15 percent to the GDP by 2022.

KAM added that the industry has yet to pick up pace from last year’s setbacks, which include a severe drought, high inflation rates and the economic slowdown due to the pro-longed elections period. “Additionally, businesses in general, especially for labor-intensive industries have been, at best, stagnating instead of thriving, and at worst shutting down and relocating to other countries. Along with an unpredictable regulatory regime, business growth and expansion in the country has been hampered by high and multiple taxation, high costs of energy, scarcity of the necessary technical skills and the high cost of labor,” read a statement sent to newsrooms.

The association said in cases where the latter continues to escalate, businesses would have to make drastic decisions in order to stay afloat. This includes reducing the number of jobs in order to meet their overhead costs and relocating their major operations to cheaper labor markets – in the process exporting local jobs.

According to the recently released Economic Survey, Manufacturing’s real Gross Value Added increased only by 0.2 percent in 2017 compared to 2.7 percent in 2016 and 3.65 percent in 2015; far off from the 36 percent intend growth rate per year.

“The effects of a drastic minimum wage increase will mean restructuring and downsizing in many business operations. Unfortunately, this also comes at a time when Kenya has been cited as having the highest unemployment rate in the EAC at 39.1 percent”, the statement added.

KAM is emphatic that as long as the purchasing power of citizens is constantly eroded by the high cost of living, increased wages will not improve their lives. They called for reduction of VAT on items such as milk, sugar, salt, rice, tea leaves, wheat, beans, cooking oil and Paraffin. “If the cost of these products come down, citizens are able to save substantial amounts of money to afford other basic amenities. Another solution is to increase the tax bracket and continue to exempt overtime and bonus for low income earners. ”

In addition, they said that there is need to expedite social projects under the Big 4 Agenda such as access to affordable healthcare, and social housing projects that lessens the rent burden for the low income earners and guarantees them housing long after they have retired from service.

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