Despite low numbers of Coronavirus deaths in Kenya, cynical business moves leave millions of citizens without work
The latest figures from the World Bank show that Kenya’s unemployment rate has doubled between April and October, reaching 10.4% as the country’s economic fragility is exacerbated by the Coronavirus pandemic. At just over 1,500 Covid-19 related deaths, Kenya has not been as badly affected as some of its regional neighbours. But even after eight months of unrelenting restrictions, the country is unlikely to have seen the peak of its unemployment rate since government officials are warning that nearly 8 out of 10 small and medium businesses risk closure due to lack of funds. The government has proposed reforms to bolster the business sector and introduce tax relief measures to support the unemployed – but will they cushion the body blow of the pandemic or will they fall flat?
Corporations in distress
Kenya is one of the most popular African nations for mergers and acquisitions and the pandemic has only served to turbo boost this market, with a number of high profile operations taking place in financial services, banking, petroleum, services or fast moving consumer goods. The recent flurry of merger activity can be attributed to the impact the Coronavirus has had on pushing companies to the edge. In economic emergencies, businesses are unable to stay afloat as individual entities and often require quick capital injections or down payments for debt, making even solid assets targets for takeovers.
The major fallout from these shotgun unions of corporations will be their staff. A staggering 1.9 million Kenyans are now jobless as companies slimlined or shuttered altogether over the last few months. Joblessness is, in fact, so bad that the government is even toying with the idea of a 2% tax to be paid by the 15.9 million Kenyans still in a job, to cushion the blow to the unemployed.
One such recent example is NCBA, the third-largest entity in Kenya with subsidiaries in four other countries, which was particularly rocked by the effects of Covid-19. Less than two years after the merger of NIC and CBA to create the superbank, majority stakeholder President Uhuru Kenyatta has announced that they will be closing 14 Kenyan branches. While the company boasts 9.9% of the market share and a customer base of over 40 million, this will do little for the newly redundant bank tellers who will be out in the cold.
Siginon/Çelebi: Turkish delirium?
NCBA is not alone. Another recent merger that spells trouble for Kenyan jobs is the acquisition of Siginon Aviation Limited by Çelebi Aviation Holding, a Turkish logistics company. Owned by Gideon Moi, son of the late Daniel arap Moi, Siginon is a ‘homegrown’ success story, but the company has been struggling financially lately due to problems with a logistics center in Uganda and the Coronavirus-induced downturn in the aviation sector.
The tie-up with Çelebi is supposed to give Siginon a new lease of life. However, the Turkish company itself is in dire straits: its stock has been trending at two-year lows, with its business suffering considerably from the reduction of flights during the Coronavirus pandemic. One executive said that it will take 2 more years for the company to recover to 2019 levels. In this context, it is likely that the combined entity would lay off the lion’s share of the Kenyan workforce upon acquisition of Siginon, as it has done in other markets where it operates.
For example, Çelebi embarked on a serious cost-cutting exercise earlier this year in India, where they laid off up to 65% of their staff across the country and sent countless others on leave without pay. The company is also accused of using the pandemic as a way to get rid of pesky union members, who had been clamoring for better work conditions. According to local reports, Çelebi fired 20 workers in June that had previously participated in anti-management protests. For its part, the company pointed to a failure to win a ground handling contract at Vienna’s Airport and a 95% drop in business as reasons for the layoffs.
The end for the Kenya Meat Commission?
If the private sector is trying to stay afloat by consolidating, for public sector companies the solutions are much worse. A recent governmental plan would lead to the denationalisation or even outright bankruptcy of 26 low-performing state corporations. Some of the companies earmarked include the Kenya Meat Commission, Sony, and the Muhoroni sugar mills. The proposed changes will bring about further unemployment since reducing overheads equates to reducing heads, particularly since government employees were paid Sh 322 billion last year.
If Kenya is to remain the wealthiest country in southeast Africa and reverse this downward spiral of unemployment, economic pain and a plummeting Shilling against the US dollar, stronger action is needed. This is a time when Nairobi should band around their Kenyan corporations to prevent them from selling out or worse, crashing with their employees on board. Quick fixes might plaster over the wound, but Kenya will need to think about longer-term growth prospects if it is to fully recover from this downturn with its people in tow.