A new report from the Kenya National Chamber of Commerce and Industry (KNCCI) paints a stark picture of Kenya’s job market, revealing that over 60% of businesses plan to freeze hiring in 2025. This projection is a sharp contrast to the relatively optimistic employment forecasts seen in the second half of 2024, signaling that the jobs crisis in Kenya is set to worsen, particularly for young job seekers and new graduates. As businesses face a slew of operational challenges, including inflation, tax policies, and rising costs, it seems that the economic recovery may not be as robust as initially anticipated.

A Rising Employment Crisis: Hiring Plans on Hold

The 2025 Business Barometer, which was launched yesterday, highlights the increasing uncertainty in Kenya’s employment sector. According to the report, the majority of businesses are choosing to keep their workforce stagnant, with more than half of them citing economic instability, high operational costs, and regulatory challenges as major reasons for the hiring freeze. The optimism observed in 2024 regarding job creation now appears to be a fleeting moment in the face of these ongoing economic challenges.

This trend of businesses hesitating to expand their workforces represents a worrying outlook for job seekers, especially for those entering the labor market for the first time, such as new graduates. While the official unemployment rate in Kenya stands at 5.5% as per the 2024 Economic Survey, the reality is more complicated. A significant portion of Kenya’s workforce remains employed in the informal sector, which is characterized by low-paying, insecure jobs that offer little to no social security benefits, such as healthcare or pension plans.

In light of this, KNCCI President Erick Rutto noted that while the official unemployment rate may seem promising at first glance, many workers are either underemployed or working in conditions that fail to offer financial stability or career advancement opportunities. This is particularly concerning given Kenya’s large and growing youth population, which is finding it harder to secure formal employment.

“Youth unemployment continues to be a particularly pressing issue, as younger workers often find it hardest to secure stable employment,” Rutto said during the launch of the report in Nairobi. His concerns were echoed by other economists and business leaders, who emphasized that despite economic growth in some sectors, many youths remain locked out of the formal job market. The result is an increasingly frustrated demographic, as young people struggle to access secure and fulfilling careers.

Employment Landscape: A Closer Look

The report reveals a widening gap between the employment numbers in various sectors and the actual hiring intentions of businesses. In sectors such as manufacturing, agriculture, wholesale trade, education, and construction, millions are employed, yet businesses are wary of expanding their workforce. The agriculture sector alone employs over 3 million people, making it one of the largest employers in the country. However, many agricultural enterprises are struggling with challenges such as unpredictable weather patterns, high input costs, and inadequate infrastructure. These hurdles limit their capacity to hire more workers or invest in expansion.

The manufacturing sector, which employed around 340,600 people in 2023, has similarly been constrained by high production costs, labor market rigidity, and rising energy prices. Manufacturing businesses, which are key to driving industrial growth in the country, find it challenging to recruit new employees when their profit margins are being squeezed.

Similarly, other critical sectors like education and construction have not been immune to the difficult economic environment. With many businesses facing lower demand for their services and an unpredictable economic outlook, hiring in these sectors has stagnated, worsening the employment crisis in the country.

Economic Struggles and Inflation

One of the most significant factors contributing to the slowdown in hiring is the rising cost of doing business. Inflation in Kenya eased to 3.3% as of January 2025, down from higher rates in the preceding months, but the economic recovery remains fragile. While inflation moderation presents an opportunity for potential interest rate cuts, the broader demand in the economy remains weak. The Central Bank of Kenya may need to lower its base lending rate to stimulate economic activity. However, the effects of such moves are expected to take months to filter through the economy, and many businesses may not experience the desired benefits in the short term.

Despite the government’s efforts to stabilize the economy, such as reducing inflationary pressures and introducing new economic policies, high operational costs are still a significant barrier to growth. The rising cost of raw materials, energy, transportation, and labor is making it increasingly difficult for businesses to sustain profitability, much less hire new employees.

Taxation: A Double-Edged Sword

The role of taxation in Kenya’s economic landscape is another significant concern raised by the KNCCI. Economist Churchill Ogutu highlighted that while the government has made efforts to boost the economy, certain measures, particularly in taxation, have inadvertently harmed businesses. The introduction of higher statutory deductions and increased tax burdens has drained disposable income for businesses, which in turn affects their ability to hire more workers or expand their operations.

The report’s lead analyst emphasized that Kenya’s businesses are grappling with a volatile tax environment. With frequent changes in tax laws and the introduction of new tax bills, businesses are finding it increasingly difficult to plan for the future. The government’s focus on optimizing revenue collection strategies, rather than introducing new Finance Bills, could help ease this burden.

“The government needs to focus on optimizing revenue collection strategies instead of frequently adjusting tax laws,” said the analyst. This sentiment was echoed by Kiplimo Kigena, KNCCI’s head of policy and research, who pointed out that the constant changes in tax regulations create uncertainty, discouraging long-term planning and investment. Furthermore, businesses have been calling for a reconsideration of payroll taxes, which have placed additional burdens on small and medium-sized enterprises (SMEs), the backbone of Kenya’s economy.

SMEs and Market Access Challenges

Small and medium-sized enterprises are particularly vulnerable to the challenging economic conditions in Kenya. These businesses often face difficulties in accessing new markets, both locally and internationally, due to high costs, limited access to finance, and regulatory barriers. Without access to affordable capital or the ability to expand their market reach, many SMEs are unable to grow, leaving them with little option but to freeze hiring and reduce operations.

The report highlights that SMEs are struggling to overcome regulatory barriers that inhibit their ability to operate efficiently. Businesses are often confronted with bureaucratic hurdles, such as complex licensing requirements, lengthy approval processes, and inconsistent enforcement of regulations. These barriers hinder business growth, making it difficult for SMEs to tap into new opportunities in both local and international markets.

“Regulatory stability is the key request from the private sector for 2025. Businesses need certainty to thrive, and the frequent changes in tax laws and licensing requirements are making it hard to plan for the future,” said Kigen.

Affordable Capital and Access to Credit

Access to affordable capital is another major hurdle for businesses. With high-interest rates in 2024, many businesses struggled to secure financing for expansion or operational needs. This limited access to credit has been particularly challenging for SMEs, which typically rely on loans to fund their growth. Many businesses are unable to invest in new technologies, hire additional workers, or scale their operations due to the high cost of borrowing.

The February 5 meeting of the Central Bank of Kenya’s Monetary Policy Committee is being closely watched for any indications of potential moves to reduce interest rates. Such a reduction would provide much-needed relief for businesses struggling to secure credit at affordable rates. However, it remains to be seen whether the central bank will take this step, and if so, how quickly the benefits will be felt by businesses on the ground.

Conclusion: A Call for Stability and Strategic Action

As Kenya faces mounting challenges in its job market, the outlook for employment growth remains uncertain. While the official unemployment rate appears to be relatively low, the true nature of the employment crisis lies in the significant portion of the workforce that remains underemployed or engaged in informal, low-paying jobs. With businesses struggling to cope with high operational costs, tax policies, and limited access to capital, the prospects for job creation in 2025 look bleak.

To address this crisis, the Kenyan government must take urgent action to stabilize the economic environment. This includes re-evaluating taxation policies, streamlining regulatory requirements, and improving access to affordable credit for businesses. Only through these measures can Kenya hope to stimulate job growth, alleviate youth unemployment, and foster a more inclusive and sustainable economic recovery. Without these changes, the job crisis is likely to worsen, further exacerbating the challenges faced by Kenya’s young and dynamic population.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

4th January, 2025