Hiring, Renewal of Contracts in State Agencies Frozen Amid Sweeping Parastatal Reforms

The Kenyan government has instituted a moratorium on hiring and contract renewals across 42 State corporations slated for merger, dissolution, or restructuring, putting the livelihoods of hundreds of executives and staff on hold. The move, communicated in a May 16 memo from Head of Public Service Felix Koskei, follows Cabinet approval earlier this year to overhaul dozens of parastatals deemed to have duplicating or overlapping mandates. Under the restructuring plan, these 42 entities will be consolidated into 20 new bodies, 25 other corporations will be dissolved with their functions reverting to parent ministries, six will be realigned to sharpen performance, and 13 professional bodies will be declassified from State-corporation status (The Standard, The Eastleigh Voice News).

The Freeze Memo: Key Directives

In the directive, Koskei ordered that:

“Any ongoing recruitment processes of staff in any cadre is halted forthwith; renewal of contracts for CEOs or any officers serving on contract terms is suspended at the lapse of current tenure; and approval or implementation of new HR policies, salary structures, personal emoluments, or new capital projects is hereby suspended.” (The Standard).

These instructions apply across all levels from junior officers to board chairs and remain in force until the affected institutions complete the transition to their new mandates or governance structures. The Chief of Staff, Attorney-General, and relevant Cabinet Secretaries have been tasked with steering and overseeing the reforms under the leadership of the Treasury and Economic Planning docket.

Why the Sweep? Rationalizing the Public Sector

The National Treasury’s reform proposal, approved by Cabinet in January 2025, aims to:

1. Eliminate Mandate Overlaps: Many parastatals were performing near-identical or complementary roles—such as the Kenya Tourism Board and Tourism Research Institute, or the Agricultural Finance Corporation and Commodities Fund leading to inefficiencies and wasted resources (The Eastleigh Voice News, Kahawatungu).
2. Reduce Cost: Consolidating boards and executive teams will cut overheads, freeing up budget for frontline services and critical infrastructure.
3. Improve Accountability: Fewer, better-defined entities make performance contracting and oversight by Parliament and the Public Service Commission more straightforward.
4. Streamline Service Delivery: Citizens and businesses will interact with a single agency instead of multiple bodies with similar scopes.

Treasury Cabinet Secretary Ukur Yatani has highlighted that this is President William Ruto’s most ambitious parastatal overhaul to date, part of a broader agenda to sharpen Kenya’s economic competitiveness and ensure prudent use of public funds (The Star, allAfrica.com).

Mergers: Building 20 New Powerhouses

Among the 42 corporations to be merged, notable consolidations include:

These mergers are designed to pool technical expertise, harmonize regulatory frameworks, and strengthen enforcement capabilities. For example, combining forest and water agencies addresses overlapping ecosystem management, while merging tourism bodies unifies marketing and market intelligence functions.

Dissolutions and Declassifications

25 State corporations are to be dissolved, with residual duties reverting to their parent ministries. Among these are the Numerical Machining Complex, Scrap Metal Council, Pyrethrum Processing Company, and Kenya National Shipping Line entities whose commercial operations have long struggled with inefficiency or market irrelevance (The Standard).

Additionally, 13 professional bodies (such as certain regulatory boards and councils) will be declassified from parastatal status, transferring governance back to relevant ministries. Four public funds including the Education Fund and Sports Fund will have their financing operations absorbed by Treasury or sectoral ministries to streamline funding flows.

Impact on Leadership and Staff

The freeze immediately affects:

• CEOs and Board Members: Those whose contracts expire during the moratorium will see their tenures lapse without renewal, pending decisions on new boards and leadership structures.
• Mid-Level Managers and Officers: Open vacancies—from clerk positions to director-level roles—are no longer being advertised or filled.
• Support Staff: Recruitment drives for analysts, drivers, and administrative assistants have been halted, creating uncertainty in day-to-day operations.

Estimates suggest that over 2,000 workers could be affected directly, with indirect impacts on contractors, suppliers, and local economies reliant on these institutions’ activities.

Reactions: Unions, Affected Employees, and Civil Society

Labor unions, such as the Kenya Union of Commercial, Industrial and Allied Workers (KUCIAW), have voiced concern over the sudden freeze, calling for clear communication on timelines and severance packages for displaced staff. Union Secretary General David Ochieng warned that abrupt contract lapses without social protection could spark protests and legal challenges (The Star).

Meanwhile, governance watchdogs like Transparency International Kenya have welcomed the move as a step toward reducing rent-seeking in parastatals but urged the government to ensure that mergers do not simply replace one layer of bureaucracy with another. Civil society organizations are calling for stakeholder consultations and transparent transition plans.

Fiscal Context: A Strained Treasury

Kenya’s fiscal deficit stood at 7.4 percent of GDP in FY 2023/24, driven by high debt-service costs and rising recurrent expenditure. Parastatal payrolls and operating budgets account for a significant chunk of the national wage bill, prompting the Treasury to target savings of up to KSh 15 billion annually through these reforms.

The Economic Survey 2024 showed that State corporations received KSh 154 billion in Government grants and subsidies, yet many failed to achieve self-sufficiency or clear performance benchmarks. Consolidation is expected to reduce duplicate spending and redirect funds toward infrastructure and health priorities under the Bottom-Up Economic Transformation Agenda (BETA) (Capital FM)

Historical Precedent: Previous Parastatal Overhauls

Kenya has undertaken similar reforms in the past. In 2013, the Vision 2030 Delivery Secretariat recommended merging over 100 parastatals, but progress stalled amid political resistance. A more limited 2018 rationalization cut board sizes and trimmed agency budgets, yielding mixed results.

Lessons from those efforts include the importance of:

• Robust change management to guide staff through transitions.
• Clear legal frameworks (via amendments to the State Corporations Act) to define merger processes.
• Performance contracts with measurable targets and timelines.

The current push, backed by President Ruto’s administration and Treasury leadership, appears more comprehensive and better resourced, with an explicit timeline for completion by December 2025 (allAfrica.com).

Governance and Oversight: Ensuring a Smooth Transition

To manage the reforms, the government has set up a Parastatal Reform Taskforce chaired by the Cabinet Secretary for Treasury and Economic Planning, with membership including:

• Head of Public Service (Felix Koskei)
  
• Attorney-General
  
• Public Service Commission
  
• National Treasury
  
• Sectoral Cabinet Secretaries

This Taskforce will oversee:

1. Board Restructuring: Appointment of interim boards and selection criteria for new leadership.
   
2. Asset and Liability Transfer: Ensuring seamless handover of assets, contracts, and records (guided by Treasury’s Management Guidelines).
   
3. HR Harmonization: Standardizing pay scales and benefits to avoid disparities across merged entities.
   
4. Stakeholder Engagement: Regular updates to Parliament’s Budget and Appropriations Committee and to staff associations.

The Taskforce is mandated to publish quarterly progress reports, with the first due by July 2025.

Risks and Challenges

While the goals are laudable, potential pitfalls include:

• Operational Disruption: Critical services (e.g., road maintenance, wildlife conservation) may suffer if staff shortages hamper day-to-day functions.
• Legal Challenges: Dissolved corporations or declassified bodies may contest the reforms in court, citing contractual and constitutional protections.
• Employee Morale: Uncertainty over job security could lead to reduced productivity or attrition of skilled personnel.
• Implementation Capacity: Ministries may lack the expertise or resources to absorb residual functions effectively.

To mitigate these risks, the government has signaled readiness to deploy technical assistance from development partners, including the World Bank and African Development Bank, to support capacity building.

What Comes Next? Timeline and Milestones

Stakeholders will be watching closely to see if the government adheres to these timelines and whether sufficient resources are allocated for a seamless transition.

Conclusion

Kenya’s decision to freeze hiring and contract renewals across 42 State corporations represents a bold effort to streamline the public sector, cut costs, and eliminate inefficiencies. While the reforms promise significant fiscal savings and improved governance, their success hinges on meticulous implementation, effective communication with affected staff, and robust oversight. If managed well, these changes could set a new benchmark for accountability and performance in Kenya’s public institutions, aligning them more closely with national development priorities and the needs of citizens.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

23rd May, 2025