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Kenya: State Responds to High Cost of Living with Fresh Wage Rise Plan
Business Daily
Moses Michira and Valentine Obara

April 7, 2011
View the Original Article

The least paid workers could get a pay increment in coming weeks if a new wage structure the government has proposed is adopted at a meeting with trade unionists this morning.

Top on the meeting’s agenda is the Ministry of Labour’s plan to raise the minimum wage by 10 per cent to cushion workers against soaring consumer goods prices.

A rise in the minimum wage should also act as a signal for corporate Kenya to increase wages to remain competitive in the labour market.

“We would like to increase the minimum wage by about 10 per cent to cushion low income earners from rising cost of living,” John Munyes, the Minister for Labour, said at a Press briefing on Wednesday.

Mr Munyes is, however, expected to face a hard bargain from the Central Organisation of Trade Unions (Cotu), which has recently sought a 60 per cent rise in the minimum wage to boost workers’ purchasing power and soften the pain from rising cost of living occasioned by high food and energy prices.

Sustained pressure on food and fuel prices lifted the inflation rate for the fifth straight month in March, bringing closer to reality the possibility of consumer price acceleration touching the double digit mark before end of June.

The Kenya National Bureau of Statistics said inflation climbed to 9.19 per cent in March – or 2.65 percentage points higher than February’s rate of 6.64 per cent.

Mr Munyes said that the stakeholders meeting — aimed at reviewing the minimum wage —brings together employers and workers’ representatives.

In the past three years, employees have watched helplessly as their purchasing power got eroded and employers offered only modest salary reviews, shackled by a slowdown in profits growth since the onset of the global economic recession in late 2008.

While most employers have raised salaries annually, the gains have been quickly offset by high inflation rates.

Official figures show that annual salary increments stood at 5.8 per cent in 2008 and four per cent in 2009 against average inflation rates of 17.8 per cent and 8.6 per cent in 2008 and 2009 respectively — pointing to negative real wages.

More recently, the double digit growth in the cost of food, transport and energy over the past four months has added fresh impetus to demands for higher wages, especially from Cotu.

A decision by the government to increase the minimum wage should strengthen the bargaining position of workers’ unions for better pay.

Kenya’s unionisable employers earn between the minimum wage of Sh10, 605 and Sh60, 000 per month.

During the past two years, most firms did not increase wages above inflation levels, leaving them in a negative real wages position.

The economy grew by 5.4 per cent in the nine months to September 2010 compared to 2.3 per cent in a similar period a year earlier — putting the country on course to surpassing the five per cent growth target for 2010.

Employers, however, reckon that higher wages could hurt Kenya’s competitive edge and prompt employers to trip employee numbers to keep a lid on wage bills.

“Contrary to the wage guidelines which provide that minimum wages be reviewed at most once every two years, the government has been reviewing it almost annually,” said Jacqueline Mugo, the executive director of the Federation of Kenya Employers (FKE).

“Since 1990, Kenya’s labour productivity has been on the decline giving room for countries such as Sudan to outpace our rate of productivity growth,” she said.

Such views from employers mean Kenya may be headed for a season of friction between companies and unions over the level of workers’ compensation.

Noah Chune, an economist at Cotu, says that the workers’ union will be rooting for a compensation package that shields workers from the soaring inflation noting that it was the government’s responsibility to ensure welfare for its people.

“We are working on a formula that will cushion workers from adverse effects of high inflation, the income wage disparity and employee safety,” said Mr Chune.

Kenya is expected to move to double digit inflation rate in coming months on account of expensive food and energy costs, which have accelerated with steady rise in the cost of imported commodities and the weakening of the shilling against major currencies.

Food prices, which rose by 15.1 per cent from a year earlier, provided the greatest impetus to inflationary pressure besides the cost of transport which climbed by a margin of 15.89 per cent on the back of the steep rise in the price crude oil in the wake of the political crisis in the oil-producing Arab world.

Predictions by the weatherman that large parts of the country will experience dry weather in the first six months of the year has only signalled the fact that grocery bills will continue to rise in the next couple of months hitting low income earners hardest.

This pricing outlook is expected to eat deep into the savings of the high income Kenyans while the lower earners are cutting their expenditure on basic commodities—a move that will deny manufacturers new demand they need to boost production and new jobs.

Already, the effects of soaring food prices in the international markets have resulted to a popular uprising in several countries in Middle East and Northern Africa, a situation the labour minister said the move was set to avert.

“We don’t want a situation similar to the events happening in Northern Africa where people are protesting on the soaring cost of living,” Mr Munyes said, adding that his ministry was seeking to increase enforcement officers to ensure that the set guidelines are adhered to.

In the last minimum wage review announced by the government last year, the Labour ministry proposed that the lowest paid Kenyan in the Nairobi, Mombasa and Kisumu cities earn Sh10,605 per month as compared to the Sh9,641 for 2009.

However, the difficulty of enforcing this regulation while maintaining the country as an attractive investment destination remains a key challenge bound to keep.

But Mr Munyes yesterday put employers on notice over breaching the minimum wage guidelines and working conditions, singling out the recently closed down slat firms at the coast for firms that were paying their employees as little as Sh80 for 10 tonnes of raw salt collected.