Minimum wage increase is not sustainable for the country

A pronouncement to increase the minimum wage will be a huge blow to industry and will negatively impact the livelihood of workers.

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

To achieve this growth, the sector has to grow at 36% every year. Unfortunately, according to the recently released Economic Survey, Manufacturing’s real Gross Value Added increased only by 0.2% in 2017 compared to 2.7% in 2016 and 3.65% in 2015; far off from the 36% intend growth rate per year.

Moreover, 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 labour.

Therefore 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 labour markets – in the process exporting local jobs.

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%.

A ceremonial wage increase will not help us as a country to tackle the subject of poverty eradication in a sustainable way. 

Instead, we need to look at reducing the overall cost of living for citizens. We can continually increase wages, but as long as the purchasing power of citizens is constantly eroded by the high cost of living, increased wages will not improve their lives. We also need to expand the proverbial breadbasket to include the 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.

Lastly, 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.