Jobs crisis set to worsen as firms freeze hiring, warns new report

New graduates will find it harder to get jobs as most employers put their hiring plans on hold.

A new report by the Kenya National Chamber of Commerce and Industry (KNCCI) paints a worrying picture of Kenya’s job market, with over 60 per cent of businesses indicating they do not plan to expand their workforce this year.

This marks a shift as the last two quarters of 2024 showed more optimistic projections, KNCCI said.

While businesses express hope for revenue growth, they are facing a tough battle with rising operational costs and stagnating employment figures, casting a shadow over the country's economic outlook.

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The report, 2025 Business Barometer, released yesterday signals a worrying trend in the country’s employment landscape, where the official unemployment rate is relatively low, standing at around 5.5 per cent, according to the Kenya National Bureau of Statistics 2024 Economic Survey.

However, this data masks the more complex reality. A significant portion of the workforce remains employed in the informal sector, which is characterised by unstable, low-paying jobs that often lack benefits such as health insurance or retirement contributions.

KNCCI president, Erick Rutto, acknowledged that while the unemployment rate might seem promising at first glance, many Kenyans are underemployed, working in insecure jobs with limited upward mobility.

Notably, only about 10 per cent of the workforce enjoys formal employment, a concerning statistic when one considers the country's young, dynamic population.

"Youth unemployment continues to be a particularly pressing issue, as younger workers often find it hardest to secure stable employment," said Rutto during the launch of the report in Nairobi.

"Despite the apparent economic growth in some sectors, many youths remain locked out of the formal job market, contributing to high levels of frustration among this demographic."

The 2024 Economic Survey also draws attention to the diminishing expectations of employment growth in various industries.

The manufacturing sector, for instance, employed 340,600 in 2023, while agriculture, wholesale trade, education and construction each reported significant number of workers.

However, despite the size of these sectors, businesses are hesitant to increase their workforce in the near future, citing a range of economic challenges.

KNCCI head of policy and research, Kiplimo Kigena, said the fragile economic state requires attention.

"Inflation has eased to 3.3 per cent as of January 2025, down from much higher rates last year," he said, acknowledging that while this offers a window for interest rate reductions, the overall demand in the economy remains weak.

As a result, the Central Bank of Kenya may have to lower the base lending rate further to stimulate economic activity, but even then, the effects might take months to filter through and benefit businesses, especially those that rely on credit.

Economist Churchill Ogutu noted that while the government has made efforts to boost the economy, some measures, particularly in taxation, have unintentionally harmed businesses.

High statutory deductions and prohibitive tax policies have reduced disposable income for businesses, limiting their ability to hire new employees or expand operations.

KNCCI has recommended that the government avoids introducing additional Finance Bills, focusing instead on streamlining the tax system and improving revenue collection strategies.

Further, the chamber is seeking for a reconsideration of rising payroll costs, which have burdened businesses, particularly SMEs.

Policies that affect employee contributions, such as those for affordable housing and the National Social Security Fund, need to be re-evaluated to avoid stifling job creation.

The report also highlights the importance of market access for businesses, especially small enterprises.

“The policies implemented in recent years have been counterproductive, especially for small- and medium-sized enterprises, which are the backbone of the economy,” Ogutu added.

Analysts say the constant changes in tax regulations create uncertainty, which discourages long-term planning and investment—with another Finance Bill expected hot on the heels of the Tax Laws Amendment Bill passed in December. 

According to the report's lead analyst, businesses are increasingly concerned about the unpredictability of the tax environment. "The government needs to focus on optimizing revenue collection strategies instead of frequently adjusting tax laws," the analyst states.

Additionally, access to affordable capital remains a significant hurdle for businesses. With high-interest rates in 2024, many enterprises have struggled to secure financing for expansion or operational needs.

The meeting of the CBK's Monetary Policy Committee today (February 5), is being closely watched for any potential moves to reduce interest rates, which could offer some relief to businesses hoping to secure cheaper credit.

KNCCI has recommended that the government avoids introducing additional Finance Bills, focusing instead on streamlining the tax system and improving revenue collection strategies.

Further, the chamber is seeking for a reconsideration of rising payroll costs, which have burdened businesses, particularly SMEs.

Policies that affect employee contributions, such as those for affordable housing and the National Social Security Fund, need to be re-evaluated to avoid stifling job creation.

The report also highlights the importance of market access for businesses, especially small enterprises.

These businesses often struggle to reach new markets, both locally and internationally, due to high costs, limited networks, and regulatory barriers. 

“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.

Businesses are grappling with rising costs, uncertain tax policies, and access to affordable capital, all of which are contributing to stagnation in employment growth.