Columnists
Why Ruto tax plan is no way to tackle the unemployment crisis
Tuesday June 20 2023
Youth flee from anti-riot police during an unemployment march in Nairobi. FILE PHOTO | NMG
The Friday incident where thousands of Kenyans from different parts of the country thronged G4S headquarters in Embakasi, Nairobi for job interviews seeking to fill 150 job vacancies announced by the company highlights Kenya’s unemployment crisis.
It lends credence to a study conducted by the Ichikowitz Family Foundation that found that Kenyan youth were more concerned about employment shortages than their counterparts in the rest of Africa.
According to the 2022 Kenya National Bureau of Statistics (KNBS), Kenya’s total workforce stands at 12 million, with 10 million in the informal sector.
Only two million of the workforce constitute the formal sector, which comprises the civil service, parastatal staff, and private sector employees.
Out of the two million Kenyans in formal employment, the share of private sector employment is 68.3 percent while that of the public sector is 31.7 percent.
Government jobs are limited. However, the government can ensure that the economy generates more jobs by creating ease of doing business and enticing foreign direct investment.
A more favourable political and economic environment is created by enacting fiscal and monetary policies that reduce business costs and increase consumer expenditures.
The Henley Wealth Migration Report 2023 which revealed that some 84,000 high net-worth individuals emigrated Kenya due to high taxation, weak economic growth, and political instability explains why Kenya is finding it difficult to cure its joblessness.
To the extent that this is true, the current administration’s economic policies cannot be relied upon to tackle the problem.
Judging by the Finance Bill, of 2023, Kenya still has a long way to go in combating unemployment. This is because the Bill paints a picture of a government that is more concerned with generating revenue at the expense of its citizens’ welfare and economic growth.
A fuel tax increase of 16 percent, for instance, will increase production costs. The consequence of this will be an increase in the prices of goods and services in the country as businesses pass the added cost on to consumers.
This will limit consumers’ purchasing power and force them to buy fewer goods and services. As a result, companies will reduce production and lay off workers.
This is likely to keep Kenya in the vicious circle of unemployment and sluggish economic growth.
Another policy in the Finance Bill that is also likely to dig Kenya deeper into the unemployment hole is the 1.5 percent housing levy.
The policy has two ramifications. Firstly, it will increase the wage bill for companies since both employers and employees will contribute. As a result, companies will shy away from recruiting.
But more importantly, the levy could deny existing companies expansion opportunities. Lack of or less expansion means employment opportunities are lost.
Benedict Arwa is a Governance and International Affairs Specialist.
