For Online E-newspaper
Daily Nation : February 9th 2014
36 | Business ECONOMY | Productivity not commensurate with salary scales, experts say Burgeoning wage bill greatest threat to middle-income status If no action is taken, government may soon have to borrow to pay salaries, warns Serem BY MWANIKI WAHOME @mwanikiwahome email@example.com state by 2030. Sarah Serem, the chair of the K Salaries and Remuneration Commission, said if the government does not contain the burgeoning wage bill, its development objectives will remain out of reach. A report by the commission last year entitled Rewarding Productivity says over the past six years, the annual growth rate in the wage bill averaged 13 per cent between 2010 and 2013, (reaching 30 per cent in 2012/2013), well above the national population growth rate average of about three per cent. In the 1990s, the wage bill was nine per cent of gross domestic product; the figure even dropped to 7 per cent after retrenchments. “However, over time, the figure has been building up to between 13 and 15 per cent. This is a scary scenario,” Ms Serem said. She spoke on February 5 at a forum in Nairobi organised by the Institute of Certified Public Secretaries of Kenya to discuss governance − remuneration, productivity and competencies. The problem, according to ex- perts, is that productivity is low, and not commensurate with the salary levels, thus compromising the country’s competitiveness as an investment destination. “We would not mind much about the wage bill if the economy was growing faster and wastage considerably low,” said Institute of Economic Affairs chief executive, Kwame Owino. enya’s wage bill is the greatest threat to its drive to become a middle-income WAY OUT Proposals to salaries’ team Carry out an inclusive study on the productivity of civil servants to weigh pay against productivity for further action. This will be coupled with objective measurement for productivity, and a harmonisation of wage differences Initiate pay policy and a medium-pay reform strategy to replace ad hoc negotiations with trade unions Standardise allowances to make them part of basic salary for government workers The institute is a think tank that does research on public policy issues. The government last year spent Sh458 billion on salaries from a budget of Sh1.5 trillion. The country’s wage bill is 13 per cent of GDP, nearly twice the globally recommended figure of 7 per cent. “If the wage bill is not reduced, we might have to borrow to pay salaries,” the SRC boss said. “Some countries have done it, but with negative consequences. It’s like going to the bank and getting money and walking to a supermarket and making merry. FILE | NATION Salaries and Remuneration Commission chairperson Sarah Serem (right) addresses a news conference on the job re-evaluation for the county governments state officers. Ms Serem has decried the huge wage bill which, she says, is keeping Kenya from realising its economic vision. What about tomorrow?” She said the burden of the wage bill was a carryover from the period when salaries were determined by committees that often acted under pressure from trade unions, which, in setting new salaries, did not consider levels of revenue growth in the economy. She said a comprehensive study of the productivity of the civil servants will be carried out later in the year to ensure every job pays its way. Numerous constitutional com- missions and the implementation of 47 counties have definitely put pressure on the wage bill. A comparative study of the difference in public sector and private sector wages released last year by the Kenya Institute for Public Policy Research and Analysis showed that the labour movement was in favour of public service over recent years after the salaries offered by the government improved. “The unfortunate situation is that public service has been converted from a service delivery sector to a station for wealth generation,” she said. The government has indicated it will retrench about 100,000 workers to reduce the wage burden, and is also investigating loss of revenue through ghost workers, which is estimated to cost the exchequer Sh1.8 billion yearly. Kippra recommends that SRC establishes objective measurement for productivity, addresses wage differences and increases basic pay for the low cadre staff. It also recommends a pay policy and a medium-term pay reform strategy of between three and five years to replace ad hoc negotiations with the trade unions. Horticulture export earnings down again BY BEVERLY NDEGE firstname.lastname@example.org Earnings for horticultural exports fell for the third consecutive year in 2013 as growth in agriculture slowed due to erratic weather. Data by the Kenya National Bureau of Sta- tistics show horticulture, one of the country’s top foreign exchange earners, took in Sh83.4 billion last year, down from the Sh89.3 billion recorded in 2012. The decline was also blamed on stricter plant safety standards instituted by the European Union, Kenya’s largest fresh produce market, leading to a reduction in the volume of exports. “Due to the adjusted maximum residual levels standards − the upper legal levels of a concentration for pesticide residue in or on food or feed − about 5,000 farmers had dropped from the horticulture chain but more than 3,000 have since made a comeback to the sector,” said Fresh Produce Exporters Association chief executive officer Dr Stephen Mbithi. But he said compliance now stands at 97.3 per cent, raising hopes that they will swing back to the expected levels this year. Feeling the pinch Last year, Kenya received 72 formal notifica- tions that the tested samples had exceeded the recommended maximum residual levels compared to the less than 10 received in 2012. And many exporters are feeling the pinch. “In December, our snow peas were intercepted in UK; testing revealed that we had exceeded the acceptable levels,” said Mr Japheth Mbandi, the technical manager of Keitt Exporters Limited who export fresh produce to Europe. Mr Mbandi said that poor weather affected production, taking a toll on the business. “Our mangoes and avocados did great in 2013; however the same cannot be said for the vegetables,” he said. The Kenya Plant Health Inspectorate Service, which is mandated to carry out analysis and testing of horticultural produce, said they are keen on rehabilitating the sector. The inspectorate’s managing director, Dr James Onsando, says the organisation has taken measure to ensure the residual levels rules are met. These, he said, includes acquiring and in- stalling better testing equipment as well as implementing a more robust sampling plan. “The compliance rate now is much higher than it was before,” said Dr Onsando. SUNDAY NATION February 9, 2014 New laws to broaden credit-information sharing system CONTINUED FROM PAGE 32 small percentage of people who have been giving borrowers a bad name and therefore enhancing risk. With positive information, people with a good history will, perhaps, require lesser security and qualify for lower interests,” said Consumer Federation of Kenya secretary-general Stephen Mutoro. Deposit-taking microfinance institutions have also been formally brought under the credit information-sharing umbrella. Information sharing with them was piloted in 2013 as the industry waited for the regulations to be gazetted. Expanding information collection is the second phase of the reform by credit bureaus in collecting and collating data. In the third phase, expected to be piloted this year, savings and credit co-operatives will also be included. With the approval of Central Bank, other non-banking entities such as the registrar of companies, county governments and tax authorities can also submit information about borrowers to the bureaus. These reforms are expected to make it easier for banks to catch loan defaulters, and reduce reliance on collateral such as land and buildings when assessing the risk potential borrowers pose. Information as collateral “With credit reports containing positive infor- mation, increased awareness of the positive scores in the credit reports will trigger a demand for credit as more borrowers get opportunities to use their information as collateral,” Kenya Association of Credit Providers interim chief executive Jared Getenga said in a statement. This is especially important given that stalled reforms to the land sector and enactment of new laws on matrimonial property have left local banks confused about the use of land as collateral. Kenyan banks rely heavily on loans for their revenue. According to Central Bank’s 2013 Credit Officer survey, the ratio of loans to total assets in the industry as of December 2013 stood at 58.20 per cent. This means that “credit risk is the single larg- est factor affecting the soundness of the financial institutions and the financial system”. In 2013, according to the Central Bank, the value of non-performing loans increased 30.91 per cent from Sh61.56 billion in December 2012 to Sh80.59 billion in December 2014. Although most financial institutions surveyed by the Central Bank indicated they expected the level of non-performing loans to remain constant in 2014, figures like those reported last year indicated that local banks may become more demanding in assessing potential borrowers this year. The upside of such a development could be fewer non-performing loans, but on the downside, many borrowers, especially small businesses, that are often deemed risky, could be denied credit. FILE | NATION Kenya Association of Credit Providers interim chief executive Jared Getenga.
February 8th 2014
February 10th 2014