Kenyans earning more than twice their output – World Bank report

Labour costs in Kenya are more than twice the Gross Domestic Product (GDP), thereby limiting the country’s competitiveness on the global trade stage, a new report by World Bank has revealed.

The flagship report on trading for development in the age of global value chains published earlier this month comes even as the country remains awash with runaway unemployment and rampant dissatisfaction on compensation.

The bloated wage component has been attributed to, among other factors, forex exchange misalignment and strict labour laws; a feature co-shared across much of the continent.

“Over-valued exchange rates and restrictive labour regulations raise the cost of labour, preventing labour abundant countries from taking advantage of their endowments,” states the report.

Consequently, Kenya ends up in a disadvantaged position in attracting capital goods in the international market space, this is as investors favour production in countries with a balanced mix between average wages and output.

“It would be important to strike a balance. The disparity is not just on wage levels but also wages in their relation to GDP. It would be important to draw from peers at the same levels of development such as Ethiopia and Bangladesh,” said World Bank Chief Economist Pinelopi Goldberg.

Data from the Kenya National Bureau of Statistics (KNBS) paints in part, the asymmetrical relationship between wages and output but data from the State’s statistics office falls short from the non-disclosure of average wages in the broad informal sector.

Annual average earning per employee are for instance recorded at Ksh.716,934 against a GDP per capita value of Ksh.100,310; revealing a deficit in excess of six times in the difference.

Further, average wage earnings with specificity to broad economic segments reveal discrepancies with a bias for higher wages in the private sector against subdued output.

Wages in Agriculture for instance registered a 10 percent jump year on year in the private sector in 2018 against a 6.4 percentage change in output from Agriculture while remunerations in manufacturing gained by 9.5 percent from a 4.2 percent change in annual sector growth.

Kenya’s ability to go head to head with global peers is further shaken up by the exportation of majorly raw Agricultural commodities, poor infrastructure, high logistics costs, low adoption of international quality and standards and restrictive trade and investment policies.

From the resulting barriers to free flowing trade, Kenya’s manufacturing potential has remained stuck up in the pits, 20 years into the country’s venture into the Global Value Chains (GVCs)

Nevertheless, Goldberg advocates for a drastic shift in policy to reset synergies back to deeper GVC linkages in the long term.

“The question is not whether we participate or not, but how you participate determines whether you make gains or not,” she added.

“There is still manoeuvre room for developing economies to grow through the embracing of trade and open policies”

Global value chains tend to favour highly skilled and industrialized and highly skilled nations and it endeavours to breakup complex production process across countries.