How Much Does It Cost A Business To Create A Job In Kenya?

By Menya Mwambeu

The unemployment numbers in Kenya are scary. Numbers given by government agencies such as the Kenya National Bureau of Statistics (KNBS) will make it seem as though the numbers are lower, but the reality on the ground speaks volumes.

But we cannot run away from the numbers. Let us start with the “official quoted” figures. According to the stats, the unemployment rate in Kenya decreased to 7.20 percent in the third quarter of 2020 from 10.40 percent in the second quarter of 2020.

At the same time, the unemployment rate in Kenya increased to 6.6 percent in the first quarter of 2021, against 5.4 percent in the previous quarter. It was also higher than in Q1 2020 when 5.2 percent of the population aged 15-64 years were unemployed.

Unemployment numbers in Kenya are always contradicting. At one point, an official from the National Employment Authority (NEA) said that Kenya’s unemployment rate had hit 43.5 percent. This was two years ago. Of course, the news was “killed” before it took hold of the ears of many Kenyans.

But if you want to know the reality on the ground, just look at the mammoth crowds that Kenyan politicians manage to pull on any particular working day. Huge crowds, 90 percent being the youth and people of working age.

It is estimated that at least 30,000 Kenyans graduate annually from various institutions of high learning and are channeled into the saturated job-hunting market. The employment rate in the formal sector is just 3 percent. This leaves about 97 percent who scramble for any available opportunity.

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The population numbers

Numbers don’t lie. Kenya is a country of youth if the 2019 Population and Census results are something to go by. The census numbers showed that 75 percent of the 47.6 million population in Kenya is under the age of 35.

According to the same census numbers, the elderly population (65 years and above) was recorded at 1,870,493. This is 3.9 percent of the total population. This was however an increase of 538,220 from 2009 when they were recorded at 1,332,273.

While the population of 35 years and below was quoted to have increased by 5,463,532 from 2009, its proportional share dropped by 3 percent. Children between 0 and 14 years was 18,541,982 in 2019 compared to 16,571,877 in 2009.

At the same time, adolescents between the age of 10-19 were 11,631,929 in 2019. The number of those between the age of 18 and 34 years constituted 13,777,600. The numbers placed the working age of 15 to 64 years at 27,151,134 in 2019.

Based on the above numbers, there is a need to create more jobs. Forget about the rhetoric being peddled by politicians on how many jobs they are planning to create. Jobs are not given birth to. They are manufactured in a factory.

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The SME Sector

The SME sector has always been the backbone of Kenya’s economy. It is also the largest employer in Kenya. According to the stats by the Kenya National Bureau of Statistics (KNBS), the SME sector in Kenya employs about 86 percent of Kenya’s population and contributes about 45.5 percent to Kenya’s gross domestic product.

Despite the fact that this sector is huge and the anchor that supports the economy, it is one of the sectors that face an avalanche of challenges that have seen most of them shutting down businesses. According to stats, at least 450,000 SMEs die annually in Kenya. These stats were six years ago. You can imagine the numbers now. This means that at least 30,000 SMEs are closing shop monthly and at least 1,000 leaving the market daily.

As politicians promise hundreds of thousands of jobs, none of them puts in mind the role that the SME sector plays. None even wants to think about how the sector supports the economy and why without them, even the big boys in manufacturing will shut down. It is the SME sector that enables the seamless operation of the value chain from the top to the consumer.

How much does it cost an SME to create a job in Kenya?

When it comes to creating a job, many people think that it is only the company that is going to benefit in terms of getting the skills from the employee as well as the employee benefitting in terms of salaries and bonuses.

The truth is, jobs are not just about the employer getting the skills from the employee and the employee getting salaries and bonuses from the employer. Creating a job costs money, sometimes lots of it.

Allow me to use Soko Directory Investments Limited as an example in this case. Soko Directory is a small-medium enterprise (SME) that has about 12 employees. I will skip the cost of setting up the business for now and focus on why it costs money to create a job.

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Soko Directory started with three employees. Since then, the company has employed a cumulative force of 67 in a period of 6 years. Here is how much it costs to create a job at Soko Directory:

Before, when we needed to hire someone, we would engage an agency at a cost of 10,000 shillings to get us a candidate. Sometimes we wouldn’t get and start the process all over again. After the interviews, we would spend at least 3 weeks training the new employee (this when he/she already has an employment contract). Meaning he/she has to be paid at the end of that month. Our entry salary is 30,000 shillings. The training of the employee, therefore, costs us about 30,000 shillings.

A new employee needs a laptop given the nature of our business. So, we often end up spending at least 50,000 shillings on purchasing a laptop, about 6,000 shillings on purchasing a new desk, and about 8,000 shillings on overheads for the employee. Roughly, Soko Directory spends about 106,000 shillings to create a single job. This is a two-month rent for our office.

Let us use another example of a friend of ours who runs a fruit kiosk. Now, for her, she used about 15,900 shillings to set up the business. When she needed a hand when her business expanded, she used 500 shillings to purchase an overall for her employee, used about 3,500 shillings to make her employee settle plus a salary of 250 shillings per day. Roughly, she incurred about 4,000 shillings to create a single job. This is not inclusive of the cost of setting up the business.

Take the case of a coffee shop in Nairobi. Setting up a coffee shop with seating can cost between 200,000 and 300,000 shillings. Costs include rent, reserves for salaries and benefits, fees for architects, equipment, raw materials, income taxes, among others.

An average coffee shop usually employs between four and eight people, meaning each job would cost between 10,000 and 19,000 shillings. Having employees is also costly to the business. There is a wear and tear that happens with time and with some things that need replacing.

At the same time, when an employee loses a loved one, and a business has to step in, to help, that is a cost on the business that is often unplanned. Some big corporations have this catered for but for SMEs, it is a cost on its own.

When the employee leaves

Now, imagine training a whole employee, incurring all the costs then they leave, and you have to start the whole process all over again. Most employees, especially in Kenya, use SMEs as launchpads for other employment opportunities. Some start applying for a new job as soon as they gain experience from your business.

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