Tuesday, November 13, 2007

UN Unveils Study to Help Country Double Office Jobs

from All Africa

Business Daily (Nairobi)

By Mwaura Kimani
Nairobi

Kenya could double the number of formal jobs for the youth every year through a generous increase in spending on infrastructure and heavily subsidised loans to the poor, a UN report says.

The report, presented by a think tank associated with the United Nations Development Programme (UNDP), says the country could easily start generating 700,000 formal jobs if it increased its spending on new roads, ports, airports and other public infrastructure by Sh50 billion.

To guarantee that the poor can access credit, the report proposes that the Government creates a pool of subsidised loans for commercial banks to extend to microfinance enterprises.

"But this pool should not account for more than Sh9 billion or five per cent of the national budget, even as lenders assume a 30 per cent default rate," says Robert Pollin, one of the authors.

The report, which also proposes a deep pay cut for formal sector employees to enable employers take in more workers, says that even as Kenya grapples with a more than 10 per cent unemployment rate, at least half of the working population lives in poverty.

According to the UNDP, an average formal private sector worker now supports one other person if they live in an urban area, and 1.3 other people if they live in a rural area.

This means that for the urban worker and his or her one dependant, the one wage on which the two people live puts them near the poverty line - especially in an environment of rising inflation. The report, which as the battle for presidency approaches its peak, is expected to add impetus on the rise of employment as a key election point this year.

All the three presidential contenders Mwai Kibaki of Party of National Unity (PNU), Raila Odinga of ODM and ODM-Kenya's Kalonzo have promised to deal with employment if elected in the December 27 poll.

While Mr Musyoka has promised to transform Kenya into a 24-hour economy to increase job opportunities for the youth, Mr Odinga plans to direct more funds to build roads, modernize the railway network, set up power generation plants, establish a free port in Mombasa and upgrade airports across the country, all meant to create more employment.

In the PNU manifesto launched on Saturday, President Kibaki promises to build one million stalls, double investment in infrastructure to Sh100 billion as well as increase economic growth to 10 per cent, as part of his efforts to create more job opportunities.

The report, co-authored by three University of Massachusetts - Amherst researchers, Professors Robert Pollin, Mwangi wa Githinji, a Kenyan, and James Heintz - says Kenya's economy has 50 per cent of the labour force in agricultural self-employment, 36 per cent in informal sector, and 14 per cent in the formal sector.

"Rise in the formal employment by only 25 per cent should generate Sh50 billion to finance the extra infrastructural budget," says the report.

This, the report says doubling the investment on infrastructure will not only lower the costs businesses face in hiring more workers but also increase the flexibility of the Kenyan formal labour market.

Budgets for the water and road development in the current financial year total Sh70 billion, meaning if the proposal by UNDP was to be adopted, the Government would have to almost double the vote.

The report further says that the Government should still maintain its current level of borrowing instead of cutting it, arguing that countries with higher domestic debt to GDP levels were performing better.

According to the Monthly Economic Review, the level of domestic debt stood at 410 billion in September.

The three researchers reckon that over the past decade, employment growth in Kenya's formal sector has been substantially weaker than in the informal sector.

This is because businesses in the formal sector will not hire more workers since they are convinced that the costs of doing so will exceed the benefits.

"They, therefore, choose either to maintain their operations at a lower level than they would if the benefits of hiring more workers exceeded the costs; or increase the use of machines in their operations as a substitute for employing workers as their preferred means of expanding their operations," says Prof Pollin

Prof Pollin says as the population in Kenya grows, new labour market entrants are primarily moving from the rural areas into the urban informal sector.

Recent Ministry of Labour statistics indicate that the total labour force - including all people employed and unemployed - totalled 13.5 million.

A University graduation ceremony

Among the 18.8 million in their economically active years, this means a labour force participation rate of 72 per cent. Of the 13.5 million participating in the labour force in some way, 12.1 million are counted as employed and 1.4 million are openly unemployed. Thus, the open unemployment rate is 10.5 per cent.

According to the report, the median monthly wage level in the formal private sector as of 2005-06 was roughly Sh6,160.

The breakdown between the urban and rural regions is an urban average of Sh9,000 per month, and a rural average of Sh4,800 per month.

Government statistics indicate that 46 per cent of Kenyans live below the poverty line - they live in less than one dollar a day.

This means they cannot afford the cost of purchasing a minimal level of consumption goods other than food although the costs of purchasing both food and non-food products varies substantially between the urban and rural regions.

The overall poverty lines are Sh1,562 per month for rural areas and Sh2,913 per month for urban areas.

However, Mwangi wa Githinji cautions that working people whose earnings are below the poverty line do not necessarily live in poverty, as measured by a consumption-based poverty line.

He reckons that such Kenyans with low earnings may be experiencing only a one-time drop-off in their income.

"They may also be living in families where other members bring home sufficient income to maintain the family above a poverty standard, or receiving other types of in-kind income to supplement their earnings from employment," says Prof Mwangi.

But the urban poverty line of Sh2,913 per month is about 25 per cent below the Sh4,000 in median monthly earnings of both paid employees and self-employed own-account workers in the urban informal sector.

Paid employees in the formal sector earn about three times the level of the Sh2,913 urban poverty line.

A ongoing report by the World Bank "Jobs In Kenya' has proposed wage cuts by 42 per cent to increase the number of formal private sector wage earners, 25 per cent.

However, the UNDP report warns that the aftershocks of the wage cut, would be to drive more than 1.7 million Kenyans below the poverty line, while some would experience a decline in level of living.

"By executing the wage cuts, the median monthly wage will have to fall to Sh5,220 for the urban sector, bringing the level of urban private formal employment to 523,550, " says the UNDP report.

For the rural formal private sector, the median monthly wage would have to fall to Sh2,784 but this would eventually increase employment in this sector to 440,296.

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