KENYAN employers are
grappling with mounting pressure from rising operational costs, unpredictable
policy shifts and a weakening business environment.
This is forcing many
firms to freeze hiring or restructure operations.
According to the
Federation of Kenya Employers (FKE), the combined impact of high taxes, rising
energy bills, wage pressures and regulatory compliance requirements is
squeezing businesses and threatening their competitiveness.
FKE Executive
Director and chief executive Jacqueline Mugo says employers are concerned by
the growing tax burden and increased statutory deductions, which are driving up
labour costs while reducing employees’ take-home pay.
The Star spoke to Mugo
on the pressures facing Kenyan employers, the sectors most affected by job
freezes and the reforms she believes government must prioritise to restore
business confidence and spur job creation.
Kenyan employers say the cost of
doing business is rising sharply. Which costs worry employers most today—wages,
energy, taxes or compliance?
Employers
are feeling pressure across all these areas. Wages, energy costs, taxation and
compliance requirements cumulatively have a significant net effect on the cost
of doing business. The combined burden is what is most concerning, as it
directly affects competitiveness and sustainability.
In FKE Annual survey 2025
conducted in quarter four, 53.2 per cent of employers request government
to urgently focus on tax reduction and fiscal reforms. The
most overwhelming appeal is reduce taxes, harmonise rates, simplify tax processes
and introduce reliefs. About 12.8 per cent call on improving access to
finance, that is more affordable loans, credit
facilities and reduced interest rates.
We also have 9.6 per cent of employers
asking for improved infrastructure development which is better
transport systems, electricity supply water and digital infrastructure.
About 8.5
per cent want simplification of regulatory and compliance processes that is less
bureaucracy, digitised processes and accelerated VAT refunds. Lastly, about 6.4
per cent want the government to ensure political stability and
good governance which includes anti‑corruption measures.
Are recent wage pressures driven
more by inflation, government policy or labour shortages?
Recent
wage pressures are largely driven by government policy. Increased statutory
deductions reduce employees’ take-home pay while raising employers’ costs,
particularly where employers are required to match contributions.
How are SMEs coping differently
from large corporations under the current economic climate?
SMEs are
under greater strain and we are seeing a surge in informality as businesses
struggle to survive. This shift is not healthy for the country as it reduces compliance,
weakens worker protections and shrinks the formal tax base.
Are employers cutting jobs,
freezing hiring or restructuring, and in which sectors is this most visible?
Employers are increasingly restructuring and freezing hiring. Our internal
survey, FKE Annual Survey 2025 conducted between December 4 and 15, 2025, shows
overall employment dropped by 12 per cent with the slowdown most visible in
manufacturing, wholesale and retail trade, accommodation and food services,
transport and financial services.
What does FKE’s data show about job
creation versus job losses over the past year?
FKE 2025
Annual Survey (conducted November-December 2025) data shows mixed signals but a
cautious outlook overall. 213 firms expect to increase staff, 182 firms expect
to reduce staff and 257 firms expect no change. This indicates a cautious
employment environment, with many employers opting to maintain current staffing
levels rather than expand.
So are young Kenyans entering a job
market that is shrinking or transforming?
It is both shrinking and transforming. Parts of the financial and private
sector are contracting while technological advancements are reshaping the
nature of jobs. Young people must therefore be equipped with skills relevant to
a rapidly changing labour market.
Which government policies are
employers struggling with the most right now?
Taxation
policies and increased statutory deductions are currently the most challenging
for employers.
Has consultation between government
and employers improved or deteriorated in recent years?
Engagement
is happening but there is room for improvement in how we engage. Structured,
meaningful consultation is essential to ensure policies are practical and
sustainable.
Do you believe tax policy is
aligned with Kenya’s goal of attracting investment?
To attract investment, a country must reduce the tax burden and create a
predictable environment. At the moment, the opposite trend is being observed,
which may undermine competitiveness.
What would you say about Kenya’s
labour laws. Are they still fit for today’s economy especially in a gig- and
technology-driven world?
Labour laws need to be regularly revised to respond to emerging trends,
particularly the growth of the gig economy and technology-driven work models.
What is the biggest source of
conflict between employers and trade unions today?
The main areas of conflict remain wages and terms and conditions of employment.
How can Kenya strike a better
balance between worker protection and business sustainability?
Through strengthened meaningful and respectful social dialogue based on
cooperation rather than adversarial approaches. Sustainable solutions require
collaboration between government, employers and workers.
What reforms would FKE like to see
in TVETs and Universities?
We would
like to see stronger alignment of training programs with industry needs,
greater involvement of industry in curriculum development and work based
learning experiences to ensure graduates are job-ready.
What three policy actions would you
prioritise if you were advising the President today?
First,
reduce the tax burden. Second, intensify efforts to contain corruption and third,
enhance efficiency in government operations and service delivery.
What gives employers confidence and
what keeps them awake at night?
A stable and predictable policy and regulatory environment gives employers
confidence. What keeps them awake at night is the challenge of remaining afloat
amid unpredictable policy, regulartory
shifts and rising operational costs.
As FKE CEO, what has been your
toughest decision so far?
One of the toughest responsibilities has been navigating difficult policy
environments while safeguarding the interests of employers and preserving
constructive engagement with government and social partners. Tough decisions
are made.
What misconception do Kenyans have
about employers that you would like to correct?
That
employers deliberately create bottlenecks or make life harder for employees. In
reality, many payroll deductions and increased costs stem from government
policy and legal requirements which employers have to comply with. They are not
employer driven. Employers are equally affected by these changing policy and
rising statutory obligations.