Wave of layoffs: Tough times as multinationals cut jobs

 Tough times ahead as multinationals are cutting jobs in Kenya to cut costs and stay afloat.

The world’s biggest companies are implementing major restructuring plans by laying off thousands of workers, signaling uncertainty in the global operating environment and sending shockwaves to emerging and frontier economies like Kenya that depend heavily on Europe and US for exports, tourism, foreign direct investments (FDIs) and remittance inflows.

The multinationals, largely American and British companies, are trimming their workforce both at home and in their global subsidiaries to cut costs as they struggle for survival in the wake of falling revenues and weakening sales.

Economists say the increasing layoffs by multinationals, some with subsidiaries in Kenya, should be a cause for worry in emerging and frontier economies as retrenchment means loss of income and savings for households and individuals translating to falling demand for goods and services largely imported from countries such as Kenya.

The depletion of household savings puts foreigners in a difficult position to purchase imported goods and services, visit destinations and investment in emerging markets.

“The indirect message they are passing is that the global economy is not doing that well in their sectors, meaning demand is weak currently and in their projections to sustain the level of workforce,” says Reginald Kadzutu, finance and economic analyst and Chief Executive of the asset management firm Amana Capital Ltd. “Now if we provide anything in those sectors it will suffer from reduced demand. Increased global unemployment reduces global demand for emerging market exports and the side effects that does to balance of trade.”

Churchill Ogutu, an economist at IC Asset managers, says the move could lead to scaling down of operations of subsidiaries in emerging and frontier markets and leading to loss of incomes for households in these countries.

“Obviously, as corporates face it rough, the first line of defence relating to cost-cutting is usually staff costs, before they trim or unwind up their investments and operations, in the more extreme cases. And more so for multinational companies operating in emerging markets, the path of least resistance tends to be scale down operations in subsidiaries operating in emerging market,” says Ogutu.

“Over and above the psychological effects of staff layoffs, the emerging markets are bereft of the hitherto synergies of having corporate ties with multinational corporations in developed markets.”

Britain, the largest European foreign investor in Kenya, slipped into a recession after its GDP fell 0.3 per cent in the final three months of 2023, following a 0.1 percent contraction in the July-to-September period. However, the country moved out of the recession this year (2024) after the economy grew by 0.6 per cent in the first three months of the year (2024).

UK is amongst Kenya’s top ten bilateral development partners, providing $90.89 million of bilateral Official Development Assistance (ODA) in 2021 and $617.32 million worth of foreign direct investments (FDIs) in 2023 according to a policy paper on UK-Kenya Development Partner by the UK Foreign, Commonwealth and Development Office.

Kenya’s exports to UK increased by 15.1 per cent to $973.33 million in 2023 from $845.82 million in 2022, according to Kenya-UK Trade and Investment Fact Sheet (2023).

These exports comprise crude animal and vegetable materials, Vegetables and fruit, Coffee, tea, cocoa, and Mechanical power generators.

On the other hand, Kenya exports apparel, coffee, and tea to the US and Washington remains the largest source of remittances into Nairobi, accounting for 54 per cent in January 2024.

Economists say if global demand for goods and services is declining as a result of falling consumer incomes and struggling businesses then inflationary pressures is likely to reduce allowing central banks to easing interest rates.

“The global wave of company layoffs will compel global central banks such as the US Fed, Bank of England, ECB to start cutting interest rates earlier than had been expected and lower interest rates will see investors moving away from dollar assets and into high yielding emerging markets such as in Kenya. This will lead to a strengthening of the local unit (KSh) due to excess dollar flows,” says Ken Gichinga, Chief Economist at Mentoria Economics.

“However, there will be a drop in consumption of luxury high-end goods and services which are an anchor to the economy. This could have a ripple effect, driving up unemployment. “

“If it plays out like that we might see a weakening of hard currencies. But will they weaken enough to trigger a flight to safety? If that is the case the dollar will strengthen as well as gold. If it doesn’t then there will be an increased search for yields therefore some increase in portfolio flows which might balance out the reduced export revenue,” says Mr Kadzutu.

“The hardest hit with the above would be commodity based economies.”

Several global multinational companies are restructuring their businesses targeting reduction in workforce as a viable cost cutting measure.

British telecommunication giant Vodafone is set to cut its global workforce by 11,000 in the next three years as the telco moves to restructure its operations in the wake of declining revenues.

The growing wave of company layoffs in developed markets is sending jitters in emerging economies owing to fears of economic uncertainty.

The telco, which is listed on the London Stock Exchange (LSE), disclosed through its latest annual report (2023) that 11,000 roles will be abolished in the organisation during the period as part of a strategic plan to reduce operational costs and return the company to a stable financial footing.

“As a Board, we recognise that the Company has also underperformed, and that change is needed. This will require a transformation of the Group, so that Vodafone can realise its full potential,” the company says.

“Our performance has not been good enough. To consistently deliver, Vodafone must change. My priorities are customers, simplicity and growth. We will simplify our organisation, cutting out complexity to regain our competitiveness. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business.”

Vodafone transferred 35 per cent of its stake in Safaricom to South Africa-based Vodacom in 2017, as the telco moved to consolidate its African assets under its subsidiary, Vodacom, to reduce costs and to provide the parent company with a streamlined, single-entry point into sub-Saharan Africa.

The company owns 65.1 per cent stake in Vodacom and five percent indirect interest in Safaricom through a wholly-owned subsidiary, Vodafone Kenya Ltd (VKL).

Vodafone joins a growing list of global multinationals, some with presence in Kenya, that have resorted to corporate restructuring through layoffs to remain afloat highlighting the macroeconomic headwinds facing global economies.

Others include Citigroup, the third largest US lender by assets which announced in January 2024 of a plan to reduce its workforce by 20,000 jobs over the next two years, signaling a 10 percent contraction of its global workforce over declining revenues.

The restructuring seeks to streamline operations, eliminate redundancies, and refocus on core business areas, with an estimated cost savings of up to $2.5 billion from the business reorganisation.

Early this month (May) Reuters, citing sources, also reported that Barclays Plc which exited Africa in December 2017 by reducing its shareholding in South Africa’s Barclays Africa Group (BAG) from 62.3 per cent to a non-controlling stake of 14.9 per cent has commenced a fresh round of redundancies, cutting “a few hundred roles” at its investment bank aimed at reducing costs by around $2.5 billion.

The staff impacted are based in the lender’s global markets, investment banking and research division.

Standard Chartered Bank Plc announced last year of plans to lay off some employees in in its main hubs in Hong Kong, London, and Singapore as part of its widespread cost-saving measures and in March 2024 Unilever Plc said it will cut 7,500 jobs globally and spin off its ice-cream division over the next three years.

In April (2024) American multinational McKinsey announced it is preparing to cut around 360 jobs across its design, data engineering, cloud and software divisions, joining other consultancy firms such as PricewaterhouseCoopers(PwC), Deloitte, KPMG and Ernst & Young, which have previously announced restructuring plans amid slowing demand for mergers and acquisition (M&A) advisory and consultancy services globally.

The slowing demand for consultancy services reportedly pushed McKinsey to cut 1,400 jobs in back-office and support functions last year (2023). Novartis, the Swiss pharmaceutical giant, has announced plans to cut up to 680 jobs.