KCB group CEO and Managing Director Mr, Joshua Oigara KCB group half year pretax profits on 4th August 2016. PHOTO:WILBERFORCE OKWIRI
Kenya Commercial Bank (KCB) had to give its South Sudan subsidiary employees more than 300 per cent pay rise last year to shield them from high cost of living.
The regional lender, which currently has subsidiaries in Kenya, Uganda, Tanzania, Rwanda Burundi and South Sudan, took the decision after hyperinflation struck the world’s youngest nation.
“Because of hyperinflation, we had to increase salaries of our staff by significant amounts of over 300 per cent for them to be able to afford the cost of living,” said Group Chief Finance Officer Lawrence Kiambi.
Hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, leading to rapid erosion of the real value of local currency.
Last year, inflation in South Sudan accelerated to 476 per cent from just 56 per cent in 2015. The impact was that for a basket of goods that was worth say Sh1000, KCB workers in South Sudan got it at Sh4,760 last year.
This was the highest inflation in the region, putting it in the league of countries such as Zimbabwe, Venezuela and Syria. In the same period, inflation was 9.6 per cent in Burundi, 6.6 per cent in Rwanda, 5.7 per cent in Uganda and just five per cent in Tanzania.
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Hyperinflation had put employees’ budgets in a tight spot, having driven up the prices of most goods and services. The pay rise helped to boost their real income and ensure their purchasing power did not fall by a big margin.
The salary increase for South Sudan staff, added to salary increments in other markets such as Kenya, Mr Kiambi told The Standard, led to high staff costs.
“Inflation adjustment had to be done. We have a big union so there is also collective bargaining agreement that you negotiate with the union for a two-year period and, therefore, salary increment happens year-on-year,” he said.
The Group’s 2016 full year statement of comprehensive income shows that staff costs rose by Sh2.41 billion or 15.8 per cent to Sh17.72 billion. In local currency, the subsidiary grew by 300 per cent, but the value of the market adjusted for hyperinflation saw the group book a Sh3.4 billion loss on net monetary position. This slowed the overall profit since such loss is not an allowable expense in taxation laws.
According to figures presented by KCB, the cumulative three year inflation for South Sudan was 1,285.3 per cent as at 31 December 2016, signaling upward trend in the cost of living.
The average annual consumer price index averaged 1,592.32 per cent at the close of the year. South Sudan pound (SSP) has also continued to take a beating since 2013 when it was fixed at 3.06 SSP to one dollar.
From an exchange rate of $1 for 18.5 SSP in 2015, the currency deteriorated further last year with one dollar becoming an equivalent of 83.90 SSP.
That translates to a depreciation of 354 per cent. The devaluation in the currency, KCB CEO Joshua Oigara said, had a hand in the hyperinflation.
For the first time in seven years, the group failed to make double digit per cent growth in year-on-year profit, managing just 0.5 per cent growth to Sh19.72 billion.