540 employers exit NSSF as harsh economy forces business closures

The number of companies contributing to the National Social Security Fund (NSSF) fell for the first time since the Covid-19 crisis, with 540 firms exiting the scheme amid a weakened economy that forced many businesses to close or scale down operations.

According to the NSSF’s latest annual report, the number of active employers stood at 78,009 by the end of June 2024, down from 78,549 the previous year.

This marks the first decline since 2020, when 1,131 firms exited during the height of the pandemic. The report ties the recent fall to economic pressures including floods, high lending rates, and political unrest that disrupted operations across the country.

"During the same period, active employers reduced by 540 to settle at 78,009 from 78,549. This is a negative development and management has put measures to ensure the trend is reversed in the next financial year," stated the NSSF.

Data from the Business Registration Service backs the trend, showing that 1,817 companies applied to be struck off the register.

A further 9 applied for voluntary liquidation, while 20 were taken to court for winding up.

Others went under different forms of financial distress: 14 were placed under administration, 6 entered administrative receivership, and 15 filed for bankruptcy.

In contrast, NSSF saw a strong growth in individual contributors.

Active membership rose by 369,934, reaching a total of 3.3 million contributors, mainly due to the onboarding of public servants who had previously not been registered with the fund.

"Fund active members increased by 369,934 in the 2023/2024 financial year, which is a 12 percent increase in active membership. The increase is mainly attributed to registration of public servants who were previously not members of the Fund," NSSF noted.

The broader economic picture is equally troubling. Kenya’s gross domestic product grew at just 4.7% last year, a drop from 5.7% the year before and the slowest rate since 2020.

The decline has been attributed to a mix of factors, including a tight fiscal space, expensive credit, three months of youth-led protests over the Finance Bill, and infrastructure damage caused by floods.

Business formation also slowed. New business registrations declined by 7.6% in 2024, reversing the previous year’s growth of 2.9%, according to BRS statistics.

The Treasury says the situation is expected to improve in the coming months, thanks to a drop in interest rates.

The Central Bank has cut the base rate by 300 basis points to 10%, which is expected to lower lending rates and boost economic activity.

Agriculture, which plays a major role in the economy, slowed from 7.1% growth to 4.4% in 2023, showing the wide impact of the economic slowdown.