Manufacturing firms are proposing a government stimulus programme to revive their fortunes in the wake of the majority of them witnessing a drop in sales in an environment of weak demands for goods and elevated cost of borrowing.
A Central Bank of Kenya (CBK) survey of CEOs of companies shows 69.2 percent of manufacturing firms reported a fall in sales in the three months ended June 2024 compared with the previous three-month period ended March, forcing 61.5 percent of them to cut production and freeze hiring.
“A higher number of respondents in the manufacturing sector reported subdued business activity, as shown by lower levels of demand orders, production volumes and sales growth.
“This is largely on account of high cost of doing business, subdued consumer demand and increased competition from imports,” said the CBK.
“The government should consider extending support to some sectors through stimulus programmes. For example, players in the tourism and hotel industry can benefit from programmes channelled through the Kenya Tourism Board; support to manufacturers can be through policies that reduce their cost of production such as lowering input costs, to allow for competitiveness.”
This is the fifth straight quarter for more than half of CEOs of manufacturing firms to report a quarter-on-quarter cut in production as a reaction to persistently low demand for goods. This is translating into idle capacity and reduced sales revenue.
The CBK survey findings, when compared to that released last April, show more firms have been hit with falls in production, demand and sales coming on the back of widespread anti-government street protests that have disrupted business activities.
In April, 53.8 percent and 46.2 percent of CEOs told the CBK they had seen declines in production and sales respectively during the first quarter of the year.
The CEOs are now asking the government to intervene through a stimulus programme in the form of reduced taxes to give them room to lower prices and boost demand.
The quarter ended June saw 53.8 percent of CEOs record reduced demand while 30.8 percent said it was unchanged.
Firms in other sectors such as tourism and hotels have also been posting weakened demand.
The performance in the second quarter of the year means manufacturing could be on course to another slow growth.
Official data shows the sector grew by 1.3 percent in the quarter ended March 2024, marking the slowest pace since the same quarter in 2008 when it grew by 0.7 percent in the face of a deadly wave of post-election violence.
The sector has struggled to pay off its loans, having topped the charts last year with a Sh45.7 billion or 52.2 percent rise in defaults to Sh13.2 billion.
In the first three months of the year, the sector’s stock of defaulted loans dropped by Sh8.5 billion, partly driven by banks writing off some of the loans.
The CBK noted that the manufacturing sector activity is expected to remain subdued in the next 12 months, largely on account of elevated high cost of doing business and muted consumer demand.
Without State intervention, manufacturers have little room to cut prices and boost demand given that just 30.8 percent of the CEOs said they saw a decline in output prices while 38.5 percent saw a rise.
The flat or reduced sales witnessed by the majority of firms has hurt job prospects, with 15.4 percent of CEOs of manufacturing firms telling the CBK they had to trim the number of employees while the majority (75.3 percent) kept their numbers unchanged. Just 9.3 percent hired more workers.
The survey usually targets CEOs of key private sector organisations, including members of the Kenya Association of Manufacturers, the Kenya National Chamber of Commerce and Industry and the Kenya Private Sector Alliance.
The CBK survey findings are in line with those of Stanbic Bank Kenya Purchasing Managers' Index (PMI) that showed Kenya’s private sector activity dropped in July, undermined by the street protests, which disrupted the pace of business activity.
The PMI fell to 43.1 from 47.2 in June, marking the sharpest decline in over three years. Readings below 50.0 signal a contraction in activity.
“Political instability led to a reluctance among customers to commit to new orders, while the protests themselves in some cases blocked access to businesses and prevented them from opening,” noted the survey.
