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Private sector deals increase to 6-month high on cash flow boost
An aerial view of downtown Nairobi CBD as pictured on December 5, 2023.Kenya’s private sector slipped into contraction in March as weak demand and rising costs slowed business activity.
Kenya’s private sector activity grew at the fastest pace in six months in November on increased demand for goods and services, findings of a monthly survey showed, helping protect jobs.
Companies posted an accelerated momentum in sales at a rate last witnessed before the eruption of youth-led protests which, alongside the high cost of borrowing, prompted businesses and households to suspend spending decisions.
The Stanbic Kenya Purchasing Managers Index (PMI)—a measure of monthly private sector activity such as output, new orders, and employment—increased to 50.9 last month from 50.4 in September.
The reading above 50 signals improvement in business activity and marks the first time deals have grown for the second month in a row since May.
“New orders grew at the fastest pace in six months, with improvements in consumer spending and increased travel contributing to higher sales,” Christopher Legilisho, chief economist for South African-based Standard Bank, the parent firm of Stanbic Bank, said in the November PMI report.
“However, this was not broad-based, but only in the wholesale and retail and services sectors. Sales declined across agriculture, manufacturing, and construction.”
Businesses and households have been battling a biting lack of money in circulation for months in an economic setting where banks cut lending to the private sector amid high interest rates offered on government securities.
The rise in new orders signals recovery in money circulating in the economy, which is likely to boost sales further this festive season.
Firms have reacted by increasing output levels with corporate purchasing activity rising the fastest since September 2022, the first month President William Ruto’s administration took power.
That helped keep labour market relatively stable, with companies expanding employment for the second month in a row albeit at a slower rate than in October.
The slowdown was a result of most businesses keeping their workforces stable, while some hired more staff because of “higher workloads and greater marketing budgets”, according to the report based on feedback from about 400 panellists.
“Hiring was associated with increased workloads, more generous marketing budgets, and improved orders,” said Mr Legilisho.
Firms, however, reported increased costs of inputs which, coupled with higher demand, prompted firms across all five surveyed sectors—agriculture, manufacturing, construction, wholesale and retail, and services—to raise average selling prices by the strongest rate since February.
“With positive economic momentum, input and output cost pressures increased due to higher taxes and increased outlays by firms to support higher sales volumes.
“Despite the notable improvement in current conditions in November, firms remain gloomy about the outlook,” said Mr Legilisho.
Treasury Cabinet secretary John Mbadi has cited cash flow challenges, partly because of piling pending bills to government suppliers and contractors, as the biggest damper of growth in the economy.
This has been compounded by the elevated cost of borrowing which has made access to capital, especially for small businesses difficult.
“Why Kenyans feel they don’t have money in their pockets is what we must deal with. And I have talked about pending bills which is hurting and choking this economy and we are dealing with that,” Mr Mbadi said a fortnight ago. “But the second, which is now starting to look good, is interest rates. We have started to see a fall in interest rates.”
