Kenya’s private-sector PMI slows in June to 47.3pc from 49.9pc

Kenya’s private-sector business activity slowed in June, hurt by a decline in credit growth  according to the Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) Survey.

Business activity dropped to 47.3 percent in June from 49.9 percent in May.

“The private sector continues to slow down due to the political uncertainty ahead, while reduced access to credit has also led to subdued domestic demand,” Jibran Qureishi, regional economist for East Africa at Stanbic Bank, said in a statement.

“Looking ahead, political uncertainty is likely to take centre stage.”

Private sector credit growth for the month of March 2017 grew at 3.30 percent y/y; down from 3.80 percent  and 15.60 percent recorded in February 2017 and March 2016, respectively.

According to Genghis Capital Analysts, the slowdown in private sector credit growth in the subject month can be attributed to:

One, Banks have resorted to safe harbor in fixed income securities and also seen in the excess reserves above the statutory 5.25 percent level held at the apex bank averaging KES 7.22Bn in March.

Two, the interbank rate averaged 4.53 percent in March, a number of banks facing liquidity deficits gained access to the interbank funds at the 14.00 percent upper borrowing ceiling.

Three, there was a significant decrease in the growth of interest-bearing deposits at 9.00percent y/y. The slowdown in private sector had an outlet in the leading indicator CFC Stanbic Bank Kenya PMI March print which at 48.50, was weighed down by subdued demand and pointed to a contraction.

“With the steady decline in the private sector credit growth, we reiterate our 2017 GDP growth estimate of between 4.75 percent – 5.25 percent,” notes the Analysts.

However, Cytonn Investments’ Managing Partner and CEO Edwin Dande in an interview with Forbes, he says, “We expect the general elections to have a neutral effect on Foreign Direct Investments as we have already seen a number of international brands that have announced planned entry into the Kenyan market this year with examples of Volkswagen, Wrigley’s, and Johnson and Johnson, which are evidence of investor confidence in the government to fulfil their election commitment.”

“The upcoming elections will have a general neutral effect on the investment environment even as we expect the government to fulfil its commitment to a politically stable business environment during and after elections, as the main factor that will influence both local and foreign investor sentiments,” he adds.

Kenya’s economic growth slowed to 4.7 percent in the first quarter, down from 5.9 percent in the same period of 2016 according to the Kenya National Bureau of Statistics (KNBS).