Kenya’s Business Conditions Deteriorated for the First Time since November 2017

By Soko Directory Team / May 13, 2019



Investing

Kenya’s business conditions deteriorated for the first time since November 2017 recording a decline to 49.3 in April from 51.0 recorded in March according to Stanbic Bank’s monthly PMI report released during the week.

Readings above 50.0 signal an improvement in business conditions, while readings below 50.0 show a deterioration.

The deterioration was driven by the poor weather conditions following the late onset of the traditional long rains season coupled with intensifying cash flow issues as cited by many firms partly due to arrears owed to the private sector by the Government.

Private sector sales remained broadly unchanged despite a decline in local orders as this was mitigated by a rise in new export orders.

Input prices rose during the month as a consequence of the delayed long rains, which inflated commodity prices. Despite the rise in input costs, output charges recorded a decline as firms looked for new customers to address the slowdown in sales growth.

“Going forward, we expect business activity to remain in contraction in the short term given the delay in the long rains that has seen commodity and food prices rise as evidenced by the rise in April’s inflation to 6.6 percent from 4.4 percent recorded in March, coupled with the rise in fuel prices,” said Cytonn Investments Limited.

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The delayed rains have adversely affected the performance of the country’s key exports with the value of tea exported recording a decline as the reduced production was not accompanied by a proportionate rise in prices as the supply has substantially increased globally.

“With the start of the long rains, however, we expect the conditions to gradually improve in the medium term as the year progresses,” said Cytonn.

Rates in the fixed income market have remained relatively stable as the government rejects expensive bids as they are currently 26.6 percent ahead of its domestic borrowing target for the current financial year, having borrowed 347.4 billion shillings against a pro-rated target of 274.3 billion shillings.

A budget deficit is likely to result from depressed revenue collection, creating uncertainty in the interest rate environment as additional borrowing from the domestic market goes to plug the deficit.

“Despite this, we do not expect upward pressure on interest rates due to increased demand for government securities, driven by improved liquidity in the market owing to the relatively high debt maturities,” they added.



About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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