Stanbic’s August PMI Closes At 52.9 Percent from 54.1 Percent

Business conditions in Kenya continued to improve in the month of August, though at a slower pace compared to July according to Stanbic’s latest PMI.

The PMI index for the month came it at 52.9, compared to 54.1 recorded in July, making it the fourth monthly improvement in a row.

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

Businesses saw new orders rise at a steep pace mainly supported by increasing client numbers and larger purchases that drove up demand.

It is key to note that there was a sharp slowdown in output growth. The slower pace is attributable to continuing cash-flow issues in businesses in the country owing to slow government payments, which make it hard for companies to keep up with new orders resulting in increased backlogs for the fourth month running.

Employment saw modest growth with some businesses increasing their labor because of the increased demand, while others reduced staff in an effort to limit staff cost pressures. Based on the pace of new order growth, selling charges rose at a softer pace, although, it was the second-highest increase in prices in the year to date.

Staff costs increased at the slowest rate in 7-months while cost pressures rose driven by higher taxes on some commodities and a stronger US Dollar against the Kenya Shilling.

“Going forward, we are positive that the improving trend in business conditions will continue, supported by the current stable macro-economic conditions,” said Cytonn Investments.

Moody’s Credit Rate

During the week, Moody’s, the credit rating agency, gave East African Development Bank a Baa3 long-term issuer rating and a ‘stable’ outlook.

Despite having this rating, the regional bank has high fluctuating Non-Performing Loans (NPLs), resulting from the weak asset quality and deterioration in asset performance in recent years, and a developing risk management framework, which weigh down on its rating.

The main shareholders of the institution include; Kenya, Uganda, Tanzania, and Rwanda. In terms of credit rating, they scored; B2, B2, B1, and B2, respectively.

Fixed Income Rates

Rates in the fixed income market have remained relatively stable as the government rejects expensive bids.

A budget deficit is likely to result from depressed revenue collection with the revenue target for FY’2019/2020 at 2.1 trillion shillings creating uncertainty in the interest rate environment as additional borrowing from the domestic market goes to plug the deficit.

“Our view is that investors should be biased towards medium-term fixed income instruments to reduce duration risk associated with long-term debt, coupled with the relatively flat yield curve on the long-end due to saturation of long-term bonds.”

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