Private Sector Growth Yet to Pick Up as Businesses Record Marginal Progress

A recently released Purchasing Manager’s Index survey has shown that weaker expansions in output, new orders, employment, and purchasing have slowed the growth momentum for Kenya’s private sector at the start of the third quarter of the year.

According to the survey, the cost inflationary pressures significantly increased to a 16-month high as tax changes resulted in a sharp uptick in purchase prices.

For a second month straight, the headline index, as a result, fell from 51 in June to 50.6 in July indicating only a negligible improvement in operating conditions across the Kenyan private sector.

Indexes above 50.0 indicate an improvement in business conditions on the previous month while readings below that signal deterioration.

The survey also showed that despite being the biggest components of the PMI; the output, new orders, and employment indices, all fell to three-month lows, but remained above the 50.0 no-change marks to indicate further expansions.

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For July, the report reveals that businesses in the country realized an increased output as market conditions gradually eased due to the suspension of COVID-19 restrictions implemented in April, for the third month running.

“However, the expansion was only marginal and slower than that seen in June. While 27 percent of panelists saw a rise in output, around 26 percent reported a decrease,” the report stated.

Similarly, the seasonally adjusted new orders index pointed to a third successive rise in sales at Kenyan firms during July.

Barring the sharp decline in April, the latest upturn was the weakest seen since new orders began to recover from the first wave of the pandemic.

Demand levels in the private sector also saw a rise encouraging businesses to increase their staffing levels in July.

Different businesses reported taking on more temporary staff to complete new orders. Although it represented the weakest for three months, the rate of job creation in the month was marginal.

At the sector level, job numbers rose across manufacturing, construction, agriculture, and wholesale and retail, but fell in services.

“Businesses that saw an increase in new order volumes often pointed to an improvement in cash flow and increased marketing activity. On the other hand, some firms reported losing customers due to the ongoing effect of the pandemic,” the survey said.

“Barring the sharp downturn in April, the rate of growth was the joint-weakest since conditions began to improve after the first wave of the pandemic,” the report notes.

Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank noted that the domestic demand improved by the second slowest pace since the lifting of public health restrictions after the first wave of the pandemic, with some firms reporting a drop in customer numbers.

Mr. Kamau added that firms in agriculture, construction, and services witnessed an increase in demand and output while those in manufacturing and trade saw declines.

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“To meet this marginal increase in demand, firms also increased their output slightly as evidenced by slight increases in staffing levels and the number of purchases. Both input and output price inflation accelerated due to an increase in import taxes, fuel costs, and shortages in some raw materials. The 12-month outlook by firms rose to its highest level in 5 months but remains below its long-term average,” concluded Kamau.