Higher taxes gag Kenya’s private sector

Kenya’s private sector expanded at the lowest pace in ten months to September amid sharp slowdowns in output and new business growth, Stanbic Bank Kenya’s Purchasing Managers’ Index (PMI) survey, released Wednesday.

The Purchasing Managers’ Index fell to 52.7 from 54.6 in August with the latest numbers indicating an improvement in business conditions across the private sector in September.

“The Stanbic PMI averaged 55.6 in the second quarter of 2018 up from 54.4 in the first quarter. Indeed, the improvement in business conditions in the second quarter was consistent with the official GDP growth rate which expanded by 6.3 per cent year-on-year in Q2 up from 5.7 per cent in Q1,” said Jibran Qureishi, an economist with Stanbic Bank.

However, cost pressures and enhanced business uncertainty due to new fiscal year tax measures in the third quarter which is expected to moderate the pace of GDP growth.

As a result, Qureishi said the firm had revised the country’s 2018 GDP growth estimate upwards to 5.8 percent y/y from 5.6 per cent y/y previously owing to a solid performance from the agriculture, ICT and tourism sectors in the first half of the year.

Kenyan private sector firms continued to hire additional staff during the latest survey period. Many linked higher payroll numbers to rising output requirements. That said, the rate of growth was below the series’ long-run average.

Higher government taxation and rising fuel bills underpinned the sharpest increase in average cost burdens recorded for seven months during September, with the survey finding the rate of input price inflation to be sharp overall.

Partly reflecting higher operating costs faced by businesses in the private sector, selling prices were raised at a marked pace that was the fastest since February 2014 during September.