Kenya private sector activity contracts for third month in November -PMI

By Steve UMIDHA

Kenya’s private sector activity declined for a third straight month in November, a survey showed on Tuesday, as businesses struggled with soaring costs instigated by high fuel prices.

The Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 45.8 last month, from 46.2 in October. Readings above 50.0 signal growth in business activity, while those below point to a contraction.

The performance of Kenya’s private sector started to decline in September, and the latest monthly reading is one of the weakest since the series began almost a decade ago, the survey said.

Firms across the private sector noted that rapid inflation had again suppressed demand and created cash flow challenges, leading to further cuts in activity, staffing and purchasing.

Indeed, inflationary pressures on firms stayed near record levels during November, following October’s historic uplift, as companies widely reported currency depreciation, higher taxes and increased fuel charges.

Kenya’s annual inflation rate (KECPI=ECI) rose slightly in October, with price rises for fuel, transport and food important contributors, data from the statistics agency showed on Tuesday.

Inflation woes

Inflation reached 6.9% year-on-year in October, up from 6.8% a month earlier.

On a month-on-month basis inflation was 1.0%, the same as in September, the Kenya National Bureau of Statistics said in a statement.

That figure eased slightly to 6.8% year-on-year in November from 6.9%.

In mid-October the country’s Energy and Petroleum Regulatory Authority announced a rise in prices of petrol, diesel and kerosene – but sustained petrol prices in its previous review.

The rise in input costs translated into another marked uplift in firms’ output charges, which was also slightly softer than October’s survey record.

Rapid inflationary pressures on businesses and customers alike resulted in sustained contractions in activity and new business, according to the survey.

In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

Some of the negative effects include a decrease in the value of money, reduced investment and economic growth, and increased uncertainty. Some of the positive effects include an increase in demand for goods and services, increased employment opportunities, and an increase in economic output.

Weakening shilling

The weakening of the Kenyan currency on the other hand has been attributed to high public debt, depleted government revenues, and the strengthening of the US dollar in the global market, mainly as a result of several crises, including Ukrainian and Middle East conflicts.

“The shilling depreciation reflects the impact of the global funding squeeze that is manifesting as a slowdown in foreign capital inflows,” said Yvonne Mhango, Africa Economist at Bloomberg Economics. “We could see the shilling at 155 at year-end” from a near-record-low 150.1 per dollar, she said in October.

The Kenyan currency’s weakening streak was predicted to extend to the end of year, pushing the shilling to about 150 against the dollar, according to EFG Hermes Research.

That valued hit a low KES153.35 as at 1500HOURS Tuesday against the US dollar.

Indeed, the latest survey data indicated a sharp fall in new order volumes, one that was similar to October’s and among the worst on record. Reports from survey members showed that customer spending had fallen due to increased prices and cash flow challenges.

“On the pricing front, Kenyan businesses reported increasing inventories, and therefore raised selling prices in November.

Rising input prices and purchase price pressures are being attributed to further increases in fuel prices, electricity costs and taxes among other factors,” noted Christopher Legilisho, Economist at Standard Bank.

Business Expectations

The level of confidence in the Kenyan economy remained modest in November, with just 17% of businesses giving a positive prediction for output in a year’s time.

The degree of sentiment was down to a four-month low and below the average seen in 2023 to date. Where growth was forecast, firms cited plans to expand their product ranges, offer more services and open new branches in an effort to boost sales.