Kenya’s private sector activity drops to a 9-month low

By Steve Umidha

Kenya’s private sector activity fell to a nine-month low in January this year on lower client spending and a surge in Covid-19 cases from the Omicron variant, latest sector study has shown.

The survey by the Stanbic Purchasing Managers Index (PMI) – produced by IHS Markit and Stanbic Kenya Bank shows business activities in the sector fell to 47.6 in the month under review from 53.7 registered a month earlier – the lowest drop since April when such readings stood at 41.5.

April 2021 reading was largely due to renewed Covid-19 restrictions in several counties, which had a negative impact on movement and demand, leading to a sharp drop in output, while new orders also decreased notably.

Readings above 50 signal an improvement in business conditions on the previous month, while those below 50 show a deterioration. This means the sector suffered a tough period despite registering the strongest upturn for 14 months in December last year.

The January reading – an ordinarily slow month for business, also saw Kenyan firms hold back hiring activities with employment growth slowing, while business confidence improved only slightly from December’s record low.

“While employment numbers rose for the ninth consecutive month in January, helping firms to lower their backlogs of work again. However, the drop in sales meant that the pace of job creation slowed to the weakest since last July,” noted the report released yesterday.

Kenyan firms, according to the survey drafters, indicated that the slowdown in demand led them to lower staff salaries in the first month of the year while overall payroll costs also fell for the first time in nine months, although the pace of decline, according to those polled in the survey was only marginal.

The period under review is also the third month in a row that outstanding business levels in the country had decreased even though a host of firms are expected to add to their workforce numbers in the months ahead as a culmination to the job creation binge that began last May.

Respondents that hired new staff often commented on an increase in new business.

“As a result of the lower demand, firms were forced to reduce their output and purchases of raw materials for the first time since April 2021.

Hiring continued but at the slowest pace in 6 months. Additionally, inflationary pressures resurfaced with input prices rising on account of higher tax burdens and raw material prices,” Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.

Government easing of lockdown restrictions during the third quarter of 2021 contributed to a pent-up demand as clients largely returned to markets.

Kenyan companies rose sharply midway through the final quarter of the year, with the rate of growth accelerating for a second straight month to the quickest since May, with firms reporting higher sales on an increase in customer numbers that was often linked to the removal of curfew hours.

As a result, businesses saw a further strengthening of output and new business growth at the end of the year, according to the December 2021 PMI data, which also noted an overall rise in the sector’s cost of doing business Kenyan firms during the period.

Blistering inflation and looming general elections are also feared could hamper business environments in the months ahead however, owing to indecision and uncertainty among investors – but months leading up to the August polls will be ‘busy’ for private business owners, according to Macharia Kamau, an economist.