Businesses & Financial News

Modest private sector growth maintained in February

…as firms hired staff on improved workload

By Steve Umidha

Kenya’s private sector recorded a continued modest growth in February, according to the latest PMI survey data, although the rate of expansion slowed to the weakest for eight months.

The headline index dropped to 50.9 in February, down from 53.2 in January, signaling the weakest rate of improvement in the current eight-month run of expansion following the initial impact of the coronavirus pandemic.

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

Latest PMI reading however, overlaps the World Bank recent predictions which projected in January that Kenya’s economy will expand by 6.9 per cent this year, the fastest growth rate in Africa, and a more ambitious prediction than the government’s estimate of 6.4 per cent economic growth in 2021.

Kenya’s economy was hard hit by the global pandemic for large parts of 2020, affecting incomes and jobs – with the global lender estimating that Kenya’s GDP contracted by 1 per cent in 2020.

For most part of 2020, the economy was exposed through the dampening effects on domestic activity of the containment measures and behavioral responses, and through trade and travel disruption, affecting key foreign currency earners such as tourism and cut flowers.

“During the month, the report notes that firms raised purchasing activity at the slowest rate for six months, leading to a more modest uptick in inventory levels. High competition among vendors drove an improvement in delivery times, although some panelists reported delays on imported goods due to global supply shortages,” noted the report released yesterday.

The latest PMI survey further notes that, employment numbers rose marginally during the month under review, with firms also seeing a softer rise in outstanding work.

While in an effort to maintain current staff levels, some businesses cut workers’ salaries, leading to the fastest drop in average wage costs for seven months.

Job numbers continued to tick up in February, reflecting higher levels of demand and outstanding work, as well as future expansion plans.

“However, the rate of job creation eased for the first time in three months, and was softer than the series average. Roughly 7 per cent of the survey panel saw a rise in employment, whereas 3 per cent noted a decline,” noted the report.

The rebounding economy is likely to provide opportunities for firms to create new jobs this year as more businesses resume operations, according to economic expert Peter Macharia who reckons that it is still early days of the year and is optimistic that availability of vaccine could uplift spirits among business people.

“It is pretty early into the year to expect things will bounce back immediately, a proper prediction on the economic trajectory can only be seen in the second quarter of the year when most companies figure out their 2021 outlook,” said Macharia is a telephone interview.

While such prospects were widely projected due to the sharp drop in the country’s economy over the last year, experts particularly in the banking sector believe that labor market will begin to pick up in the second quarter of the year.

“Second quarter will provide a clear picture but there are already positive signs judging by the increased activities at our bank branches where most inquiries are on loans for business expansion,” said Abdalla Abdulkhalik, the CEO of Gulf African bank.

Kenya announced on March 3, 2021 that it had received just over 1 million doses of a COVID-19 vaccine in the first batch from the global COVAX initiative that was created to ensure that low- and middle-income countries have fair access to vaccines

“Such optimism is now being shared among business individuals we interact with and is a pure sign yet that slowly but surely our economy will rebound from the pandemic,” he noted.

Microeconomic evaluations of public health programmes such as immunization typically only consider direct health benefits and medical cost savings.

Broader economic benefits around childhood development, household behavior, and macro-economic indicators are increasingly important, but the evidence linking immunization to such benefits is unclear as at now.

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