Kenyan business conditions fall to their worst since 2017 election

Kenya’s private sector activity fell to its lowest level since the last general elections held in October 2017 as domestic businesses conditions deteriorated from the Covid-19 crisis, new data shows

According to the private sector study derived from the Stanbic Bank IHS Markit Purchasing Managers Index (PMI) survey, the contraction seen was the largest one month drop in the survey’s history.

The headline PMI fell sharply to 37.5 points from 49 in February as businesses marked steep customer turnout declines.

“The sharp drop in the PMI doesn’t really come as a surprise. The negative impact from Covid-19 is quite broad based and is likely to affect various sectors across the economy.

“However, the tourism and floriculture sector have been hit the hardest so far, admittedly due to global cross border travel restrictions and waning luxury spending in markets such as Europe,” noted Stanbic Bank Regional Economist Jibran Qureishi.

Many of the surveyed businesses noted that worries surrounding the virus meant that customers cancelled or reduced new orders to see sales fall sharply with the rate of decline being the second fastest on record

Businesses further registered reduced orders from foreign clients with Kenyan business taking a specific hit from a drop in new orders from Europe.

According to the report, the sourcing of raw materials tightened up for the third month in a row resulting in higher input costs as the producer inflation rate picked up at the quickest rate since May 2019.

“Firms highlighted that many raw materials were in short supply in March due to the virus pandemic with respondents receiving inputs from China most affected. These shortages placed greater pressure on purchase prices which rose at the quickest pace since June,” noted the survey.

The survey further says that new export orders hit a record low, ending a 27 month sequence of expansion even as firms marked the first reduction in backlogs in nearly one year.

Employment in the private sector dropped for the first time since April 2019 as businesses reported lowering head count due to weaker sales with some noting a temporary shutdown to operations.

Optimism for future growth has however remained strong even as firm freeze expansion plans until the end of the Covid-19 pandemic.

“Overall business expectations for the coming year remained strong in March, as has been the case since the start of 2020.

“Firms expecting activity to rise often sighted plans to widen product ranges and introduce new services and open new branches. However, many firms noted the expansion plans were being kept on hold,” added the survey.