Private sector confidence drops amid a tough environment

A sales representative helps a parent fit her child with a shoe ahead of school reopening. [George Njunge, Standard]

Many Kenyan firms are less optimistic about growth prospects this year, weighed down by the high cost of doing business as well as weak demand from consumers who are grappling with reduced earnings and the high cost of living.

A new survey shows that just 11 out of every 100 companies polled predicted growth in 2024, an indication that the difficulties experienced last year might persist throughout this year. 

The latest Stanbic Bank’s Purchasing Managers’ Index (PMI) shows that only 11 of the companies that participated in the survey in December projected an improvement in business activity over the next 12 months. It is among the lowest confidence levels in about a decade. 

“Kenyan businesses were less optimistic about future activity in December, with the degree of confidence slipping to a seven-month low. Expectations were also among the lowest seen on record, with just 11 per cent of panellists predicting growth over 2024,” says the report.

 “Kenyan private sector firms showed only a mild degree of optimism in the year-ahead outlook in December. The Future Output Index even slid to its weakest since May and was amongst the lowest readings since data collection began in 2014. All five monitored sectors were subdued in their output forecasts, especially the construction industry.”

The survey also shows a modest decline in operating conditions for the private sector in Kenya. This, the report notes, is due to a considerable drop in inflationary pressures as well as recovery spending among clients. 

The headline PMI, the survey shows, moved three points higher in December, up to 48.8 from 45.8 in November, “to signal a modest and softer decline in operating conditions across Kenya.”

Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.

“The PMI improved in December, despite still difficult business conditions for the private sector. Service sector companies reported an uplift in activity while declines persisted particularly in manufacturing and construction sectors, as firms continued to signal cost-of-living pressures and weak demand conditions,” said Christopher Legilisho, Economist at Standard Bank.

“That said, inflationary pressures are noted to have eased, amid better cash flow prospects for clients. The rate of job declines also softened compared to previous months with the agricultural sector seeing an increase in hiring.”

“Furthermore, Kenyan businesses reported elevated inventories, with a slowdown in price increases in December. Firms indicated that input costs and purchase cost pressures were primarily due to higher taxes among other factors. There was notable reprieve from fuel and transport costs that moderated during the month. Still, business expectations for the year ahead remain quite weak based on the survey results from respondents.”

The PMI report also noted that firms continued to shed jobs albeit at a slower rate, with the exception being agriculture where players were hiring in December.

“The drop in employment levels was also tempered at the end of the year, with the latest data indicating the softest fall since September. Agriculture was the only sector to see a rise in staffing,” said the PMI survey.

“Employment numbers in the Kenyan private sector dropped for the fourth consecutive month in December, as firms signalled that weaker new order inflows resulted in lower workloads. However, after recording the sharpest fall since June 2020 in November,the pace at which job numbers fell was softer and only slight overall.” Layoffs by Kenyan firms have in the last year been on the rise and reached the highest in about 10 years in November as companies tried to contain the cost of operations in the face of reduced demand for products.