Companies stuck as cash flow dips

According to the latest Stanbic Bank’s Purchasing Managers’ Index (PMI), companies could not fulfill them owing to low cash in circulation. [Courtesy]

Cash flow challenges being experienced by the private sector have led to a slowdown in business activities. This has eroded gains, with companies getting more orders for products and services but unable to keep up with the demand.

According to the latest Stanbic Bank’s Purchasing Managers’ Index (PMI), while there was an increase in new orders in October, companies could not fulfill them owing to low cash in circulation, with the headline PMI easing to 53.2 from 54.1 in September.

The PMI is a survey that measures the health of the private sector. Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.  

It is the first time in months that the private sector activity has slowed following a growth for five straight months.

“Kenyan private sector companies saw a solid improvement in business conditions in October, as new orders rose at a sharp rate, albeit slightly softer than in September,” said the report.

“However, cash circulation issues continued to restrain business activity, leading to further backlog accumulation. Input price inflation slowed to a two-year low, allowing firms to reduce their selling charges for the first time since April.”

Output expectations weakened to a ten-month low amid reduced optimism for the future, according to the report.

“New business received by Kenyan firms was up sharply during October, despite a slower rate of growth compared to September. Surveyed businesses were encouraged by a strong inflow of new clients, often related to referrals from previous customers…”

Sales to foreign clients meanwhile rose at a sharp and faster pace.

Cash flow crisis among companies has been partly been attributed to the billions of shillings that Government agencies owe the private sector. Firms are owed more than Sh100 billion despite a presidential directive in June to clear the pending bills that have not been contested.