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Increased demand lifts private sector growth from four-month low

By Patrick Alushula | Updated Tue, December 6th 2016 at 08:28 GMT +3

Kenya’s private sector firms recorded improved business conditions in the month of November driven by increased demand.

Latest survey by Stanbic Bank and IHS Markit shows that Purchasing Managers’ Index (PMI) recovered from a four-month low of 52 to hit 53.3 in November.

According to Jibran Qureishi, Regional Economist at Stanbic Bank, most of the new orders were from Uganda, which is Kenya’s leading export partner in the region.

“Buoyed by a sharp rise in new orders, the PMI rebounded from a four-month low recorded in October. Demand from neighbouring Uganda, which is a key trading partner for Kenya, was indeed a key reason behind this recovery,” said Qureishi.

The latest figure was broadly in line with the average seen over the third quarter (53.4), even though it remained below the overall series trend of 54.6.

Increased demand saw most firms raise their input stocks to avoid stock outs. The survey indicates the rate of pre-production inventory building quickened as a result. The rate of pre-production inventory building quickened as a result, with the respective index climbing to its highest since data collection began in January 2014. This called for additional staff.

“Faced with mounting capacity pressures, a number of firms chose to hire additional staff. The rate of job creation was solid overall,” Qureishi said.

Input prices

Meanwhile, total input prices rose more quickly than in October, mainly driven by higher staff costs. The rate of salary growth reached a nine-month high, as the number of skilled workers and commission-based worker increased.

On the price front, the survey said that average charges rose at the fastest rate since December 2015. Output growth also picked up, even though to a lesser extent than that for new work. The pace of expansion remained subdued relative to the series average.

However, looking ahead, Qureishi cautions that weaker shilling, slowed private sector borrowing and unfavourable weather conditions could reverse these positives.

“Cost for firms could start edging higher owing to the weaker exchange rate. However, more specifically, we remain concerned around the sharp slowdown in private sector credit growth,” he said.

Furthermore, Qureishi believes erratic rainfall in the past three months of 2016 poses a risk to agricultural production.