Stanchart and Stanbic differ on Kenya's business conditions

Stanbic Bank and Standard Chartered Bank have issued conflicting sentiments on the Kenya's business environment in November.

While Stanbic Bank research showed private sector enjoyed improved business conditions pegged on increased demand, a Stanchart analysis said that in fact there was slowed uptake of new orders from customers as demand slowed.

In the reports that were issued in a space of 24 hours, Standard Chartered showed MNI Business Sentiment Indicator (BSI) fell to 57.5 in November from 61.3 in October.

According to Stanchart, this was the second lowest reading of the year as sentiments fell across the board, with exception of input prices.

"The fall in sentiment fits our view on the Kenyan economy – weaker credit growth and demand and potentially higher input prices, have been taking their toll on business activity," said Razia Khan, Standard Chartered Chief Economist for Africa.

The analysis says credit access dropped sharply despite relaxing of cost of credit. In addition, input prices rose, signalling higher prices in the coming months.

However, in contrast, Stanbic Bank's Purchasing Managers' Index (PMI) said demand had increased, lifting private sector growth from a four-month low. The PMI, Stanbic reported, had improved from 52 to 53.3 in November. "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 the key reason behind this recovery," said Jibrani Qureishi, regional economist at Stanbic Bank.

While Stanchart's Ms Khan report said that new orders, production, order backlogs, employment and supplier delivery times fell, Stanbic's Qureishi had a different view. "Faced with mounting capacity pressures, a number of firms chose to hire additional staff. The rate of job creation was solid overall," Mr Qureishi said in a report that showed that firms increased their input stocks to avoid shortages as more new orders came through.

But according to Ms Khan, new orders, which indicate domestic demand, fell to 63.9- the lowest since August- even as production and employment indicators dropped. This was despite November being the peak season for demand and production leading to holiday period.

Despite the differing sentiments, the two agreed that total input prices rose in November. However, for Stanbic bank, this was due to increased staff costs as firms hired more people. The two also agreed that the lending environment remained a concern for businesses. Standard Chartered's research said that even though firms paid lower interest rates on credit, accessibility was a challenge.

In Stanbic's report, Mr Qureishi cautioned that a sharp drop in private sector borrowing, prospects of a weaker shilling and unfavourable weather could spell doom for businesses.