Coronavirus takes toll on cost of inputs for companies

The effects of the coronavirus that has so far claimed more than 3,000 lives globally continue to bite locally.

According to the Purchasers Managers Index (PMI) by Stanbic Bank and IHS Markit, there was a drop in business activity that culminated in new orders falling, touching a two-year low.

Prices of key inputs rose to a six-month high, with firms reporting that prices of fuel and foodstuff rose in the latest survey period.

“Firms noted that shortages of raw materials also inflated total costs, linked to reduced imports from China due to the coronavirus outbreak,” read the report.

The effects of the deadly virus on the country’s economy are likely to worsen after a number of airlines, including Kenya Airways, cancelled some flights due to poor passenger numbers.

The virus started in a Chinese industrial hub, Wuhan, and has since spread to more than 50 countries.

Reduced imports

Stanbic Bank East Africa Regional Economist Jibran Qureishi said firms faced a shortage of raw materials owing to reduced imports from China due to the coronavirus outbreak over the past month. “This has increased output prices as alternative import markets aren’t as cheap as China.” 

Mr Qureishi said the scant data available makes it difficult to assert whether we are at the beginning, middle or end with the coronavirus.

“In the event that there is an escalation into new geographies with the disruption potentially extending into the third quarter of 2020, the likelihood of a global recession then increases,” added Qureishi. However, a lack of liquidity by households had impact on private sector activities, causing a notable decline in demand for goods and services.

“Nevertheless, output prices were raised solidly as firms faced greater cost pressures from inflated raw material prices,” read part of the PMI index, which is a pulse rate for the private sector activities. Readings above 50.0 signal an improvement in business conditions, while those below 50.0 show a deterioration. At 49.0 in February, the headline reading pointed to a second successive month of decline across the private sector. The index dropped from 49.7 in January.

“Firms reportedly lost sales due to a lack of money held by domestic customers, amid ongoing cash flow issues in the economy.”