Political unrest dim firms business confidence

Jamia Supermarket in Kismu that was vandalized and looted by protestors during mass action against high cost of living. [Collins Oduor, Standard]

Kenyan companies posted their lowest confidence levels on record in April. This was on account of political unrest and the high cost of commodities.

In the monthly Stanbic Bank's Purchasing Managers' Index (PMI), only eight per cent of companies that participated in the survey projected an improvement in business activity over the next 12 months.

This means that over 90 per cent of the firms in the survey do not plan to undertake such activities as opening new branches or offering additional services.

This is the lowest confidence level, the PMI report noted, since it started data collection in January 2014.

Despite the gloomy outlook, employment numbers rose at the fastest pace this year. At the same time, businesses reported lower input costs and higher export sales but these appear to have been negated by the higher costs and the protests.

The mass protests called by the opposition chief Raila Odinga against the high cost of living and push for electoral reforms have been on and off since mid-March. During protest days, businesses have remained closed with traders wary of violence and destruction to their goods.

The inflation rate, which reached 9.5 per cent in March eased to 9.5 per cent in April following the rains that resulted in slight relief in the cost of food. There are, however, items whose prices have remained high such as the price of energy and in turn seen the cost of living remain high.

The PMI noted that the twin factors have resulted in the headline PMI dropping to 47.2 per cent in April from 49.2 per cent in March.

According to Stanbic, readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

This, according to the report, signalled a solid and faster decline in the health of the private sector economy at the start of the second quarter. "In April, Kenya's private sector output broadly deteriorated across several sectors covered by the PMI survey as the country experienced another contraction that began in February and continued through to April," said Mulalo Madula, Economist at Standard Bank.

"Despite continued growth in export sales, deteriorating domestic market conditions due in large part to higher costs and political protests dampened business activity and domestic demand as cost pressures continued to rise."

"The outlook for output for the upcoming 12 months significantly decreased, reaching the lowest level since the survey's inception. This was largely due to worries about the effects of high inflation."