Firms cautious on growth prospects

Modern cotton spinning equipment at Rift Valley Textiles (RIVATEX) in Eldoret. [Kevin Tunoi/Standard]

Optimism among businesses about growth was at a 33-month low in November on the back of a harsh economic environment.

According to Stanbic Bank’s monthly Purchasing Managers’ Index (PMI) – a survey that measures the health of the private sector – companies expressed a gloomy outlook for the next 12 months, akin to that of early 2017 before the General Election.

“Sentiment regarding the 12-month outlook for activity weakened further in November, falling to the lowest since February 2017. Only 44 per cent of panelists responded with a positive projection for output, compared to 55 per cent that predicts it to remain unchanged,” said Stanbic in the PMI report yesterday.

“A number of companies mentioned that they plan to open new branches in the coming year, while a greater focus on marketing and hiring also boosted optimism.”

The private sector is still grappling with low demand for their products, which has persisted for the better part of the year, but there is a degree of relief with the expectation of improved access to credit following the scrapping of the interest rate cap.

The government has also committed to clear pending bills, which is expected to improve cash flows.

The headline PMI stood at 53.2 in November, similar to October levels but the lowest level in six months. Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

The report noted that business registered solid improvement over November, with firms raising output but also noted that “the rate of demand growth was the softest since May”.

“The future output sub-index still indicates that firms are cautious on activity over the coming year. However, in comparison to most surveys since the beginning of this year, less panelists complained about cash flow issues this month,” said Stanbic Regional Economist for East Africa Jibran Qureishi.

“Of course, the government should continue to clear pending arrears owed to the private sector in order to alleviate these cash flow constraints,” he said.

“Furthermore, as commercial banks begin to extend credit following the repeal of the interest rate capping law, the private sector will be in a much better position than it currently is or has been for the past two and a half years.”