Kenyan CEOs to cut spending amid dull economic outlook

Central Bank of Kenya Governor Patrick Njoroge. [Elvis Ogina, Standard]

Kenyan business leaders are set to cut spending for the remainder of the year amid fresh economic worries, a new survey says. 

The survey by the Central Bank of Kenya (CBK) says that CEOs will also seek to diversify their businesses, and increase sales while a portion of them will consider restructuring their businesses which could lead to a freeze in expansion and salary hikes or even job losses.

“To mitigate the factors constraining growth or expansion, firms proposed various solutions: management of costs and risks, increased sales and marketing, and diversification of their operations,” says the survey.

The study found that the rising cost of living - which remains stubbornly high - and the worsening business environment over high costs and planned taxation, are some of the biggest impediments to the growth and expansion of firms in the remainder of this year as they could slow consumer demand but also ramp up production costs.

“In terms of domestic factors that could constrain their growth, respondents continued to highlight the economic environment (high inflation and performance of the local currency), the business environment (cost of doing business), and reduced consumer demand,” said the CBK survey.

The apex bank polled company bosses across sectors last month in the lead-up to the monetary policy committee (MPC) meeting.

The survey was conducted between January 3 and 13.

It also revealed the CEOs are worried over newly introduced taxes, high-interest rates, the rising cost of electricity, and the weakening the shilling.

Their previous concerns however on the impact of external factors such as global inflation, recession fears, and the war in Ukraine have moderated, the survey says.

Firms in the manufacturing and agriculture sectors were most concerned about the business environment and the cost of doing business.

The survey inquired CEOs about their levels of confidence or optimism in the growth prospects for their companies and sectors, as well as the growth prospects for the Kenyan economy.

It sought CEOs’ views on selected indicators including business confidence and optimism, current business activity, and outlook for business activity in the near term.

It also sought to establish the key internal and external factors that could influence the business outlook and their strategic priorities over the medium term.

The weakening of the shilling has seen manufacturers and importers transfer the additional shipping and production costs to consumers, increasing inflationary pressure in an economy where households are grappling with expensive basic items like fuel, soap, cooking oil, and food.

“Rising inflation and the impact of a weakening shilling remained a concern for the majority of respondents across all sectors,” said the survey.

However, the weak shilling has come as a boon for exporters.

Exporters such as tea and coffee producers are the winners in shilling’s depreciation, which has the effect of making their products more competitive in the international markets besides boosting their revenue in local currency terms.

Kenyans receiving money from relatives abroad are also counting the forex gains on the hard currency, which they exchange for shillings before spending locally.

The CBK last month retained its policy lending rate last month at 8.75 per cent to stem rising inflation and stabilise the shilling.

The tightened liquidity is, however, expected to have a negative effect on access to credit for individuals and companies.

A slowdown in lending could deny the economy new investments and threaten the projected domestic output.

Kenya’s inflation has remained stubbornly high on costly essential items such as food, fuel and soap, squeezing household budgets and demand for goods and services.

The cost-of-living measure dropped to 9.1 per cent in January from 9.2 per cent the prior month, the Kenya National Bureau of Statistics reported.

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