Manufacturers brace for leaner times

By John Oyuke

Kenya’s manufacturing sector is heading for tougher times in the face of dwindling demand from export markets due to recession and domestic consumption hit by high inflation (consumer prices).

Experts believe it would be unrealistic to expect the sector to avoid a substantial slowdown, when so many of its most important customers — both domestic and external — are slowing down.

According to Kenya National Bureau of Statistics the country’s annual inflation rose to 26.1 percent in April from 25.8 per cent in March due mainly to increasing food prices.

Also going up was underlying inflation, which excludes food prices, which increased to 8.2 percent from 7.7 per cent in March.

There was a general rise in prices across categories of goods and services in March with Consumer Price Indices (CPI) increasing by 2.9 percent from 345.33 points in March to 355.36 points in last month.

Inflationary pressures

The current high inflation rates means consumer purchasing power is being eroded and in the absence of any drastic change, the already subdued consumption growth is likely to be brought to a halt, the experts say.

Food prices remain the largest driver of inflation and continues to erode purchasing power. [Photo: File]

AIG Investments Senior Investment Manager Edward Gitahi has cautioned that the persistent inflationary pressures might impact negatively on consumer spending and could force the manufacturing sector to cut production.

"The drought conditions have dealt the country the hardest blow by sustaining inflation at the current high levels forcing consumers to cut back on discretionary expenditure in favour of food," he said.

He noted that inflationary pressures have remained on the upside in the early part of this year and present a key risk to the macro-economic performance and stability of the country.

He said though AIG had expected inflation to edge below 10 per cent in the second half of this year, this now appears unlikely.

"If the food crisis is not resolved soon, inflation could remain elevated for the rest of the year," he added in his review of the economy.

price index

Food prices remain the largest driver of inflation — 50 per cent of Consumer Price Index (CPI) — and a major eroding factor of purchasing power.

The views held by Gitahi is shared by the Central Bank of Kenya (CBK) technocrats, who have also stated that the impact of drought in the first quarter of this year has been the major factor behind high food prices and therefore, high inflation.

Kenya’s overall inflation has stayed above 20 per cent for several months now due to drought-induced food shortages.

Food and drink, which is the dominant category in the CPI basket — a measure of the average price of consumer goods and services purchased by households — accounted for the highest increase in inflation.

Food and non-alcoholic drink’s index, increased by 3.8 per cent from 489.76 point in March to 508.34 points in April, according to the statistics bureau.

"This increase was due to rises in the price of English potatoes, maize grain, onions and sugar among other food items," it said in the CPI and Inflation rates for the month of April 2009.

average prices

The average price of a kilogramme of English potatoes increased by 17.19 per cent from Sh39.89 in March to Sh46.74 last month.

Similarly, the average prices of maize grain, onions and sugar, increased by 6.13, 16.77 and 3.07 per cent, respectively. Consumers also experienced a 2.7 per cent rise in prices of personal goods, clothing and footwear (1.5 per cent) and 1 per cent rise in prices of alcohol and tobacco, household goods and services and medical goods and services respectively last month.

There were, however, notable falls in the prices of maize flour, cooking fat and wheat flour by 3.57, 1.87 and 2.47 respectively last month.

Gitahi said the weakness in the economy is broad-based with much of the slowdown attributed to the sluggish performance of the agriculture, manufacturing and tourism sectors.

CBK said in its Monthly Economic Review for February that a decline in food prices and overall inflation would be largely dependent on weather — adequate rains, and availability of maize imports to bridge the shortfall in domestic production.