Business confidence in Kenya ‘deteriorated markedly’ in October, according to Stanbic Bank’s Purchasing Manager’s Index (PMI).
“At 46.2 in October, the headline PMI was down from 47.8 in September and indicative of a solid deterioration in the health of the private sector. The rate of decline was the second-fastest since August 2022 and close to the marked downturn seen in July,” read the PMI.
A PMI reading above 50.0 indicates an improvement in business conditions, while readings below 50.0 indicate a deterioration.
The general business environment worsened significantly due to the high inflation rate in the country, which was close to the upper limit of the Central Bank of Kenya (CBK) target range of 2.5%–7.5%.
The inflation rate in October 2023 rose slightly to 6.9% from 6.8% in September 2023. This was mainly because of the higher fuel prices, which increased by an average of Kshs 4.3 per litre.
In addition, the weaker Kenyan shilling depreciated by 1.7% against the dollar in October.
As a result, this affected customer demand and business activity across all sectors, leading to lower output and more job cuts.
The Stanbic Bank Kenya Purchasing Manager Index (PMI) survey data showed that new orders contracted the most in the construction, wholesale, and retail sectors.
Around 46% of the firms surveyed reported higher expenses, driven by increased fuel and transport costs, currency depreciation, and tax burdens.
To maintain their margins, firms raised their selling prices to a record high, which further dampened customer demand.
“Meanwhile, Kenyan businesses reported burgeoning inventories and therefore raised their selling prices in October to protect their profit margins. Input prices and purchase price pressures faced by Kenyan businesses were attributed to a further increase in fuel prices and transport costs,” Christopher Legilisho, Economist at Standard Bank commented.
Output and new orders declined sharply and faster than in September.
Firms also reduced their staffing numbers for the second consecutive month, at a rate that was the joint-fastest since June 2020.
However, export orders remained strong, with more demand from Africa and Europe. Business expectations for the next 12 months were weak.