Kenyan Business Activity Falls Sharply Amid Economic Challenges – PMI Report

Business activity in Kenya experienced a significant decline in June, attributed to widespread economic challenges, protests, and policy uncertainty. According to the latest Purchasing Managers’ Index (PMI) report from Stanbic Bank Kenya and S&P Global, the PMI fell to 47.2 in June, down from 51.8 in May, marking the sharpest downturn in seven months.

The PMI, a key economic indicator derived from monthly surveys of private sector companies, shows that any reading below 50 signals a contraction in business activity. The June figure, which dropped below the neutral mark of 50.0, indicates a substantial deterioration in the health of the Kenyan private sector.

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Key Findings:

• Sharp Decline in New Business: New business intakes dropped at the fastest rate since November last year. This was primarily due to the economic impact of the ongoing cost-of-living crisis and widespread protests related to the Finance Bill 2024.
• Business Confidence Plummets: Confidence among businesses fell to its lowest level since February. Firms reported a weakened outlook due to the economic challenges and reduced sales volumes.
• Input Costs and Inflation: Kenyan firms faced a renewed increase in input costs in June. However, the rate of inflation was mild and had little impact on selling charges. A stronger exchange rate and lower fuel prices helped to mitigate the rise in costs.
• Employment and Capacity: Despite the economic downturn, employment numbers continued to rise, although the increase was the weakest seen this year. Purchasing activity also decreased for the first time in three months, leading to a reduction in inventories.

Sector-Specific Insights:

The manufacturing sector was the only monitored sector to register growth in June, which helped to partially soften the overall downturn. However, other sectors such as construction, agriculture, and wholesale and retail faced significant challenges, contributing to the decline in overall business activity.

Christopher Legilisho, an economist at Standard Bank, commented on the situation: “In June, momentum in private sector activity declined, reflecting several concerns, top of the list being the proposed increase in taxes via the Finance Bill 2024, and the widespread protests in response. Unrest in Kenya restrained output and new business because customers delayed spending decisions in the face of such uncertainty.”

Outlook:

Despite the current challenges, there were some positive signs. Supplier performance improved due to greater availability of raw materials and competition between vendors. However, the rate of improvement was the least marked since February.

Business expectations towards future activity slipped to a four-month low, as firms expressed less optimism about their sales and output forecasts. The uncertain economic environment and ongoing policy challenges have made businesses cautious about the year ahead.