Kenya’s private sector business conditions weakened in August as high operating costs, limited cash flow and shortages of key materials constrained firms from meeting rising customer demand.
The latest Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 49.7 in August from 51.3 in July, dropping below the 50-point mark that separates growth from contraction.
The survey, compiled by S&P Global, showed that output declined for a sixth consecutive month, even as new orders increased for the third month running.
Businesses attributed the gap between sales and production to high raw material prices, limited liquidity and supply shortages, which made it difficult to buy inputs and increase output.
“Kenya’s Stanbic Bank PMI weakened in August due to momentum loss in the private sector as elevated raw materials costs and tight cash flows constrained firms’ ability to translate stronger demand into output,” said Christopher Legilisho, an Economist at Stanbic Bank.
Despite the pressure, firms recorded stronger sales driven by customer bulk-buying, advertising and increased demand for private healthcare services during public sector strikes.
Companies also reduced purchasing activity for the fourth month in a row, with the pace of decline becoming the fastest in more than a year. Their stocks of purchases fell at the sharpest rate in three-and-a-half years.
However, reduced input demand helped ease pressure on suppliers, with firms reporting faster delivery times for the first time in three months.
Inflationary pressures remained high, although the rate of input cost inflation eased to its lowest level since April. Fuel, transport and shipping costs continued to weigh on businesses, while wage inflation accelerated to its fastest pace since February 2019.
Many firms passed some of these costs on to customers, although the rate at which they increased selling prices slowed to a four-month low.
Still, Kenyan businesses remained optimistic about the year ahead, with confidence rising to its highest level since February 2023. About 37 per cent of surveyed firms expect activity to grow over the next 12 months, compared to only one per cent expecting a decline.
The optimism is linked to planned investments in marketing, capacity expansion, product diversification and technology.
Businesses also continued hiring staff to manage growing backlogs of work, which rose for the third successive month as companies struggled to fulfil orders quickly enough.
