In July, Kenya’s private sector experienced a more pronounced deceleration in its activity. Both businesses and consumers scaled back their expenditures substantially due to widespread political protests, significantly denting demand. The July 2023 Stanbic Bank Kenya Purchasing Managers Index (PMI) highlighted this trend. Notably, the surveyed Kenyan firms reported that the output contraction in July was the swiftest since August 2022, primarily driven by a sharp decline in new orders amidst the backdrop of street protests and weakened consumer demand.
Additionally, the cost of inputs surged at the third-highest rate in the recorded history of the Kenyan PMI series. The month of July witnessed further depreciation of the Kenyan Shilling against the US dollar. Coupled with the rise in fuel prices resulting from an adjustment in VAT on fuel from 8% to 16%, business costs surged substantially in July. This escalation in input price inflation was among the most rapid since the inception of the survey in 2014.
The July 2023 PMI readings for Kenya underscored an escalation in operating challenges, with the pace of deterioration reaching its fastest point in nearly a year. The index dropped to 45.5, down from June’s 47.8, marking the sixth consecutive month of registering below the neutral 50.0 mark. This decline in operating conditions was propelled by a sharp and rapid decrease in new business inflows. Kenyan enterprises attributed this decline to the cost-of-living crisis, which resulted in diminished client demand.
Furthermore, the Kenyan economy felt the impact of heated street protests in July, with several companies reporting adverse effects on their sales. Out of the five sectors monitored, four experienced a decline in sales, while agriculture was the sole sector to show growth. With overall sales plummeting, the business sector in Kenya witnessed a notable reduction in output during July, marking the second-largest contraction since 2017 when excluding periods influenced by lockdowns.
The combination of higher fuel prices and increased tax burdens added to the challenges. Some companies responded by raising employee salaries in response to the cost-of-living crisis. Notably, the rise in overall input costs observed was one of the steepest in Kenya’s history, starting from data collection in 2014. This led to a robust and accelerated increase in selling prices as firms sought to mitigate the growing cost pressures.