In the wake of ongoing economic challenges, Kenya’s private sector faced turbulent conditions throughout November 2023. The latest Purchasing Managers’ IndexTM (PMI®) survey revealed a concerning trend, indicating a sharp decline in business performance, with the index dropping from 46.2 in October to 45.8 in November. This marked the third consecutive month of contraction and showcased one of the steepest declines in nearly a decade.
Inflationary Pressures Strangle Demand:
The private sector contended with relentless inflationary pressures, reminiscent of October’s historic uptick. Rapid inflation became a barrier to demand, posing cash flow challenges for many companies. Factors such as currency depreciation, increased taxes, and elevated fuel charges contributed significantly to the rising input costs. These soaring costs were then passed on to consumers, as reflected in the marked increase in output charges.
Contraction Across Multiple Fronts:
The repercussions were severe, with significant declines witnessed in multiple key areas. New orders plummeted, signaling one of the worst downturns in recent history. Consumer spending weakened due to escalated prices, exacerbating the cash flow challenges faced by businesses. Consequently, output levels across various sectors took a steep nosedive, except for agriculture, which experienced a modest expansion. The construction industry was notably hard-hit, grappling with substantial declines in both new orders and output.
Employment and Growth Outlook:
As the sector grappled with diminished activity and reduced workloads, job losses soared, registering one of the sharpest declines since the initial COVID-19 lockdown. The outlook for the coming year remained subdued, with only a small fraction of companies expressing confidence in growth prospects. Businesses, affected by inflation and reduced output, faced challenges in expanding and launching new products and services.
Christopher Legilisho, an Economist at Standard Bank, commented on the situation, highlighting the widespread difficulties faced across sectors. He pointed out the decline in output and new orders across all monitored sectors, emphasizing the plight of the construction industry. Inflationary pressures, cash flow constraints, and escalating job losses in the private sector were evident indicators of the challenges faced by Kenyan businesses.
Despite some respite from strong export performance, particularly to Europe and Asia, the overall business outlook for the next 12 months remains bleak, based on the sentiments expressed by respondents in the survey.
The economic landscape in Kenya’s private sector for November paints a picture of an uphill battle against inflation, cash flow constraints, and dwindling consumer demand. The challenge ahead lies in finding sustainable solutions to navigate these turbulent times and rejuvenate economic growth.
