DROP

Cash flow constraints slows Kenya’s private sector activity in October

According to Jibran Qureishi, regional economist for East Africa at Stanbic, the cash flow challenges were being compounded by a cap on commercial lending rates that have curbed credit growth

In Summary
  • PMI decreased to 53.2 in October 2019 from 54.1 in the previous month
  • At the same time, cost pressures weakened to a 40-month low, while output price inflation also eased for the second time in nearly two years
Stanbic Bank’s regional economist Jibran Qureishi./FILE
Stanbic Bank’s regional economist Jibran Qureishi./FILE

Kenya’s private sector activity slowed in October after accelerating for five straight months, an aspect attributed constrained poor worsened by high government pending bills to firms.

The Stanbic Bank Kenya PMI decreased to 53.2 in October 2019 from 54.1 in the previous month, signaling a solid improvement in the health of the Kenyan private sector, albeit slightly softer than in the prior month.

Manufacturing PMI in Kenya averaged 52.49 from 2014 until 2019, reaching an all-time high of 57.70 in December of 2014 and a record low of 34.40 in October of 2017. Any reading above 50 points is considered positive.

According to the survey, the positive business sentiment was encouraged by a strong inflow of new clients, often related to referrals from previous customers.

It was also noted that efforts to improve marketing strategies and service quality helped to increase demand. 

Employment also increased at a solid pace. At the same time, backlogs of work increased further, marking the sixth straight month of greater capacity pressures. Stocks of purchases also increased, although the rise the weakest since April amid an easing in new order growth.

At the same time, cost pressures weakened to a 40-month low, while output price inflation also eased for the second time in nearly two years.

Output expanded marginally with confidence also remaining positive amid forecasts of continued sales growth.

Companies said the government is taking years to settle bills for goods and services supplied to it, mainly due to widespread corruption.

According to Jibran Qureishi, regional economist for East Africa at Stanbic, the cash flow challenges were being compounded by a cap on commercial lending rates that have curbed credit growth.

“The imminent repeal of the interest rate cap is indeed a positive move and will embolden commercial banks to price credit risk again and more importantly for SMEs,” said Qureishi.