PRIVATE SECTOR INDEX

Kenya's new orders drops to two- year low on coronavirus outbreak

The index dropped from 49.7 in January, and was the lowest recorded in over two years.

In Summary
  • Firms reportedly lost sales due to a lack of money held by domestic customers, amid ongoing cash flow issues in the economy.
  • Contributing to the decline was a softening in new business at Kenyan firms, marking the first monthly fall since November 2017.
Stanbic Bank’s regional economist Jibran Qureishi./FILE
Stanbic Bank’s regional economist Jibran Qureishi./FILE

Kenya's private sector economy suffered another difficult month midway through the first quarter of 2020, with February Purchasing Managers Index (PMI) further below 50 per cent.

According to the monthly Stanbic Bank PMI, Kenya recorded a score of 49 in February signaling a second successive drop in business activity and the first fall in new orders for over two years.

The index dropped from 49.7 in January, and was the lowest recorded in over two years.

 

Contributing to the decline was a softening in new business at Kenyan firms, marking the first monthly fall since November 2017.

Firms reportedly lost sales due to a lack of money held by domestic customers, amid ongoing cash flow issues in the economy.

Foreign sales meanwhile rose at a much softer pace, which panellists sometimes linked to weaker exchange rates.

Firms subsequently reduced activity further during February, with data showing a solid drop in output that was only slightly less marked than in January. As well as impacting sales, businesses highlighted that weaker cash flow often stalled operations.

This optimism, as well as efforts to lower backlogs, led to a quicker increase in employment at Kenyan companies in February. The rate of growth was the strongest since last November, albeit broadly similar to the series trend.

Cost pressures meanwhile accelerated to a six-month high, with companies reporting that prices of fuel and foodstuff rose in the latest survey period.

Firms noted that shortages of raw materials also inflated total costs, linked to reduced imports from China due to the coronavirus outbreak.

 

Supply chain pressures were not evident, however, with vendor lead times improving for the second month in a row.

Despite weaker demand, Kenyan firms raised output prices in February, in a bid to maintain profit margins as cost pressures increased. Moreover, the rate of charge inflation was solid and the fastest recorded since July 2019.

Commenting on the survey findings, Jibran Qureishi, Regional Economist E.A said firms faced a shortage of raw materials owing to reduced imports from China due to the coronavirus outbreak over the past month.

This, he said has increased output prices as alternative import markets aren’t as cheap as China.

''Unfortunately, at this point in time, it’s difficult to assert whether we are at the beginning, middle or end with the coronavirus due to scant and inadequate data points. A scenario where the virus is contained in the next couple of months is probably the best case,'' Qureishi said.

He added that in the event that there is an escalation into new geographies with the disruption potentially extending into the third quarter of 2020, the likelihood of a global recession then increases.

''Global supply chains will inevitably be impacted by this which will be detrimental not just for local prices but also for trade in general,'' Qureishi said.

Last week, small traders in downtown Nairobi who import their wares from China told the Star that they were left with less stock to last them a month and aren't sure on where to source after Kenya Airways suspended flights to China.