- The PMI grew to 53.2 points compared to 51.4 points in December.
- Output and new orders both rose sharply in the new year, with the growth of each quickening to the fastest since last October.
Image: FILE
Kenya’s private sector performance improved at a solid pace in January, driven by a sharp increase in output and new business.
According to the monthly Purchasing Managers’ Index (PMI) by Stanbic Bank, the sector grew 53.2 during the month under review, up from 51.4 in December the highest reading for three months.
The index points to a sustained improvement in the health of the private sector economy with the seventh consecutive month of growth since the Covid-19 outbreak.
Kuria Kamau, fixed income and currency strategist at Stanbic Bank said economic activity picked up in January on account of improved customer spending driven by improved cash flows in the economy and the re-opening of schools.
These factors, he said, resulted in increased output and new orders.
''While inflationary pressures from the higher VAT and raw material shortages led to a steep rise in output prices, firms are now more positive about an improvement in business conditions,'' Kamu said.
Output and new orders rose sharply in the new year, with each registering the the fastest growth since last October.
Firms highlighted that the reopening of businesses and improved cash flow in the economy generated higher customer spending.
Sales to foreign clients helped to drive growth in the new year, although the rate of increase was at its weakest since last June.
This was in part due to stricter lockdown measures in some regions such as Europe, leading clients to put on hold new orders. The latest expansion was broadly aligned with the average seen over the seven-year series history.
Capacity at Kenyan firms came under pressure in January, as the level of incomplete business rose at a solid rate over the month.
Higher backlogs were generally linked to a rise in new work inflows, with some managers citing machine breakdowns and delays in the arrival of inputs.
Consequently, employment rose at a solid rate that was one of the fastest seen over the past year.
Prices paid for input goods in Kenya soared at the beginning of 2021, largely due to a rise in VAT from 14 to 16 per cent, reversing the cut implemented in April 2020 to cushion manufacturers and consumers from the impact of Covid-19 pandemic.
Shortages of some raw materials added to inflationary pressures, according to managers. As a result, the seasonally adjusted Purchase Prices Index rose to its highest since September 2018 and indicated a marked rise in purchasing costs.
Raw material shortages and rising demand for inputs also contributed to an uptick in purchase costs, which rose at the quickest rate since September 2018.
Firms often passed on higher costs to clients, with output charges rising at the strongest rate in a year-and-a-half.
Expansions in supplier capacity, and stronger competition among vendors, led to a further shortening of overall delivery times in January. The rate of improvement picked up to a three-month high.
Rising purchasing activity, meanwhile, supported a solid increase in inventories, albeit the softest recorded in seven months.
Business expectations for the year ahead improved sharply at the start of 2021, to the strongest since last June.
Companies were hopeful of carrying out expansion plans and investing in new capital, amid optimism that the Covid-19 pandemic will end.
Over one-in-three surveyed firms predicted a rise in output by January 2022, with the rest giving a neutral outlook.
The survey complements a recent one by the Central Bank of Kenya which shows CEOs confidence in the country's economy has grown to 91 per cent in three months.