Kenya's private sector activity recovers in February – PMI

Kenyan businesses saw a renewed expansion in activity during February, as new orders strengthened after a downturn at the start of the year due to the Omicron wave of the pandemic.

The latest Purchasing Managers’ Index (PMI) shows it rose above the 50.0 neutral threshold, up from 47.6 in January to 52.9 in February.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

According to the index released on Friday, the fall in infection rates prompted an increase in customer numbers, but cash flow issues meant that employment dropped for the first time in 10-months.

"Domestic demand recovered strongly in February driven by increased customer numbers following a reduction in Covid-19 cases, as well as heightened marketing efforts by firms, " said Kuria Kamau, fixed income and currency strategist at Stanbic.

Firms responded to the higher demand by increasing their output and quantity of purchases significantly during the month.

Kamau notes that input prices for firms rose at the fastest rate in 41 months, largely due to higher tax burdens and rising energy costs.

The recovery in demand allowed firms to increase their output prices at the fastest rate in three months to pass on the higher input costs and protect their margins.

While the 12-month outlook by firms rose marginally from January, it is now at a fifth-month high as concerns around the Covid-19 pandemic begin to dissipate.

"With input demand rising, alongside increases in tax burdens and global material prices, firms’ overall costs grew at the sharpest pace since September 2018," Kamau said.

The index pointed to a solid improvement in the health of the private sector economy, helped by a recovery in business activity, as Covid-19 cases continued to fall across the country.

According to survey panelists, new business levels at Kenyan companies rose sharply in February due to a rebound in customer demand and increased marketing efforts.

The rate of growth was the second-fastest since October 2020 seeing as export sales rose to a much greater extent than in January but growth remained weaker than seen in Q4 last year.

The renewed rise in new business meant that output also returned to growth, with manufacturing and agriculture firms experiencing the strongest upturns in output during February, while the wholesale and retail sectors declined in activity.

The rise in new orders also underpinned a renewed increase in backlogs at Kenyan firms midway through the first quarter.

The report shows that although some companies are facing cash flow issues following the Covid-led downturn in sales over January, employment numbers were scaled back for the first time in 10 months.

Kenyan firms faced a faster rise in input costs amid reports of increased tax burdens on suppliers and higher fuel prices.

The rate of overall input cost inflation was the strongest seen since September 2018.

Output prices were raised at a solid pace accordingly. Despite rising input prices, purchasing activity expanded sharply and at the quickest pace for 16 months.

This helped firms to bolster their stocks amid increased confidence that sales would continue to grow.

In relation to this, business optimism surrounding future activity picked up fractionally to the highest since last September.

Survey respondents often cited plans to expand into new markets and gain customers through marketing efforts.

The Stanbic Bank Kenya PMI is compiled by IHS Markit, from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.

The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.

The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.