Business habitat up for the first time since January

Business activities in Kenya improved for the first time in seven months, with output and new orders returning to expansion levels on account of increased political stability.

The latest Purchasing Managers' Index (PMI) by Stanbic Bank further shows that job creation accelerated and purchasing activity picked up, whilst firms grew more confident about their August output prospects.

The PMI went above 50 points for the first time since January to hit 50.6 points up from 45.5 in July.  It read 52 points in January before consistently dropping in subsequent months. 

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

Christopher Legilisho, an economist at Standard Bank says the August PMI implies economic growth recovery compared to July, as well as a likely positive economic performance in the third quarter of 2023.

"There was a notable expansion of output in August, specifically in services and manufacturing. New orders too ticked up with export orders received by firms rising for a sixth straight month,'' Legilisho said.

He adds that firms reported improved food supply, increased marketing of products and a calm political environment supported new orders growth.

“However, tough business conditions and inflation pressures remain a pressing concern for Kenyan businesses, as input prices and staffing costs were seen rising due to a weaker exchange rate as well as higher taxes related to the recently enacted tax measures in the Finance Act.”

Firms linked the rise in new orders to several factors, including fewer political demonstrations, greater demand, increased marketing, and improved food supply. On the flip side, many businesses struggled with tough economic conditions and weaker customer spending due to higher prices.

New export orders received by Kenyan private sector firms grew for the sixth consecutive month in August. Moreover, the rate of expansion accelerated from the previous survey period and was sharp.

Several panellists noted that an increase in output allowed them to sell more items to foreign clients.

Input prices continued to rise at a historically strong pace, leading to the fastest increase in selling charges since June 2022. This is attributed to inflationary pressures which were still historically marked and continued to hit business expenses.

Panellists often linked higher costs to sustained currency weakness, although increased fuel prices and higher taxes were also mentioned.

Nearly 38 per cent of firms saw a monthly rise in their input costs, marking one of the sharpest rates of cost inflation in the survey’s near-decade history.

Inflation was 6.7 per cent year-on-year in August from 7.3 per cent a month earlier, while on a monthly basis inflation was -0.1 per cent from 0.1 per cent a month earlier.

Growth in staffing numbers across the economy continued for a sixth successive month in August, marking the longest run of expansion since the beginning of 2022.

Moreover, the latest increase in staffing was solid and among the quickest recorded for two years. Anecdotal evidence indicated that firms hired new workers to boost existing teams and support sales activities.

Even so, the level of work-in-hand faced by Kenyan companies was broadly unchanged during August.

This was indicated by the seasonally adjusted Backlogs of Work Index which fell for the fifth month in a row and was only fractionally above the 50 neutral mark.

Likewise, input purchasing grew for the first time in five months and to the greatest degree since January, leading to a renewed expansion in firms' inventories. Lead times on inputs meanwhile improved modestly and for the fifth month running.

According to panellists, vendors often delivered items more quickly in a bid to improve cash flow.

Business confidence regarding the year ahead picked up to a five-month high in August.

Firms with a positive outlook often cited expansion plans such as opening new branches and broadening their product and service offerings.