• Activity declines sharply as job numbers also decrease
• Reduced input supply drives up purchase costs
Image: EZEKIEL AMING'A
Kenyan firms saw a much sharper decline in operating conditions in March, the latest Stanbic Bank-Purchasing Managers' Index survey indicate.
The downturn was widely due to the outbreak of coronavirus in the country, which led to a large drop in consumer demand and client orders.
Businesses consequently reduced activity and employment, while demand for inputs fell at the quickest pace since late-2017.
Shortages of raw materials contributed to a faster rise in overall input costs.
Falling markedly in March, the headline PMI posted at 37.5, down from 49.0 in February.
The sharp deterioration in business conditions was the second-worst recorded in the survey's history.
"The sharp drop in the PMI doesn’t really come as a surprise. The negative impact from Covid-19 is quite broad-based and is likely to affect various sectors across the economy," notes Jibran Qureishi, regional economist East Africa, StanbicBank.
According to Qureishi, the tourism and floriculture sector have been hit the hardest so far, admittedly due to global cross border travel restrictions and waning luxury spending in markets such as Europe.
"Sourcing raw materials from markets such as China has been cumbersome. Yet, Chinese factories are likely to restart production as early as mid-April which may somewhat soften this negative impact,"Qureishi said.
Arguably, there will be a notable impact on economic output this year as supply chains globally are disrupted and negative demand shocks are felt too.
"But of course timing will be everything. The longer the duration, the more acute or severe the impact will be," he said.
Many surveyed businesses noted that worries surrounding the virus meant that customers cancelled or reduced new orders, leading to a steep fall in total sales that was the second-sharpest on record.
New orders from foreign clients declined at a record pace in March as the pandemic led to a marked exports worldwide.
Kenyan businesses particularly noted a drop in new orders from Europe.
As a result, employment was lowered for the first time in 11 months as companies reported less pressure on both current workload requirements and backlogs.
Input buying was likewise reduced, leading to a solid decline in inventory levels.
Firms highlighted that many raw materials were in short supply in March due to the virus pandemic, with respondents receiving inputs from China most affected.
These shortages placed greater pressure on purchase prices, which rose at the quickest pace since June 2019.
While weaker input demand led to faster delivery times overall, reduced availability meant that the rate of improvement was only modest.
Selling charges meanwhile increased only slightly in March. Some firms raised prices to counteract falling sales revenues, but others reduced prices in an effort to revive consumer demand.
"Looking ahead, the overall level of sentiment in the Kenyan private sector remained strong, despite the impact of the pandemic," the survey states.
According to Stanbic, companies cited plans to widen products and services and open new branches, though some respondents noted these plans were on hold until after the virus has been brought under control.