Kenya’s business conditions deteriorated in July due to reduced spending, street protests, weak demand, and high inflation.
The Purchasing Managers Index (PMI) by Stanbic Bank, which measures the health of the private sector, fell to 45.5 in July from 47.8 in June, indicating a contraction for the sixth consecutive month.
Key to note, a PMI reading of above 50.0 indicates an improvement in the business conditions, while readings below 50.0 indicate a deterioration.
The survey revealed that this was the most rapid decline in output since August 2022, as new orders fell sharply amidst the political demonstrations and the cost-of-living crisis.
The protests, led by the opposition coalition Azimio, resumed on July 7 after a two-month suspension. They demanded electoral reforms and lower taxes ahead of the 2024 general elections.
The survey showed that four out of the five monitored sectors recorded a decline in sales, except for agriculture, which saw growth.
The cost of inputs rose at the third fastest rate in the PMI series’ history for Kenya.
This was fueled by a further depreciation of Kenya’s Shilling against the US dollar and a rise in fuel prices following an adjustment of VAT on fuel from 8% to 16%.
As a result, business costs increased substantially in July, with input price inflation reaching one of the highest levels since 2014 when the survey began.
The rise in input costs led to higher output prices as business optimism slightly waned and job growth eased.
“Going forward, we project that the business environment will be restrained in the short to medium term on the back of high food and fuel prices, as well as the sustained depreciation of the Kenyan shilling, which continues to raise the cost of production and importation,” Cytonn Investments.
“As a result, the volume of new businesses is expected to remain stifled as consumers cut back on spending due to a lack of purchasing power.”
“In addition, the provisions of the Finance Act 2023, characterized by the introduction of new taxes as well as upward revisions of existing taxes, are expected to dampen growth in the private sector owing to the high cost of doing business.”