Job loss fears as CEOs project gloomy outlook for businesses

Kenyan businesses are bracing for a challenging year ahead, as corner office executives project subdued growth and potential job losses, driven by various economic pressures, according to a recent survey by the Central Bank of Kenya (CBK).

The Market Perceptions Survey November 2024 reveals a significant decline in optimism regarding the growth prospects for the Kenyan economy, primarily due to high operating costs, reduced consumer spending, and increased taxation. 

These combined factors are expected to hinder growth over the next 12 months.

 “Respondents reported moderated optimism in growth prospects for Kenya for the next 12 months largely on account of muted consumer demand, high cost of doing business and taxation,” says the CBK survey. “However, a stable shilling, lower inflation, good weather prospects and expected decline in lending interest rates are expected to support growth.”

Polling over 1,000 chief executive officers (CEOs) across various sectors, the survey highlights the pressing concern of potential job losses in the coming months. 

The findings of the poll indicate a decline in business activity for the first quarter of 2025 compared to the previous quarter, largely attributed to seasonal factors.

High operational costs, taxation, and weak consumer demand pose significant threats to growth, leading many companies to consider workforce reductions as a means to alleviate financial pressures.

“The cost of doing business, taxation and reduced consumer demand are key domestic factors that could constrain firms’ growth in the next 12 months,” says the study.

 “However, firms will mitigate the constraining factors by managing costs and risks, diversifying operations and increasing sales and marketing of their goods and services.”

 A chief executive of a blue chip firm who spoke on condition of anonymity in an interview with The Standard corroborated the findings noting: “Businesses are feeling the strain, and tough decisions may be necessary to survive,” the listed firm’s CEO noted.

The CBK findings present a mixed picture for different sectors within the economy. The agriculture sector is anticipated to perform relatively well, supported by favourable weather conditions and growing demand for exports.

However, challenges such as increasing production costs and limited export capacity remain concerning. In contrast, the financial sector is benefiting from sustained demand for services and innovative solutions tailored to evolving customer needs. Yet, rising loan defaults present a risk to its overall stability.

The manufacturing sector, however, faces considerable obstacles.

Manufacturers are contending with high costs, heavy taxation, and limited access to credit, all contributing to subdued consumer demand and diminished competitiveness. 

Similarly, the wholesale and retail trade sectors are struggling due to weak consumer spending patterns.

Despite this cautious outlook, the survey also identified several strategies companies plan to implement to navigate these challenges. 

These include product diversification, cost-cutting measures, a customer-centric approach to operations, and leveraging access to financing, which an accommodative monetary policy may support.

Conducted between November 11 and 22, 2024, the survey gathered insights from a diverse range of private-sector firms.

About 74 per cent of respondents were privately owned domestic firms, with many expressing concerns over liquidity constraints stemming from pending bills and elevated borrowing costs.

Key survey findings indicate that while some sectors, like agriculture, are expected to see enhanced performance due to favourable conditions, others face significant hurdles. The manufacturing sector continues to grapple with high costs and competitive pressures, while the wholesale and retail trade sectors are further undermined by weak consumer demand.

Overall, the survey’s findings paint a complex picture of the economy, where certain sectors appear poised for growth, yet many others confront substantial challenges. 

The positive outlook for agriculture is tempered by rising production costs, while the health sector sees opportunities with the introduction of the Social Health Insurance Fund, albeit with transitional hurdles to overcome.