Private sector upbeat on settlement of State bills

Inside Milly Glass Works Limited in Mombasa. [Standard]

Private businesses are upbeat about the future after climbing out of April recession, increasing jobs and output in May.

Stanbic Bank’s Purchasing Managers Index showed that the business outlook for output climbed to the highest for nearly five years.

“Activity in the Kenyan private sector recovered in May after the agriculture sector slowdown witnessed over the past couple of months,” said Stanbic Bank Regional Economist for East Africa Jibran Qureishi.

“In any case, should the Government clear arrears owed to the private sector as promised on Madaraka day, private sector activity could benefit from a huge boost.”

The headline PMI reading rose from 49.3 in April to 51.3 in May to signal a modest uplift in the health of the private sector.

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

According to the Stanbic index that polls purchasing managers in about 400 private sector companies, businesses have been struggling with lack of working capital especially due to failure by the national and county governments to pay suppliers.

Loans default

Central Bank of Kenya Governor Patrick Njoroge indicated that 12.9 per cent of all loans granted by commercial banks were in default by April, especially personal loans and credit to the housing industry.

Just two months earlier, the default rate was 12.8 per cent. The 0.1 per cent rise may seem marginal but it was an increase of Sh230 million in absolute terms.

However, with President Uhuru Kenyatta’s pledge to have Government settle pending bills before the close of the year, business are hopeful that the billions will be released.

Business sentiment climbed in May, reaching the highest in nearly five years. While firms were buoyed by a renewed rise in new orders, they also cited further growth factors over the coming year.

“Some panelists noted hopes of greater economic stability and fewer cash flow problems, while others looked to plans of new branch openings,” said Mr Qureishi.

This, however, should be tempered by expected hiccups including this week’s hacking of the State’s online portal used to pay suppliers and disburse funds to county governments - the Integrated Financial Management Information System (IFMIS).

The taxman may also miss targets to raise revenues after the National Treasury reported that by end of April, the Kenya Revenue Authority had collected Sh1.1 trillion against a target of Sh1.6 trillion with just two months to go.

A windfall from a Sh210 billion Eurobond, and Sh75 billion World Bank loan may however help settle the huge debts owed to the private sector.

Businesses also raised concern over inflation costs on their products telling Stanbic that both input and output expenses rose sharply in May, perhaps due to higher power and transport costs.

Input cost inflation climbed markedly to the sharpest in seven months, prompting firms to raise output prices at the quickest pace this year.