Kenya's business optimism sinks to eight-year low

 

Biscuit factory workers [Courtesy]

Kenyan companies’ optimism about the business environment has dropped to the lowest level in eight years amid record Covid-19 infections.

This is despite sales rising in December.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) covering December shows only 19 per cent of about 400 private sector companies surveyed have hopes of expanding their premises and offering new products and services in 2022.

This is the lowest optimism level in the private sector to be recorded since the survey began in January 2014, coming on the back of rising cases of Covid-19 infections that now threaten to hurt the pace of economic activities.

According to the survey, sales volumes in December rose at the fastest pace since October 2020, but this did not help in boosting optimism levels for the next 12 months.

“The future output index fell to a survey-record low in December, indicating that business sentiment was at its lowest level for at least eight years,” said the survey.

“Only 19 per cent of the survey panel expect output to rise over the next 12 months, with these firms often citing plans for new products and services, plus branch openings.”

Kenya’s Covid-19 infection rate crossed the World Health Organisation’s high-risk limit of five per cent on December 13 — the first time since the nationwide curfew was lifted on October 20.

The sustained rise in infections has hurt firms’ optimism despite the PMI reading rising for the third straight month from 53 in November to 53.7 in December — the highest recorded in 14 months.

Readings above 50 usually signal an improvement in the health of the private sector economy, while readings below this point to a deterioration.

Most of the surveyed firms said they expect business conditions to remain largely the same this year despite the removal of Covid-19 control measures, such as curfews and lockdowns.

This was despite most businesses experiencing the positive impact of December festivities, with sales volume rising at a pace last seen 15 months ago to lift purchases, inventories and employment levels.

The purchasing managers who took part in the survey said there was improved customer demand and better cash flow as economic conditions recovered from pandemic measures.

“Both domestic and export demand expanded rapidly on account of fewer public health restrictions locally and around the world. Export firms particularly noted increased demand from Europe and parts of Africa,” said Kuria Kamau, a fixed income and currency strategist at Stanbic Bank.

The survey showed Kenyan firms expanded their workforce for the eighth straight month in December, with those that hired new staff citing increased new business.

However, the rate of job creation eased slightly from November’s two-year high even as purchasing activity increased at the joint-fastest pace seen in 2021.