Private firms in longest growth streak in 3 years

Kenya’s private sector activity expanded for a fifth straight month in February, the longest growth streak in about three years, pointing to steady but marginal growth in output and demand for goods and services supported by the general stabilisation of the economy.

The Stanbic Kenya Purchasing Managers Index (PMI) — which monitors performance in key sectors of agriculture, manufacturing, construction, wholesale & retail, and services — came in at 50.6, largely unchanged from 50.5 in January.

The PMI reading has held above the 50 mark, which separates expansion and contraction, since October, helped by relatively stable inflation and marginally falling cost of loans.

This is the first time in 25 months that Kenya has experienced an uninterrupted five-month uptick in private sector activity. The last growth in five straight months was last seen in January 2022, meaning the expansion streak between October and February is the longest since President William Ruto took office.

“The February PMI for Kenya shows a private sector still growing, though only slightly faster, amid still weak demand. Still, the positive expansions in output, new orders, and employment show a steady private sector over the last five months,” Stanbic economist Christopher Legilisho wrote in the report.

“However, the improvements in demand conditions were not widespread across all sectors surveyed. The services sectors, which saw weaker output and new orders growth, experienced increased competition as well as consumers under increased financial pressure.”

Kenyan firms have since last October been reporting gradual improvement in sales, marking a recovery from previous months when demand was hit by depressed circulation of money in a softening economy due to the prohibitive cost of borrowing and piling pending bills for government contractors and suppliers.

Households and businesses had also delayed spending decisions for non-essential goods and services due to economic uncertainty that followed the protests between late June and July last year.

Output levels remained in a growth trajectory for the fifth straight month, but the pace last month was the fastest since last November, helped by upturns in construction and agriculture.

Nearly a third (30 percent) of about 400 panellists in the survey reported growth in new businesses, citing “effective marketing, new products and services, and greater client referrals”.

The PMI report further shows that about a fifth (22 percent) of the firms, on the other hand, witnessed a contraction in sales because of “financial constraints faced by customers and increased competition”.

Companies in February showed signs of loosening a freeze on hiring new employees, with about two percent of panelists indicating they had increased workforce compared with January levels.

Looking ahead, the PMI indicates that a miserly five percent of surveyed firms expect to raise output in the next 12 months. Firms in construction, wholesale & retail, and services are positive about future growth, while their counterparts in manufacturing and agriculture see a weak outlook for their businesses.

“We reiterate that businesses remain doubtful about future output expectations. Still, lower interest rates may well resuscitate lending among firms and thereby drive economic activity,” Mr Legilisho said.

“Positively, firms are focused on increasing inventories due to strong demand in output in agriculture, manufacturing, and construction as well as improving efficiencies among their vendors. Pricing pressures were muted due to soft increases in input and purchase prices, while staff costs remained even.”

cmunda@ke.nationmedia.com