More than half of businesses have reported a fall in sales in the last three months and expect this to persist in the New Year amid increased prices of goods as they try to compensate for higher restocking costs.
Central Bank of Kenya (CBK) survey on CEOs of companies in different sectors, including manufacturing, shows 52.9 per cent of them have seen a drop in sales compared with the previous three-month period ended September, and they do not see much recovery even as the festive season sets in.
Only 18.2 per cent of the surveyed CEOs said their businesses had seen a rise in sales, coming in the period in which 43.3 per cent of firms said they had increased their selling prices on the back of increased spending on stocking.
The majority (86.8 per cent) saw increased purchase prices of goods and had to pass the increase to consumers, partly hurting demand in an environment where many households have seen increased taxes and inflation weaken their purchasing power.
“A majority of respondents reported lower business activity. Across all sectors, firms reported high input costs and reduced consumer demand as factors impacting demand/ orders, production volumes, and sales,” said the CBK in the survey.
“High input costs, reflecting higher taxes and a depreciating currency, continue to persist, resulting in a slowdown of volumes and sales.”
The drop in demand and sale of goods saw 36.9 per cent of the surveyed CEOs cut jobs, with only 4.9 per cent increasing their headcount. In the first quarter of next year, 35.2 per cent expect further job cuts, while only 6.6 per cent see room to hire.
The survey usually targets CEOs of key private sector organisations, including members of the Kenya Association of Manufacturers, the Kenya National Chamber of Commerce and Industry, and the Kenya Private Sector Alliance.
About 65.4 per cent of the surveyed CEOs of firms in the manufacturing sector told CBK they have witnessed reduced demand and sales for their products, forcing them to cut production volumes, leaving them with more idle capacity than anticipated.
“Demand for some products was reported to be at their lowest level since the beginning of the year. Nevertheless, some firms reported improved sales albeit at higher costs and prices. In the services sector, firms reported that business activity remained low, indicative of erosion of purchasing power,” said the CBK in the survey.
Firms in the agricultural sector reported a slowdown in the market, given declining consumer purchasing power and increased cost of production.
The majority of the surveyed CEOs leading agricultural firms said high fuel prices have driven fertilizer prices and transport costs up, while the high cost of financing was further putting pressure on production costs.
The CEOs have painted a grim picture going into 2024, with 55.6 per cent projecting that sales would remain depressed in the first quarter of next year while 21.2 per cent see the sales dipping even further. Just about a quarter (23.2 per cent) see a recovery.
In what could hit consumers’ pockets further, 70 per cent of CEOs project that purchasing prices of goods would go up in the first quarter of the New Year and force 36.9 per cent of their companies to increase selling prices.
Nearly half (49.2 per cent) of the surveyed CEOs said they will leave the prices at the currently elevated levels, while just 13.9 per cent believe there will be some room to cut their selling prices.
“Respondents expect that continued increases in fuel prices will keep production costs elevated, thereby continuing to exert pressure on sales prices. The attendant decline in sales, exacerbated by low consumer purchasing power, could impact employment numbers,” said the CBK.
