Hard times: Oil marketers lure buyers with discounts amid sales drop

A growing number of oil marketers are dangling discounts to lure customers amid a remarkable slump in sales of petroleum products following last month’s revision of the value-added tax on fuel from eight per cent to 16 per cent, raising prices substantially.

A spot check by the Nation on some outlets run by marketers such as Ola Energy and Rubis revealed discount offers of between Sh3 and Sh5 per litre of fuel as many motorists cut purchases on high prices while other opt for public transport altogether.

Giant oil marketer Vivo Energy has in the past two weeks also run a series of discount campaigns, especially on its premium petrol brand V-Power across various outlets in Nairobi. Last Friday, Vivo offered a Sh5 discount on V-power purchases in Nairobi.

Read: Oil marketers to pay for fuel imports in Kenyan shilling as shortage looms

The Energy and Petroleum Regulatory Authority (Epra) from July 1 raised fuel prices on the doubled VAT with petrol increasing by Sh13.49 per litre, diesel by Sh12.39, and kerosene by Sh11.96.

In Nairobi, a litre of super petrol now retails at Sh195.53 a litre while diesel attracts for Sh179.67 — the highest since Kenya started regulating pump prices.

The discounts by oil marketers came even as Stanbic Bank Kenya’s latest Purchasing Managers’ Index (PMI) revealed that businesses recorded a slump in sales for the third month in a row in July driven by high inflation amid a weak shilling and new tax measures introduced by the Kenya Kwanza administration, which saw buyers slash spending.

The index report released last week showed that businesses suffered a significant fall in demand last month as customers continued to cut spending amid steep inflation, which was accelerated by political protests over high cost of living and taxes.

The index tracks business conditions in the economy using individual measures such as output, new orders, costs, selling prices, exports, and employment. The July PMI dropped to 45.5, down from 47.8 in June. This marks the third consecutive monthly drop from a score of 49.4 in May, and the sixth month in a row the index has fallen below 50.

Read: Marketers’ relief as diesel profit margins partly back

Readings above 50 signal an improvement in business conditions on the previous month, while readings below that mark show a deterioration. The pace of deterioration in July was the fastest in almost a year.

The report said the deteriorating operating conditions were driven by a sharp and accelerated fall in new business inflows, as firms highlighted a drop in client demand due to the cost of living crisis. Alongside this, several firms noted that political demonstrations had adversely affected sales, it added.

Four of the five monitored sectors recorded a decline in sales in July, with agriculture, which contributes to nearly a quarter of Kenya’s gross domestic product, the only category to post inside growth territory.

The depressed demand saw the businesses record a sharp drop in output over the month, which was the second-worst since 2017 when excluding lockdown-affected periods. Firms often noted that weak orders resulted in cash flow issues that limited activity.

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“July’s PMI headline trajectory comes as no surprise given events during the past month. Political protests, an increase in pump prices by approximately Sh12.61 in July, the further tightening of financial conditions as well as a further depreciation of the shilling — all of which saw the private sector deteriorating for a sixth straight month,” said Christopher Legilisho, an economist at Standard Bank

“Notably, the survey results show that the July contraction in output was the deepest since August 2022. Inflation seems set to stay stickily high due to Kenyan businesses facing intractable input, output, and wage-price pressures,” he said.

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