Most Kenyan senior executives are extremely worried about their firms’ expansion plans over the next 12 months as geopolitical tensions push up operating costs and cloud prospects for economic growth.
A new survey by the Central Bank of Kenya (CBK) shows that 37 per cent of chief executives are extremely concerned about the impact of geopolitical tensions on their firms’ expansion plans, while a further 25 percent are very concerned.
The caution reflects growing fears of weaker growth, persistent supply chain disruptions, higher inflation and elevated energy prices, which executives say could increase import costs, tighten financial conditions and weigh on demand.
The May survey, which sampled more than 1,000 private sector firms, also found that most business leaders reported a moderate to high impact of recent geopolitical developments on their operations.
“The majority of respondents reported moderate to high impact of recent geopolitical developments on business activity, mainly through rising fuel prices, rising inflationary pressures, and increased operating costs," said CBK.
“Tensions in the Middle East were identified as the main source of disruption, driven by elevated oil prices, higher transportation costs, and supply chain challenges.”
More than two-thirds (67 per cent) of chief executives reported a high impact from geopolitical tensions linked to the Middle East. A further 20.3 per cent reported a moderate impact from the conflict involving Iran and disruptions around the Strait of Hormuz, while 11.4 per cent cited a low impact and 1.3 per cent reported no impact.
Higher crude oil prices have pushed up fuel and transport costs, increasing the cost of doing business across multiple sectors. Manufacturers, distributors and retailers have been particularly affected as logistics expenses rise and supply chains face fresh disruptions.
Hundreds of job seekers queue awaiting clearance and interviews at the Kenyatta International Convention Centre, Nairobi on October 25, 2024, during a mass recruitment drive for various job opportunities in Qatari companies.
Photo credit: Wilfred Nyangaresi | Nation
Businesses that rely on imported raw materials and finished goods have also had to contend with longer delivery times and higher procurement costs.
Respondents also pointed to United States tariffs and policy changes as another source of pressure. More than a third (36.3 per cent) of respondents reported a high impact from tariffs introduced by the Donald Trump administration, while 26.2 per cent reported a moderate impact.
While less severe than the impact of higher energy prices, changing trade policies have added to uncertainty and increased import costs for some firms.
CBK said growth in the manufacturing, wholesale and retail sectors is expected to slow as companies grapple with rising production costs, supply disruptions and weaker demand.
“Growth in the manufacturing and wholesale and retail sectors is expected to slow down due to rising production and operational costs, the impact of geopolitical tensions on trade flows and input supplies, and weaker demand,” CBK added.
The survey also linked geopolitical tensions to rising inflationary pressures and weaker purchasing power, with firms warning that higher prices are eroding household spending and squeezing profit margins.
Many respondents said the impact extends beyond higher fuel and import costs, with global uncertainty increasingly affecting demand, investment decisions and business confidence.
Companies also expressed concern that persistent geopolitical risks could trigger volatility in major global currencies and tighten financial conditions, further increasing the cost of imports and hurting growth prospects.
Executives said the uncertainty is making firms more cautious about capital expenditure and expansion, reflecting fears that a weaker global economy could hurt exports and reduce investment flows. The survey found that many firms expect weaker global growth over the next year.
The findings suggest geopolitical tensions are becoming an increasingly important factor in corporate decision-making, with firms reassessing investment, expansion and growth strategies amid a more uncertain global environment.
