Kenya’s private sector activity deteriorated marginally in September due to persistent cash flow challenges affecting production and demand for goods and services, results of a monthly survey showed on Thursday.
The Kenya Stanbic Purchasing Managers’ Index (PMI), which measures the performance of key private sector indicators such as production, new orders and employment – fell slightly to 49.7 from 50.6 in August.
Purchasing Managers’ Index (PMI) readings below 50 indicate declining private sector activity on a monthly basis, while levels above that indicate growth.
The marginal deterioration reversed the recovery trend in August, the first in three months, after months of anti-government protests.
“Business conditions contracted slightly in September, meaning the rebound in August was due to some recovery after disruptions caused by protests earlier this year,” said Christopher Legelecho, chief economist at South Africa-based Standard Bank, Stanbic Bank’s parent company. He wrote in the PMI report.
“New orders and production were weak due to weak consumer demand – although some companies reported increased customer footfall and increased investments.”
Anecdotal evidence from about 400 participants in the monthly survey blamed the contraction in private sector conditions on the economic challenges faced by businesses and households, which led to a slowdown in sales, prompting companies to cut production.
The report indicates that the wholesale, retail, agricultural and service sectors recorded a decline in commercial activity in September compared to the previous month, while the manufacturing and construction sectors rose.
Businesses and households have been facing a severe shortage of cash in circulation for months after deadly youth-led protests against new taxes and poor governance created economic uncertainty, delaying consumer spending decisions.
The resulting political uncertainty, which has rocked President William Ruto’s administration, has exacerbated the cash flow challenge due to rising interest rates amid rising cost-of-living pressures.
The protests across the country, largely organized by young people on social media platforms who said they did not belong to any political or ethnic group, prompted Dr. Ruto to drop the 2024 Finance Bill and sack about half of his cabinet.
The protests, allegedly infiltrated by a group of hired thugs, paralyzed business in major urban centers on days of demonstrations, with hundreds of retail stores looted at their peak on 25 June.
Respondents to the Purchasing Managers’ Index (PMI) report said sales will gradually improve in the future “amid increased customer footfall, increased investment and positive influence from marketing.”
The Central Bank of Kenya’s Monetary Policy Committee is expected to cut its benchmark lending rate when it meets on Tuesday next week, a signal to lenders to start cutting the cost of loans after inflation slowed in September to its lowest levels since December 2012.
Reducing the cost of borrowing is expected to boost demand in a weak economy, which has been hurt by high interest rates imposed to tame inflation.
The Monetary Policy Committee lowered the central bank rate by 25 basis points to 12.75 percent at its last meeting on August 6.
Before the Russian central bank’s cut, the Monetary Policy Committee had raised interest rates by 5.5 percentage points from the start of tightening in May 2022 to July 2024 in an attempt to manage inflationary expectations by keeping the cost of borrowing high.
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