Manufacturers are proposing a government stimulus package to revive their fortunes after sales mostly fell in an environment of weak demand for goods and high borrowing costs.
A survey of corporate chief executives by the Central Bank of Kenya showed that 69.2% of manufacturing firms reported a decline in sales in the three months to June 2024 compared to the previous three months to March, forcing 61.5% of them to cut production and freeze hiring.
“More respondents in the manufacturing sector reported weaker business activity, as evidenced by lower levels of order books, production volumes and sales growth.
“This is largely due to higher costs of doing business, weak consumer demand, and increased competition from imports,” the central bank said.
“The government should consider extending support to some sectors through stimulus programmes. For example, players in the tourism and hotel industry can benefit from programmes channelled through the Kenya Tourism Board; and manufacturers can be supported through policies that reduce production costs such as lowering input costs, to allow for competitiveness.”
This is the fifth straight quarter in which more than half of manufacturing CEOs have reported quarterly production cuts in response to the ongoing decline in demand for goods. This is reflected in idle capacity and lower sales revenues.
The Bank of Korea’s survey, compared with a survey released in April, showed more companies were hurt by lower production, demand and sales amid widespread anti-government protests that disrupted business activities.
In April, 53.8% and 46.2% of CEOs told the central bank that they had seen a decline in production and sales, respectively, during the first quarter of the year.
CEOs are now calling on the government to step in with a stimulus package in the form of tax cuts to allow them to cut prices and boost demand.
The quarter ending in June saw demand decline for 53.8% of CEOs, while 30.8% said it was unchanged.
Companies in other sectors such as tourism and hotels also recorded weak demand.
The second-quarter performance suggests that manufacturing may be on track for another slowdown in growth.
Official data shows the sector grew by 1.3 percent in the quarter ending March 2024, the slowest pace since the same quarter in 2008 when it grew by 0.7 percent in the face of a deadly wave of post-election violence.
The sector is struggling to repay its loans, after topping the list last year with a 45.7 billion shillings or 52.2 percent rise in defaults to 13.2 billion shillings.
In the first three months of the year, the sector’s non-performing loan stock fell by Sh8.5 billion, partly due to banks writing off some loans.
The central bank indicated that manufacturing sector activity is expected to remain weak in the next twelve months, largely due to higher business costs and weak consumer demand.
Without state intervention, manufacturers will have little scope to cut prices and boost demand, with only 30.8% of CEOs saying they had seen output prices fall while 38.5% saw them rise.
Stagnant or declining sales at most companies hurt employment, with 15.4 percent of manufacturing CEOs telling the BOK they had to cut staff, while the majority (75.3 percent) kept their numbers unchanged. Only 9.3 percent hired more workers.
The survey typically targets CEOs of key private sector organisations, including members of the Kenya Manufacturers Association, the Kenya National Chamber of Commerce and Industry, and the Kenya Private Sector Alliance.
The CBK survey results are in line with the Stanbic Kenya Bank Purchasing Managers’ Index (PMI) which showed private sector activity in Kenya contracted in July, due to street protests that disrupted the pace of business activity.
The Purchasing Managers’ Index (PMI) fell to 43.1 from 47.2 in June, its biggest drop in more than three years. Readings below 50.0 indicate a contraction in activity.
“Political instability has made customers reluctant to commit to new orders, while in some cases the protests themselves have closed access to businesses and prevented them from opening,” the survey noted.
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