Kenya’s private sector witnessed a slight contraction in September, according to the latest Stanbic Bank Purchasing Managers’ Index (PMI) data. The PMI fell to 49.7 from 50.6 in August, signaling a downturn in business conditions as firms grappled with economic pressures. This dip comes after a brief recovery in August, which had been buoyed by a resurgence in activity following the disruptions caused by anti-government protests earlier in the year.
The September data highlights the challenges facing businesses in Kenya, with the PMI dropping below the 50.0 mark, which separates growth from contraction. The latest figures suggest a renewed slowdown, with new orders and output wavering due to subdued consumer demand and inflationary pressures, which continue to weigh heavily on key sectors such as manufacturing and agriculture.
Christopher Leggisho, an economist at Standard Bank, attributed the recovery in August to post-protest rebounds. However, he noted, “Business conditions contracted slightly in September, implying that the pickup in August was due to recovery after disruptions caused by protests earlier this year. New orders and output wave work due to subdued consumer demand, notwithstanding some firms reporting increased client turnout and higher investments.”
Inflation and Currency Challenges Hit Businesses Hard
Kenya’s inflation rate remains a pressing concern for businesses, with price increases driven by rising input costs, particularly in food and fuel. Although inflation receded slightly in September, the cost of goods continues to strain profit margins. This month’s survey indicated that while inflationary pressures moderated toward the end of Q3, higher purchasing costs have persisted, complicating the economic landscape.
Input prices rose at their slowest pace since May, which offered some respite to businesses already struggling with tight margins. However, this did not translate into immediate relief, as firms also had to contend with a depreciating Kenyan shilling, which increased the cost of imports. The combined effect of these factors has made it difficult for many businesses to pass on rising costs to consumers, further squeezing profitability.
Stable Employment but Lower Output
One positive note in the report is that employment figures remained steady in September, with no significant job cuts reported across the private sector. However, many firms noted that they were hesitant to expand their workforce or increase output levels due to the ongoing economic uncertainty. This reflects the cautious approach that many businesses are adopting as they navigate the current challenges.
On the consumer side, demand for goods and services has softened, with the report indicating that clients remain wary of price hikes. This has led to businesses holding larger inventories than usual, particularly in the wholesale and retail sectors, as sales growth remains slow.
Outlook for Q4 2024
As Kenya heads into the final quarter of 2024, businesses are hoping for a more stable economic environment. However, the outlook remains mixed, with inflation expected to stay elevated and the Kenyan shilling likely to remain under pressure. The PMI report suggests that many firms are cautiously optimistic, but the recovery will depend heavily on the government’s ability to implement policies that address inflation and stimulate economic activity.
Despite these challenges, Kenya’s private sector is resilient, and many businesses are finding ways to adapt. As more sectors embrace technology and digital solutions, there is hope that this will drive greater efficiency and innovation in the months ahead. The transportation and retail sectors, in particular, are expected to benefit from new technologies that improve operational efficiency and customer experience.
In the meantime, firms will need to continue managing costs and adjusting to the realities of a challenging economic environment. While the Stanbic Bank PMI offers a sobering snapshot of current business conditions, it also provides valuable insights for businesses to navigate these headwinds and prepare for future growth.
