Kenyan businesses upbeat on economy

Money Markets

Shoppers flock to the Thika Road Mall ahead of Christmas last year. Businesses are confident the festive season this year will boost sales. PHOTO | JEFF ANGOTE 

By JOHN GACHIRI, jgachiri@ke.nationmedia.com

Posted  Monday, December 1  2014 at  19:12

In Summary

• The StanChart's Business Sentiment Index (BSI), which measures business confidence, rose to 62.1 points in November from 53.4 points in October.
• The BSI for November says that the Kenyan large firms and SMEs expect business to improve driven by a bump in consumer spending during the holidays and increased sales to the East African region.

Kenyan businesses are more confident about the economic outlook encouraged by stronger demand for goods from the regional market and an expected increase in sales as the Christmas season approaches, says a survey by Standard Chartered.

The Business Sentiment Index (BSI), which measures business confidence, rose to 62.1 points in November from 53.4 points in October.

StanChart conducted the survey in partnership with international data provider Manufacturers’ News Inc, an Illinois-based data vending firm.

Some 200 large and small firms were asked whether their production levels have changed, remained the same and their outlook for the next quarter.

Respondents are mostly from Nairobi and Mombasa and their answers are then used to compile the index.

StanChart’s BSI for November says that the Kenyan large firms and SMEs expect business to improve driven by a bump in consumer spending during the holidays and increased sales to the East African region.

“While the approach of Christmas is likely to have provided a strong lift to activity, infrastructure improvements and booming demand conditions regionally are likely to have helped. The Kenyan companies polled appear to be highly confident about future prospects,” says the November BSI.

Other analysts said that more active trade within the region will fuel Kenya’s future growth.

Analysts at Moody’s, a rating agency, said that Kenya is among countries that would be insulated from a reduction in demand as China’s economy slows since they rely more on trading within their regional blocs and not export of commodities.

“In contrast, countries with strong intra-regional trade linkages, such as Uganda, Senegal Kenya and Namibia, or those with trade linkages with Europe, such as Botswana, Ghana and Mozambique, whose export shares to Europe amount to between 50 per cent and 70 per cent, are less directly vulnerable to China-related risks,” said Moody’s in their report titled 2015 Outlook: Global Sovereigns.

Falling fuel prices and an increase in geothermal power are expected to also reduce the cost of living which should augur well for local businesses, the report added.

Data from the Kenya National Bureau of Statistics shows that month-on-month inflation reduced to 6.09 per cent in November from 6.43 per cent in October after fuel prices dropped. Fuel and power prices are expected to fall further.

“We think the cheaper cost of power and lower fuel prices, which are likely to be sustained in coming months, were important contributors to this decline,” said a market report by Standard Investment Bank.

Standard Chartered’s BSI for November was also the second highest, behind September’s 65.3 points. October and June recorded the lowest levels, both at 53.4 points.

StanChart, however, said for confidence to remain strong, Kenya would have to improve on its security.
 “Within Kenya, security issues are becoming more pressing, as witnessed by recent events at the Coast and the Mandera attack in the north of the country. With anti-state actors in Kenya seizing on perceptions of economic marginalisation and actively pressuring existing fault lines, whether ethnic or religious, maintaining the high levels of confidence needed to drive a continued upturn in growth will be a challenge,” said November’s BSI.