Firms slow down hiring as demand for local goods falls

Money Markets

Workers at a local brewer’s factory. Demand for local goods declined in June. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Businesses invested less in capacity expansion last month owing to the lower demand expectation leading to a drop in production abilities of surveyed firms by 7.4 per cent.
• Companies also froze staff recruitment plans signaling increased pressure in the job market which has seen labour supply rise at a faster rate than demand.

International demand for Kenyan goods slumped in June forcing businesses to scale down plans to hire employees.

The Standard Chartered (StanChart) business sentiment indicator (BSI), a survey that measures how optimistic businesses feel about current and future economic conditions, dropped to 59.9 from 63.9 points indicating a gloomy market.

“Kenyan businesses were particularly concerned about a fall in demand – particularly demand from overseas. Export orders collapsed in June,” said StanChart. The orders dropped to a two-year low of 35.6 points with future expectations gloomy. Local demand also softened leading to a 4.3 per cent drop in new orders.

Businesses invested less in capacity expansion owing to the lower demand expectation leading to a drop in production abilities of surveyed firms by 7.4 per cent.

“The fall is also likely to be partly seasonal. We are not yet able to adjust for seasonality, and Kenya’s exports have traditionally fallen compared to previous months in May/June (in the survey businesses are asked how export orders compare with a month prior),” StanChart said Monday.

Companies also froze staff recruitment plans signaling increased pressure in the job market which has seen labour supply rise at a faster rate than demand.

“Given that Kenyan businesses expect both domestic and external demand to remain subdued in the coming months, it is unlikely that we will see an improvement in employment intentions in the near term,” reads part of the report.

READ: Strong agriculture growth boosts GDP expansion to 5.6pc

The gloomy sentiments come after government numbers showed the economy expanded by 5.9 per cent in the first quarter of the year compared to five per cent the same period last year. That growth level is only second to that recorded in the first quarter of 2011 when the country recorded a high growth of 7.6 per cent.

StanChart’s BSI surveys 200 small and large companies in Nairobi and Mombasa on a monthly basis. The businessmen said their confidence levels had dropped due to rapid decline of orders, production capacity, employment and increase in input prices.

Input prices increased 2.9 per cent from May in line with a 5.8 per cent inflation jump in June from five per cent.

The businessmen were optimistic on stability of the shilling which has held at around Sh100 to the dollar and a drop in interest rates.

Interest rates have dropped following lowering of the indicative central bank rate in May and decline of the Treasury bills and bonds. StanChart said that the survey was conducted before the Brexit expected to impact the shilling.