Kenyan companies continued to cut down
on production for the third month in a row in July, signalling the
extent of anxiety that has gripped the country ahead of next Tuesday’s
polls.
The economy has also suffered nearly one year of
credit crunch that began with last year’s coming into force of a law
capping interest rates.
The Stanbic Bank Kenya
Purchasing Managers’ Index (PMI) showed business conditions continued to
deteriorate but at a slower pace compared to June —when private sector
activity was weakest.
The PMI edged up to 48.1 in July,
from a series low of 47.3 the previous month. The index fell below the
50.0 level, which separates growth from contraction, in May.
The PMI tracks private sector activity through interviews with managers in about 450 companies.
“Elevated
political temperatures and lack of access to credit for firms and
households, kept the Stanbic PMI in contractionary territory for the
third consecutive month,” Stanbic’s economist for East Africa, Jibran
Qureishi, said in a statement.
“Contingent on a
relatively peaceful election, the private sector could begin to very
gradually show some signs of improvement. However, in the event that the
interest rate capping law remains in place for longer, economic
activity is unlikely to improve meaningfully over the near to medium
term,” Mr Qureishi said.
A
disputed outcome of the 2007 presidential election saw the country
descend into a spate violence in which about 1,200 people were killed.
The 2013 election passed election passed peacefully.
A
slowdown in private sector credit growth, mainly caused by a cap on
commercial lending rates, deepened the drag on the economy in the run-up
to the election.
One in three of the firms surveyed, however, reported a rise in new businesses due to promotional campaigns.
The
PMI also indicates there was greater demand for Kenyan exports in key
international markets that led to a “solid overall” growth in July, but
which “remained weaker than the average of the current 12-month period
of expansion”.
“The
falls in purchasing activity and inventories registered in June proved
short-lived, as the survey signalled renewed growth in both in July.
Panelists linked expansion in purchasing and stocks to expectation of
future improvements in demand,” the report says.
“On
the price front, underlying data indicated further pressure on business
margins, as firms faced higher cost burdens but continued to offer
discounts amid intense competition.”
The findings come
in the wake of a Kenya Association of Manufacturers’ Barometer Survey
that suggested in July that only 15 per cent of factories will see
improved revenue margins in the next six months.
About 36 per cent of them expect business performance to remain unchanged.
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