A grocery stall at a market in Kenya. Stanbic Bank’s monthly purchasing managers’ index shows that the confidence for businesses is lower than when the Covid-19 pandemic struck two years ago. PHOTO | FILE
Kenyan businesses fear the ongoing war in Ukraine may hurt their growth prospects as inflation rises on the
effects of the conflict. This is according to Stanbic Bank’s monthly purchasing managers’ index.The index, which is compiled from responses to questionnaires sent to more than 400 private sector companies selected based on their contributions to GDP, shows that the confidence for businesses is lower than when the Covid-19 pandemic struck two years ago.
And because of this war, prices of inputs such as fuel, food products and fertilizer have risen to near unprecedented levels. Firms have had little choice but to raise the costs of their finished goods, passing down the economic burden to consumers. The pressure of higher commodity prices has resulted in reduced consumer spending, which in turn has resulted to a drop off in sales.
“The slowdown (in economic activity) was driven by rising inflation which resulted in subdued demand growth by consumers and a contraction in output by producers. Input prices rose at the fastest rate in eight years driven by higher taxes and the Russia-Ukraine conflict which has increased fuel, food, and fertilizer raw material costs,” noted Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.
The index, whose readings vary between 0 and 100, with a reading above 50 indicating an overall increase in confidence, and below 50 an overall decrease, shows that business confidence dropped significantly from 52.9 in February to 50.5 in March, and that this could go lower if the war persists. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.
Higher commodity prices limited both client spending and business activity, with the latter seeing a renewed fall at the end of the first quarter. Business contractions were witnessed mostly in the agriculture, construction and wholesale and retail sectors.
On the flip side, the survey shows that input purchasing continued to increase sharply as firms looked to stockpile goods amid worries that supply hitches could worsen. This resulted in shortages of some products.
“Firms increased the stock of purchases in anticipation of further increases in input prices and ramped up employment levels to support the slightly higher demand witnessed. Output prices, meanwhile, rose at the second fastest rate on record as firms tried to protect their margins,” noted Mr Kamau.
On a positive note, the survey revealed that a number of firms remained hopeful that capacity improvements, new products and increased marketing would contribute to future growth in activity. This saw some firms increase their number of staff to boost capacity, reduce backlogs and complete new sales.
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