Firms hired more staff in Sept on weak demand for imports

Kenyan companies employed more staff in September in response to rising demand for local goods as a weak shilling made imports less attractive.

A survey by Standard Chartered Bank on business sentiment in the country showed businesses were optimistic of improved performance following an increase in new supply orders.

“An increase in new orders, reflecting stronger domestic demand, likely contributed to higher order backlogs and supplier delivery times.

“Kenyan firms have also reported increasing production in response, and employment reached a four-month high as firms reported increasing the size of their work forces,” said the bank in the survey.

The shilling has lost about 16 per cent to the dollar since the beginning of the year making imports expensive. Central Bank of Kenya governor Patrick Njoroge said at a media briefing on Tuesday importation of consumer goods had dropped.

The shilling was, however, cited as a key concern by business owners as it was driving up the cost of imported production inputs.

The businesses, however, said they expected to pass on the higher production cost to consumers, further fuelling higher inflation expectations.

“Although the authorities’ official inflation figures indicate inflation has eased in August, Kenyan businesses reported that current input prices increased. Firms expect that they will be able to continue passing on higher prices to consumers,” reads the report.

The findings counter the Dr Njoroge’s position that higher inflationary expectations were not based on solid grounds.

“Inflation expectations need to fall; and that is why Monetary Policy Committee left the rates where they are,” he said at the briefing.
Inflation figures have been on the decline from highs of 7.03 per cent in June to 5.97 per cent this month.

READ: Banks lower growth forecasts on high interest rates

The companies surveyed were optimistic of posting improved financial performance despite a rise in financing costs attributable to higher interest rates imposed on the market to support the weak shilling.

“This finding is difficult to explain given the upward pressure on market interest rates in September,” said StanChart analysts.

At least six listed firms have issued profit warnings this year including Car & General, Mumias Sugar, East African Cables, Express Kenya, Standard Group and Uchumi Supermarkets. The firms have attributed the weak financial expectations mainly to the weakening currency and high operating costs.
The poor outlook on corporate profitability has also come at a time that the growth in the gross domestic product has slowed down to 5.5 per cent in the second quarter of the year compared to six per cent in the same quarter last year.