Study shows fall in business confidence

Kenyan businesses say activity slowed down as the Christmas season approached but expressed confidence the environment will improve in coming months.

The Standard Chartered-MNI Business Sentiment Indicator (BSI), a survey that measures business confidence, dropped to 59.5 points in November from 64.7 points a month earlier.

“A sharp decline in order backlogs (-34.6 per cent month-on-month) led to the fall, followed by employment, as Kenyan companies remain reluctant to hire. There is a clear sense, nonetheless, that activity slowed in Kenya in November, despite the lead-up to the Christmas period,” said the latest BSI survey.

StanChart’s BSI surveys 200 small and large companies in Nairobi and Mombasa on a monthly basis.

SMEs and larger firms said their confidence levels had reduced due to uncertainty on the direction of exchange and interest rates.

“Interest rates and the exchange rate are still troublesome for companies. However, at the macroeconomic level these are less of a concern now and as we expected, pressure on market interest rates has declined and the Kenya shilling has stabilised,” said the report.

SMEs surveyed were, however, confident that activity will start picking up in the coming months as market conditions stabilise.

Rates on Treasury bills have been falling since the October highs, which has given borrowers reprieve as some banks halted plans of further raising interest rates.

READ: T-bills fall further, hope for interest rate decline

Equity Bank had alerted customers it would raise interest rates beginning November 19 but mid last month it shelved plans after cost of government debt began to fall.

“Inflation has remained within target, month of import cover have remained firmly above four months minimum requirement while current account deficit has been narrowing as a result of improving Balance of Trade. Now that the government has affirmed our belief, we are confirming that we are also not increasing interest rates on loans after all,” said Equity Bank chief exective James Mwangi.

At 59.5 points the BSI for November is higher than January’s 47 points though.

A similar report by CfC Stanbic released in early November showed that business confidence for the month of October had improved due to an increase in export orders.

“Overall private sector growth was supported by a sharp rise in new orders during October. The pace of expansion accelerated since the prior month, helped by another solid increase in new export work,” said the CfC Stanbic Purchasing Managers’ Index.