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.