One in three businesses in Kenya expects a financially straining quarter, exacerbated by expensive loans, unfavourable regulations, and supply chain disruptions, a new survey has revealed.
A survey by the Kenya National Chamber of Commerce and Industry (KNCCI) for the third quarter shows that businesses are mostly concerned about limited access to cash and bad regulations.
“Similar to the second quarter, businesses expect limited financial resources (32 percent), unfavourable regulations (22 percent), and supply chain instability (22 percent) to affect their performance in the third quarter majorly,” the survey report said.
The KNCCI barometer report measures the expectations of businesses in Kenya. It sampled more than 1,000 businesses, with the majority having an annual turnover of less than Sh1 million (75.1 percent) and less than 10 employees (85.5 percent).
Private sector credit has been pulled down by high interest rates and rising loan defaults—pushing access to credit beyond the reach of some borrowers. A steep rise in non-performing loans has forced banks to tighten lending terms and conditions.
Credit to the private sector firms has also been impacted by the appreciation of the Kenya shilling, which has cut the foreign currency loan book. The manufacturing sector has taken the largest hit from the private sector credit slowdown, with total disbursements to the industry falling by Sh38.8 billion to Sh597.9 billion in three months to the end of March from Sh636.7 billion in December 2023.
Industrialists concurred with the findings of the KNCCI and warned of major hits on business performance.
“First, there is depressed demand occasioned by the cost of living and as a result, businesses are not borrowing to expand but to sustain operations,” said Antony Mwangi, chief executive at Kenya Association of Manufacturers.
“There are four broad areas where we've found challenges; cost of taxation, energy, capital, and its tenure and regulatory pains.”
The KNCCI survey further shows that 36 percent of businesses surveyed said they do not expect sales to grow because they anticipate a decline in consumer demand, 23 percent on regulatory challenges, 16 percent on working capital constraints, and 10 percent on supply chain disruptions.
The report shows that 79 percent of manufacturers sampled were optimistic about revenue growth.
An estimated 37 percent of businesses expected to increase their staff numbers in the coming quarter, the KNCCI survey said, with 30 percent of enterprises indicating they planned to expand into new markets. Nine percent hoped to launch a new product.
In contrast to the second quarter, businesses were more optimistic that prices of raw materials would drop, easing the cost of operations.
More than half of businesses (52 percent) had forecast a decline in the cost of raw materials compared to the 39 percent outlook in the quarter before.
The report highlighted that 69 percent of the sampled businesses affirmed that they purposely apply some climate change mitigation and adaptation measures in their operations. Further, the mining and energy (100 percent) sectors led in the application of these measures, while the retail and wholesale (50 percent) sectors lagged.
