Elevated fuel and electricity prices spook Kenyan CEOs


Central Bank of Kenya (CBK) Governor Kamau Thugge. FILE PHOTO | DENNIS ONSONGO | NMG

The elevated fuel and electricity prices have cut the purchasing power of consumers, hurting demand for goods and services, a Central Bank of Kenya (CBK) survey capturing concerns of Kenyan chief executives has shown.

The CBK said its latest CEOs and market perceptions survey had shown increased concerns on the rise in fuel and electricity prices—which usually filters into the economy through increased costs of other goods and services.

The sentiments come on the back of the continuing weakening of the Kenyan shilling, doubling of value-added tax on fuel to 16 percent and rising crude oil prices having led to record-high fuel prices for Kenyans.

Electricity prices have also been elevated, partly due to the weak shilling and use of thermal electricity that is powered by diesel.

The CBK says there has been increased optimism due to enhanced agricultural production, easing inflation and improving growth prospects, but this has been weighed down by rises in fuel and electricity prices.

“Respondents’ concerns included higher fuel and electricity prices, reduced purchasing power affecting demand for products, and the possible negative effects of the El Niño weather phenomenon,” said the CBK.

The survey normally targets CEOs of key private sector organisations, including members of the Kenya Association of Manufacturers, Kenya National Chamber of Commerce and Industry and the Kenya Private Sector Alliance.

Companies’ concerns about weakening purchasing power have coincided with imports declining by 11.9 percent in the 12 months to August compared to a growth of 16 percent in a similar period last year.

A near 20 percent depreciation of the Kenyan shilling against the US dollar since January amidst a rise in fuel prices has kept the pressure on prices in a net import economy.

The CBK said the decline in imports was mainly driven by lower imports of infrastructure-related equipment, manufactured goods, oil, and chemicals—an indicator that firms were cutting imports in line with softening demand.

The government in July doubled VAT on fuel, triggering rises in the prices of fuel. The Energy and Petroleum Regulatory Authority mid last month raised the prices of super petrol, diesel and kerosene by Sh16.96, Sh21.32 and Sh33.13 per litre respectively, sending prices to historic highs of above Sh200.

Electricity prices have also been rising, which combined with fuel price rises, have halted a fall in inflation. Inflation had eased for three straight months to 6.7 percent in August before rising to 6.8 percent in September.

Consumers are also facing other shocks such as the rising price of loans amid mounting defaults. The share of defaulted loans in gross loans hit 15 percent in July, being a 16-year high since the 15.04 percent of June 2007.

Kenya’s upper-middle and high-income households are increasingly dropping premium brands across various products from their shopping baskets as a way of coping with the rising cost of living, according to the findings of a survey by Ipsos Kenya released in June.

The survey showed 43 percent of households with a consolidated gross monthly income of Sh300,000 and above were holding off from buying certain items while 30 percent were purchasing the same items far less frequently as 26 percent switched to less expensive items.

Goods exports increased marginally in the 12 months to August, growing by 0.5 percent compared to a similar period last year as receipts from tea and manufactured exports increased by 4.5 percent and 23.2 percent respectively.

“The increase in tea export receipts reflects higher prices due to demand from traditional markets, while the higher manufactured exports receipts reflect strong regional demand,” said the CBK.

The Stanbic Kenya Purchasing Managers Index (PMI) survey for July had also shown there was a concern about the rising input prices and softening demand.

“Tough business conditions and inflation pressures remain a pressing concern for Kenyan businesses, as input prices and staffing costs were seen rising due to a weaker exchange rate as well as higher taxes related to the recently enacted tax measures in the Finance Act,” showed the survey.

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Note: The results are not exact but very close to the actual.