Companies

Firms revive expansion plans in fresh optimism

kanairo

An aerial view of Nairobi, Kenya's capital city. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP

BDgeneric_logo

Summary

  • Corporate managers looking for growth opportunities said they plan to inject more cash into new branch openings, raise marketing budget, and scout for deals in foreign markets.

More Kenyan companies are confident of reviving expansion plans after the third wave of coronavirus infections eased amid gradual uptake of vaccinations, raising hopes of progressive recovery in jobs.

Findings of a closely-watched private sector survey conducted in May show that corporate managers are upbeat about growth in the next one year, citing rising demand for goods and services as more economies reopened globally.

Nearly a third of about 400 businesses surveyed in the monthly Stanbic Bank Kenya’s #ticker:SBIC Purchasing Managers Index (PMI), conducted by UK researcher IHS Markit, said they plan to resume investment in business growth over the next one year.

This comes at a time businesses and households have been stockpiling cash in banks, cautiously waiting for an ideal time for fresh investment in an economic setting that has been clouded by raised uncertainty as a result of the pandemic.

Latest industry statistics, for instance, show deposits grew Sh445 billion, or 12.07 percent, in the year through March 2021 to Sh4.13 trillion, one of the highest annual rises in nearly a decade and an indication of the projected huge spending.

Last month’s optimism among corporate chiefs was the highest in the PMI in three months, going back to levels registered before the deadly third wave of Covid-19 infections — prompting the government to restrict travel in and out of Nairobi and four surrounding counties of Kajiado, Machakos, Kiambu, and Nakuru.

A separate Market Perception Survey, conducted by the Central Bank of Kenya (CBK) every two months ahead of the monetary policy committee meeting which signals the direction of interest rates, showed nearly half of chief executives were upbeat of business growth prospects in the next 12 months.

The PMI optimism levels at 48 percent were barely unchanged from 49 percent in March.

Business leaders cited increased protection against the contagious virus on the progressive vaccination —initially targeting front-liners such as healthcare, security, and teaching personnel — and re-opening of economies across the globe that will likely lift exports, for their rising confidence in growth prospects.

“Firms appear to be increasingly optimistic about the next 12 months as new Covid-19 case numbers continue to fall and vaccinations continue to rise. The future outlook for firms improved for the first time in four months,” Kuria Kamau, a fixed income and currency strategist at Stanbic Bank, wrote in the PMI report for May.

Corporate managers looking for growth opportunities said they plan to inject more cash into new branch openings, raise marketing budget, and scout for deals in foreign markets, according to the PMI report which focuses on key economic sectors such as agriculture, manufacturing, construction, and services.

The monthly PMI report suggested hiring in the private sector in May rose at the fastest pace since January, with employers generally raising pay for workers for the first time since last October largely to motivate and retain them.

An upward trend in pay for workers amid expanding workforce in the majority of surveyed sectors— except for agriculture which posted a drop in month-on-month hiring and wholesale & retail sector where jobs were flat — will be welcome for the Kenya Revenue Authority (KRA) which has struggled to hit targets in Pay As You Earn (PAYE) taxes.

Payroll taxes in nine months through March 2021 amounted to Sh251.58 billion, latest Treasury data shows, missing the goal by 21.36 percent or Sh24.78 billion and representing a drop of Sh59.04 billion, or 19 percent, from the Sh310.63 billion a year earlier.

Corporate managers, in the feedback to the CBK, however, cited the looming threat of the fourth wave of Covid infections initially forecast from July, reduced purchasing power on likely tax increases in Finance Bill 2021 for the fiscal year starting July, and rising fuel prices as likely to pose downside risks to recovery in private investment.

“The labour market impact of the pandemic indicates the devastating effect on the informal economy,” Federation of Kenya Employers (FKE) executive director Jacqueline Mugo said via email.

“For us to recover, the focus and any support should be on helping enterprises to bounce back especially in the productive and job-rich sectors that have been hit by the pandemic such as manufacturing, transport, tourism, and aviation. This will have a positive impact on jobs and incomes.”

The renewed interest in future growth plans is likely to spur an uptake of credit by the private sector that grew 7.7 percent in the year to March, the slowest since September 2020.

“A lot of customers are bringing in deposits but they are not using it for any economic activities. Lending is not as high and so the deposits are sitting with us much longer,” KCB Group #ticker:KCB CEO Joshua Oigara said last November.

“Most customers are still looking for opportunities and are opting to put their money in demand deposit accounts. We are in a strong position to take advantage of any recovery in the economy and lend more given the strong deposit base.”