Business leaders are heading into the New Year with lowest confidence levels in growth prospects in three years on the back of elevated interest rates, eroded consumer purchasing power and increasing regulatory requirements.
A majority of firms have frozen plans to expand branches, production capacity and launch product ranges in what is likely to cut job opportunities in the next 12 months.
The chief executives are modest about growth prospects of their firms and surveys on the key economic sectors suggest a bleak outlook last seen three years ago when the world was battling the Covid-19 pandemic.
“Business expectations for the coming year [2024] were subdued and dropped slightly to a four-month low. In total, just 17 percent of companies were confident of growth, linked to expansion plans and the launching of new products and services,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the latest PMI report based on feedback from about 400 corporate managers in November.
The downbeat sentiment from corporate chiefs appears to clash with the confidence of President William Ruto who has maintained that the policies his administration undertook during the first year in office have put the economy on a “stable footing” for growth.
“I want to say because of the decisions we have made over the last one year, today I can comfortably tell the nation that Kenya is now on a sound economic footing and trajectory,” President Ruto said on November 30.
Kenyan firms have since last year been battling rising operating expenses largely due to increased cost of fuel, a surge in electricity bills and costly raw materials as a result of lingering global supply constraints amid a persistently weakening shilling against major global currencies.
Business leaders have also complained of increased taxation pressures, including doubling of value added tax on fuel to 16 percent and enforcement of a 1.5 percent housing levy on gross payrolls of employees that employers match.
The levy, which the High Court ruled unconstitutional end of November but gave authorities 45 days to appeal, is a gross-on-gross taxation on workers' income where the Kenya Revenue Authority uses the same gross pay to calculate Pay As You Earn, hence a form of double taxation.
“The policy measures required to mobilise necessary revenues have been difficult, but they were our only way and means of escape,” Dr Ruto said on December 12 when the country marked 60 years of Independence.
“Though painful, the sacrifices we have made, which would not only make our freedom fighters proud but were also absolutely necessary at such a time as we found ourselves in to guarantee our nation’s economic stability.”
The bleak prognosis on the rebound in sales was reflected in findings of 2023 KPMG East Africa CEO Outlook which suggested in November that 70 percent of business leaders expect their firms to grow in the next three years, a drop of 10 percentage points over last year’s confidence levels.
The optimism among chief executive officers polled from Kenya, Tanzania, Uganda, Rwanda and Ethiopia in July and August 2023 is the lowest since 2020 when it sank to 32 percent on lockdowns and shutdowns.
A measly two percent of the companies KPMG surveyed expect earnings to grow by more than five percent in three years, with the leaders of the remaining firms projecting sales to rise at a slower pace.
The Federation of Kenya Employers (FKE) in November said that the rising cost of doing business has pushed about 70,000 people out of work or nearly three percent of the workforce, in the formal private sector out of employment between October 2022 and November 2023.
The lobby further warned that 40 percent of its members were planning to lay off workers by end of 2023 to cope with the rising cost of operation and protect profit margins.
“Inflationary pressures and cash flow difficulties saw customer spending declining, and the rate of job losses increasing in the private sector because of weaker output and reduced workloads,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report for November.
