Business activity rebounds first time since August

Kenya’s private sector activity rebounded to the first growth in seven months on rising orders largely because of softening growth in inflation, prompting companies to raise the output of goods and services.

The Stanbic Kenya Purchasing Managers Index (PMI) for February rose to 51.3 from 49.8 in January, signalling growth in business activity.

This marked the first expansion since last August. It is also the fastest growth in month-on-month private sector activity since January 2013 (52.0).

The report shows that February was only the third time in 13 months that the private sector has posted expansion in business deals, pointing to a tough operating environment due to elevated price pressures, weakening shilling, high taxation and increased regulatory risks.

“There was a notable expansion in private sector activity in February, with output increasing in agriculture, manufacturing, and services. However, construction and wholesale & retail activity slipped. Firms noted improved consumer demand as assisting higher output and new orders,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report on Tuesday.

“Increased new orders spurred inventory stocking, with some firms statedly wanting to avoid product shortages during the year. However, expectations for 2024 remain subdued; the index for future expectations hit its weakest level on record.”

Demand grew at the fastest pace since January 2023, prompting the companies to raise output to deliver the orders.

This came at a time when February inflation — a measure of increase in cost of goods and services over the previous year — grew at the softest rate in 23 months on moderating food prices. 

Read: February inflation eases to 23-month low

Private sector activity had shown signs of rebound in August last year after President William Ruto reached a deal with opposition chief Raila Odinga to end violent anti-government protests over escalating food prices through bi-partisan national dialogue. The protests and tension had in July 2023 had slowed down business in major towns, with a near total shutdown in capital Nairobi’s central business district on July 7.

The Ruto administration had also introduced a short-lived price cushion on fuel last August, lessening the burden of doubled value-added tax on fuel costs to 16 percent.  The end of the fuel price cushion, amid other price pressures, pushed the input and output costs up, cutting orders and prompting firms to cut on workforce for four straight months through last December.