Sectors hit hardest hit by anti-tax protests revealed
A welder cuts through a piece of metal at a mobile phone shop under repairs which was broken into located at RnG Plaza along Ronald Ngala Street on July 4, 2024.
Photo credit: Francis Nderitu | Nation Media Group
Retailers, construction firms, and farmers were the hardest-hit by the countrywide anti-government demos, which have paralysed business in major towns, findings of a closely watched survey have suggested.
The sectors bore the brunt of anxiety over new and higher tax proposals in the now-dropped Finance Bill 2024, with overall private sector sales falling at the steepest pace in seven months.
The youth-led anti-tax protests, which started a fortnight ago, have morphed into anti-government demos after President William Ruto conceded and declined to assent to the Bill, recommending that lawmakers delete all clauses.
Findings of the Stanbic Kenya Purchasing Managers Index (PMI) — based on feedback from about 400 corporate managers in key sectors — suggested on Wednesday that customers “withheld spending decisions due to uncertainty around the country’s finance bill”.
That hurt output in all key sectors covered except manufacturing where respondents reported an uptick.
“After two months of increased purchasing activity by firms, there was a dip in purchasing quantities and inventories because of reduced sales in several sectors, namely construction, agriculture, wholesale, and retail,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report for June.
“Input prices, purchase prices, and output prices recorded a mild increase in anticipation of the increased taxes proposed in the Finance Bill 2024. However, a stronger exchange rate and lower pump prices managed to restrain costs.”
Overall, June’s PMI— a measure for month-on-month private sector activity such as output, new orders, and employment— fell at the sharpest pace in seven months to 47.2 from 51.8 in May.
The protests, which have been infiltrated by hired goons, resulted in near shutdowns in Kenya’s four cities and major urban centres on days of demonstrations.
The now dropped new and higher taxation measures targeted to raise an extra Sh346 billion to fund a nearly Sh4 trillion budget for the year starting July.
Dr Ruto was banking on the new taxes and expenditure cuts largely targeting non-essential expenditures such as hospitality and renovation of offices as well as slashing allocations for semi-autonomous government agencies to place the country on the path to a balanced budget by 2027.
A balanced budget will mean keeping borrowing at bare minimal levels, something the country has failed to achieve in the past, including Ruto’s first full financial year in power ending this month.
The plan involved cutting the budget deficit from 5.7 per cent of gross domestic product, a measure of economic output, in the current financial year to 3.3 per cent of GDP in the financial year starting next month.
This was partly to comply with an IMF programme that requires Kenya to increase taxes as well as cut expenditures to keep the deficit in the budget to minimal levels.
“After registering a solid expansion midway through the quarter, private sector output dropped markedly in June, in line with a renewed and steep fall in new business intakes,” analysts at Stanbic Bank and American analytics firm, S&P Global, said in the PMI report for June.
“According to panel members, tough economic conditions brought on by the cost-of-living crisis, as well as protests surrounding the country’s finance bill hurt sales volumes.”
The PMI report suggests that job opportunities in the private sector grew at the weakest rate since the beginning of the year. The labour market is likely to get tough after scores of businesses were looted by goons allegedly hired by some politicians to infiltrate the initially peaceful street protests.
