Economy

Business squeezed between low output and elections fever

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Stanbic regional economist for East Africa Jibran Qureishi. FILE PHOTO | NMG

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Summary

  • Business leaders are also concerned about inflationary pressures due to higher fuel costs and a general increase in raw material prices.
  • They blame the slowdown on activity on the upcoming elections, weaker purchasing power and a lower customer turnout.

Kenyan businesses reported lower output and demand for goods and services in May as they continued to suffer financing constraints which have hampered operations.

The latest Stanbic Bank-HIS Markit Purchasing Manager’s Index survey shows that business leaders are also concerned about inflationary pressures due to higher fuel costs and a general increase in raw material prices.

They blame the slowdown on activity on the upcoming elections, weaker purchasing power and a lower customer turnout.

“The PMI contracted again as output subsided and growth in new orders slowed. Panelists continue to attribute the deteriorating conditions to financial constraints and weak consumer demand due to the upcoming elections in August,” said Stanbic regional economist for East Africa Jibran Qureishi.

“Despite higher costs, firms reportedly offered discounts to attract customers amid intensive competitive conditions.”

As a result of the slowdown in output, the headline PMI index fell below the 50 point threshold for only the second time since the survey was started in 2014, to stand at 49.9.

It had fallen to a low of 48.5 in March this year before recovering to 50.3 in April.

PMI readings above 50 signal an improvement in business conditions on the previous month and vice versa.

Businesses, however, reported a rise in employment in spite of the lower output as they anticipate a rise in new orders going forward especially from the export side.

The recovery of business confidence in the country is however dependent on a peaceful general election, as well as taming of rising cost of living.

Businesses suffer a direct cost when the prices of fuel (transport) and electricity goes up. High inflation also sees their employees demand higher wages to compensate for the higher cost of survival, putting pressure on expenses.