Economy

Household cash crunch cuts business deals to 2-year low

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Most Kenyan consumers are struggling to afford goods. FILE PHOTO | NMG

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Summary

  • Falling demand due to continued weak circulation of cash in the economy saw companies report a monthly drop in new orders for goods for the first time since November 2017.
  • This was further exacerbated by increased prices of goods as a result of increased cost of raw materials largely due to supply chain disruptions from Coronavirus-ravaged China.

Kenya’s private sector activity dropped for the second month in a row in February to hit lowest levels in more than two years as consumers struggled to afford goods and firms grappled with increased cost of raw materials.

Falling demand due to continued weak circulation of cash in the economy saw companies report a monthly drop in new orders for goods for the first time since November 2017, a monthly survey showed on Wednesday.

This was further exacerbated by increased prices of goods as a result of increased cost of raw materials largely due to supply chain disruptions from Coronavirus-ravaged China, according to Stanbic Bank Kenya’s Purchasing Managers Index (PMI).

“Firms reportedly lost sales due to a lack of money held by domestic customers, amid ongoing cash flow issues in the economy,” Stanbic Bank and UK’s Markit said in a statement.

“Nevertheless, output prices were raised solidly as firms faced greater cost pressures from inflated raw material prices. Firms noted that shortages of raw materials also inflated total costs, linked to reduced imports from China due to the coronavirus outbreak.”

The resultant headline PMI declined further to 49.0 from 49.7 in January, the lowest level since November 2017 when the reading was 42.9. PMI readings above 50 signal an improvement in business conditions on the previous month, while those below 50 show deterioration.

The survey is a measure of month-on-month business activity such as production, new orders and employment based on feedback from around 400 corporate managers largely in services, manufacturing and agricultural sectors.