Why CEOs see better growth and job prospects in 2019

A majority of Kenyan private sector CEOs are projecting increased economic output this year, pointing to better prospects for the ever-rising army of jobseekers as well as entrepreneurs and employees seeking to improve their fortunes.

A fresh Central Bank of Kenya (CBK) survey which interviewed 249 chief executives of banks and non-bank firms said they foresee an uptick in production and demand for goods and services over last year’s level.

CBK, the financial services regulator, conducts a market perception survey every two months that forms the basis for the decision taken by the Monetary Policy Committee (MPC) to either increase, retain or lower interest rates through the benchmark Central Bank Rate, which has been steady at nine percent since last July.

“The recovery in economic activity began with the opening of schools in the New Year and was expected to accelerate as the year progressed,” CBK said in the report released on Tuesday.

The regulator has linked the private sector optimism to a stable macro-economic environment, largely shaped by interest rates, exchange rates and inflation, as well as low oil prices, rebound in tourism, strong remittance inflows and government-led infrastructure development projects.

“Respondents indicated that employment was expected to increase in the next two months driven by optimism in the business prospects for 2019 and expected growth,” the report states. “(This) would require additional employees, filling of existing gaps, increases in line with expected expansions (new branches), and in pursuit of more productivity in key operational and business areas.”

About 77.8 percent of the large banks surveyed expected demand for credit to be moderate to high despite the legal ceilings on loan charges, with those expecting high growth doubling to 22.2 percent compared with the previous survey conducted in November.

The bank chiefs say the demand is being driven by lower interest rates (at a maximum of 13 percent), consumer loans growth in the first two months of the year to fund education-related needs and expected demand for loans by farmers in February ahead of the long-rains planting season usually in March to April.

Optimism

They also cite optimism among Micro, Small and Medium Enterprises (MSMEs) in investment opportunities under the Big Four economic transformation plan, which focuses on manufacturing, universal healthcare, food security and affordable housing.

“However, respondents indicated that most borrowers were still in the planning stage of their business goals, with execution expected to be in the second quarter and that lower loan approval rates by banks had slightly dampened the demand for credit with some clients resorting to mobile loans,” CBK says.

The scrapping of the floor on deposit rates last September through the Finance Act 2018 has lessened the strain on cost of funds for banks, but credit supply continues to be constrained by challenges in pricing risks.

Loans held by private firms rose 4.4 percent to Sh2.42 trillion last November, latest CBK data shows, the highest growth since November 2016 following the onset of legal ceilings on loan charges at four percentage points above the Central Bank Rate (CBR).

The business leaders further project overall inflation – a measure of cost of living– to be in 5.3 to 6.0 percent range compared to 5.7 to 6.3 percent forecast at the beginning of 2018.

Lower inflation will likely keep input prices stable for manufacturers and maintain purchasing power of the consumers.

“The anticipation of favourable weather conditions and low food prices, the reduced cost of electricity, the low level of international oil prices and a stable shilling are expected to support low inflation in the next 12 months,” the CBK says.

“Respondents, however, pointed out that inflation during this period would depend highly on the weather pattern in 2019, which was yet to be published by the Meteorological Department.”