Flaccid output growth, lingering tax burdens, and pandemic anxiety leave four-fifths of Kenyan firms unwilling to bet on the future.
By Staff Writer
Only 21% of executive respondents projected an expansion in output over the coming twelve months. That single figure, pulled from the August Stanbic Bank Kenya Purchasing Managers’ Index (PMI), details a profound erosion of corporate morale. The headline seasonally adjusted index rose marginally to 51.1 in August from 50.6 in July. Yet beneath this top-line expansion lies a clear structural slowdown. Business confidence slumped to a near-record low, remaining barely above the historic nadir recorded in April 2020.
The divergence between demand metrics and executive sentiment presents a curious conundrum. Demand returned across most of the domestic market. Sales expanded across four of the five monitored sectors, with only manufacturing reporting stagnant conditions. According to survey panellists, “the recovery in market activity after the COVID-19 lockdown drove an improvement in cash flow and customer demand.” Export markets provided additional momentum. Panellists highlighted “a rise in demand from clients in Europe and the Middle East, in particular.” Consequently, new export order volumes accelerated to a three-month high.
Despite stronger order books, output growth dropped to its lowest level in four months. This decoupling of sales and production suggests operational friction. Workloads accumulated as a result. The index tracking backlogs of work pointed to the fastest rate of accumulation since January. In response, companies resorted to modest hiring sprees. Employment expanded for the fourth consecutive month, with workforce additions recorded across all five main monitored sectors.
Input price inflation softened to a six-month low following July’s sharp spike. “A recent increase in taxes on products and imported goods continued to push purchasing costs higher in August, but the rate of inflation cooled markedly from July,” noted the report. Shortages of raw materials and transport bottlenecks continued to delay supply chains, although vendor competition helped keep delivery times falling overall. Staffing costs rose marginally, with companies reporting conflicting wage pressures. “Some firms raised employee salaries as part of bargaining agreements, whereas others reduced them due to a loss of sales.”
With input costs moderating, price pressures passed on to consumers eased. Pass-through inflation dropped to its lowest rate in 2021. Construction remained the sole sector registering a sharp rise in output charges, whereas manufacturing, services, and wholesale and retail posted only modest increases. Agricultural firms actively cut their selling prices.
This temporary relief in cost pressures failed to reverse the broader institutional inertia. Capital expenditure remains constrained, with purchasing activity and inventory stocking expanding at their weakest rates since May. A full 79% of surveyed firms offered a neutral 12-month outlook. Reports of “ongoing economic instability linked to the pandemic” dominated executive responses. The nominal gains in sales volumes mask a fundamentally fragile commercial landscape, where firms are merely clearing immediate backlogs rather than committing capital to long-term expansion.
