Kenyan Private Sector Struggles Amid Rising Inflationary Pressure

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In November 2023, Kenya’s private sector found itself grappling with substantial inflationary pressures, as indicated by the Stanbic Purchasing Managers’ Index (PMI). These pressures stemmed primarily from the relentless surge in fuel prices and the persisting fragility of the local currency. The report underscored that input costs soared at an unprecedented pace, marking the most rapid escalation since the inception of the survey nearly ten years ago.

Escalating Costs Prompt Record-Breaking Price Hikes

Consequently, companies were compelled to hike their selling prices at an unprecedented rate. This circumstance led to a challenging demand environment in November, as the inflated prices gnawed away at consumer purchasing power, triggering a significant downturn in new business. Consequently, output levels took a hit, with companies resorting to implementing their joint-fastest workforce reductions since mid-2020.

Understanding the Purchasing Managers’ Index (PMI)

The Purchasing Managers’ Index, a critical metric derived from the survey, offers valuable insights into the prevailing business conditions in the preceding month. Readings above 50.0 indicate an improvement, while readings below 50.0 suggest a decline.

October PMI Indicates Weakening Private Sector Health

In November, the headline PMI recorded a notable decline at 46.2, marking a drop from September’s 47.8. This downward trajectory signaled a significant weakening in the private sector’s overall health. This decline rate was the second-fastest since August 2023, closely resembling the substantial downturn witnessed in July. Notably, the index displayed an 8.0% deterioration compared to October 2022, when it registered at 50.2.

Factors Contributing to Escalating Expenses

A staggering 46% of the surveyed firms reported a surge in total expenses compared to September. These cost escalations were attributed to the relentless surge in fuel prices, resulting transportation costs, the persistent fragility of the local currency, and heightened tax burdens. These escalations had a profound impact on client demand and overall business activity.

Downturn in New Orders and Output Levels

The latest survey data revealed a sharp and accelerated decline in new order volumes, affecting all five sub-sectors, particularly dealing a blow to the construction and wholesale & retail sectors. Likewise, output levels contracted sharply, surpassing the contraction witnessed in September.

Caution Remains Amid Business Expectations

Consequently, business expectations for the upcoming twelve months remained cautiously optimistic in October, with firms exhibiting a moderate level of positivity that remained largely unchanged from September. It remains imperative for the Kenyan government to take prompt and effective action to address the soaring fuel prices and mounting inflationary pressures, aiming to alleviate further harm to the struggling private sector.

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