14 March 2019

Kenyan Firms Review Targets As Economic Activity Slows

Cash flow constraints, unfavourable weather conditions and weakening demand for goods and services put the Kenyan economy on a slow start of 2019, according to newly-released data.

A market survey by Stanbic Bank Kenya, a subsidiary of South Africa's Standard Bank Group, found that the overall rate at which Kenyan firms produced goods and services in February dropped to a 15 month low.

The bank's Purchasing Manager Index (PMI), which measures the health of the economy, fell from 53.2 in January to 51.2 in February, the lowest since November 2017.

The index's readings above 50 signals improvement in business conditions compared to the previous month, while readings below 50 show a deterioration.

Jibran Qureishi, Stanbic Bank's economist in charge of East Africa, said he expects some improvement in March with the start of long rains.

"The first quarter of the year is usually associated with dry weather conditions, so it is not surprising that the PMI is falling. This is cyclic and as the long rains commence in March, activity generally tends to recover, boosting domestic demand," he said.

The survey found that some firms facing a decline in sales had resorted to lowering prices to attract new clients but this had the effect of worsening their cashflow positions with the rise in input costs.

Input prices increased steadily midway through the first quarter with firms citing increased food and raw material prices as well as the impact of taxation on input costs.

Staff wages also rose at a faster rate than in the month of January on account of increased cost of living and employee overtime.

Activity on the Nairobi Securities Exchange slowed down with the NSE 20 Share Index dropping 21 per cent to 2,958 points in January 2019, from 3,737 points in the same period last year.

Kenya's National Treasury said public expenditure pressures, particularly wage-related recurrent expenditures and erratic weather patterns could impact agricultural output, energy generation and higher inflation this year.

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