Kenya’s economy is projected to grow by 5.5 percent in 2023 and above 6.0 percent over the medium term. This growth will be reinforced by the Government’s Bottom-Up Economic Transformation Agenda geared towards economic turnaround and inclusive growth.
By Steve UMIDHA
Kenya’s private sector activities contracted for a second straight month in October, with manufacturers and services firms in a monthly survey of purchasing managers both reporting weaker client demand.
It is the latest evidence of an economy softening in the face of high inflation, rising fuel prices and deteriorating value of the local currency – a cocktail of which increased production costs.
Kenya Purchasing Managers’ Output Index (PMI) by Stanbic Bank, fell to 46.2 per cent during the review month from 47.8 percent a month earlier, in what is an indicative of a solid deterioration in the health of the private sector.
The rate of decline was the second-fastest since August 2022 and close to the marked downturn seen in July.
Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.
“The Kenya Purchasing Managers’ Index (PMI) deteriorated markedly in October. Output and new orders contracted across all sectors surveyed, with new orders falling the fastest in the construction, wholesale and retail sectors.
Cost-of-living pressures and cash flow difficulties saw customer demand declining, while weaker output and lower workloads led to an increased rate of job cuts,” noted the firm’s economist Christopher Legilisho.
A soft landing in the business cycle is the process of an economy shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession. It is usually caused by government attempts to slow down inflation.
Inflation pressure
Indeed, Kenya’s annual inflation rate (KECPI=ECI) rose slightly last month, with price rises for fuel, transport and food important contributors, according to data by the country’s statistics agency – the Kenya National Bureau of Statistics (KNBS).
Inflation reached 6.9% year-on-year in October, up from 6.8% a month earlier.
On a month-on-month basis inflation was 1.0%, the same as in September.
In mid-October the country’s Energy and Petroleum Regulatory Authority announced a rise in prices of petrol, diesel and kerosene for the month ahead, crossing the Sh200 mark for the first time in the country’s history two months ago.
The KES, on the other hand, has been undergoing noted volatility against the US Dollar. The shilling lost 5% value against the US dollar in the period from January to March 2023, compared to a 1% depreciation in a similar period in 2022.
As the gap between Kenya’s interest rates and US and European rates has narrowed, the shilling has become less and less attractive, putting the currency on a downward spiral of depreciation. It is unlikely that the shilling will gain ground in 2023.
The US Federal Reserve remains committed to a course of higher interest rates, meaning the US dollar is likely to remain strong – with the latest Currency Exchange Rates at 1 US Dollar selling at 150.6 Kenyan Shilling as of Tuesday October, 31.
Most Kenyan businesses—regardless of their size— retain a positive or neutral outlook on the performance of the economy and their businesses over the next three years.
Their optimism, according to the report’s drafters, appears to be supported by official economic growth forecasts.
What to expect ahead
The latest Output Index (PMI) by Stanbic Bank now further shows that business conditions worsened amid a rapid pick-up of cost pressures across the private sector economy, with survey data signaling the strongest rise in input prices since data collection started in 2014.
About 46% of monitored firms reported that total expenses had increased from September, driven by a further uplift in fuel prices and associated transport costs. In addition, companies noted that ongoing currency weakness and increased tax burdens had added to costs.
In order to maintain sufficient margins, Kenyan companies also reported an unprecedented increase in selling prices in October, with the rate of inflation climbing above the previous high in mid-2022.
With economic conditions appearing to toughen, Kenyan firms tightened spending on inputs and labour. Employment numbers were reduced at the joint-strongest rate since June 2020, following a renewed (but slight) fall in September. Purchasing activity also dropped, albeit only modestly.
Impacts of Global geopolitics and the looming US elections
The globalization of the policy- making Process has changed the context in which most states function in Africa.
Global geopolitics and the looming U.S. elections – slated for Tuesday, November 5, 2024, naturally have significant impacts on Africa, Kenya included, as they shape foreign policy, international relations, and economic dynamics that affect the continent.
“As investors navigate this landscape, they should be mindful of the potential market dynamics and political factors that could influence their investment decisions in the lead-up to the 2024 election,” according to Rufas Kamau, a market analyst at https://www1.equiti.com/ on his projections for the remainder of the year or Q4 2023.
Chinese effect
China has emerged as sub-Saharan Africa’s largest individual country trading partner in the last 20 years. Today, one-fifth of the region’s total goods exports go to China.
China commonly funds the construction of infrastructure such as roads and railroads, dams, ports, and airports. Sometimes, Chinese state-owned firms build large-scale infrastructure in African countries in exchange for access to minerals or hydrocarbons, such as oil.
There is something clever about the Chinese that enables them to penetrate the rest of the world quietly.
They are brilliant in self-effacing and stress their weakness even as they flex geopolitical muscles. They study other states in order to determine the mode of engagement.
In the process, China emerges as a global force that others have no choice but to acknowledge, and that will continue despite China’s economic activity remaining subdued according to another expert, Nadia ElBilassy, a market analyst from fintech firm provider of online trading technology and multi-asset financial products, https://www1.equiti.com/.
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