Companies last month reported a drop in trading activities for the first time in more than three years, a monthly survey showed yesterday, underlining a tough operating environment for the private sector.
The Stanbic Bank-HIS Markit Purchasing Manager’s Index said the key driver of the overall contraction in private sector activity was due to reduced demand by consumers due to financial constraints. This resulted in a decline in production for most firms.
The seasonally adjusted PMI dropped below the 50 threshold for the first time since the survey began in February 2014 to 48.5 in March. The reading was 50.1 in February.
“Most indicators of activity showed deceleration, pointing to weaker underlying demand conditions, exacerbated by financial constraints faced by customers,” Stanbic Bank’s regional economist Jibran Qureishi said in a statement. “Despite increased cost burdens, firms offered discounts to attract customers amid intense competition.”
Businesses surveyed reported a marked rise in purchase prices which intensified their total cost pressures. This is linked to a general increase in market prices for raw materials and higher fuel prices.
The survey shows that growth of new business eased to a record low in March, while there was evidence of ongoing pressure on operating capacity. The rate of job creation was marginal.
The index shows that production contracted for the second month in a row. New orders continued to expand, although the rate of growth eased to a survey record-low.
“Data showed that higher exports contributed to the upturn in total new work as a result of increased demand from abroad and new export markets. Outstanding business increased again during March,” Qureishi said. “Despite increasing work-in-hand, the pace of job creation at Kenyan private sector firms was only marginal.”
In February, firms attributed the slowdown to slower credit growth.
Most firms said they had taken a hit from declining credit growth since the enactment of the law capping interest rates in September 2016.
Figures published by the Central Bank of Kenya show private sector credit growth dropped to 4.3 per cent in December 2016 from 17.8 per cent the previous year.
Analysts say banks have become “choosy” on who to give credit under the Banking (Amendment) Act, 2016 which caps lending rates at four per cent above the Central Bank Rate, currently at 10 per cent.