A report released by Stanbic Bank Kenya indicates that business conditions for the month of April deteriorated for the first time since November 2017. This deterioration saw a decline in activity and employment as a result of poor weather conditions and intensifying cash flow issues.
According to the report, new orders for businesses were broadly unchanged from March after continuous growth since the end of 2017. As such firms were forced to reduce output prices whereas input prices rose at a quicker pace as drier than expected weather inflated commodity prices.
The headline figure derived from the survey conducted by Stanbic is the Purchasing Managers Index (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration. In March the headline figure was 51.0 while April had a figure of 49.3 signaling a deterioration of business conditions.
Cash flow issues were also noted by many firms reporting falling new orders in April. As such, private sector sales were broadly unchanged from March, ending a 16-month period of growth. New export orders were seemingly unaffected though, with latest data pointing to another sharp rise in sales from abroad. Weakness around output and new orders led firms to reduce employment slightly in April, the first fall in job numbers since late- 2017. Purchasing activity and stock levels continued to rise, albeit at a weaker pace than in March.
Input price inflation in the private sector economy reversed its recent trend, accelerating for the first time in seven months. This was mostly due to a faster increase in purchasing costs led by higher commodity prices as a result of drier weather conditions. Firms also noted a rise in fuel prices in the latest survey. At the same time, output charges at Kenyan firms dropped, as firms looked for new customers whilst sales growth slid to a halt.
Nevertheless, business sentiment remained strongly positive in April, dipping only slightly from March’s 54-month high. Firms related their optimism to plans to improve efficiency and expand into new markets over the coming year.