NAIROBI, Kenya, Jun 4 – The Kenyan private sector continued to face sharp falls in the levels of activity and demand in May, amid ongoing travel restrictions due to the coronavirus pandemic.
This is according to the Purchasing Managers’ Index by Stanbic Bank Kenya, which saw May’s headline index rise to 36.7, from 34.8 in April.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.
Commenting on the report, Regional Economist for East Africa at Stanbic Bank Jibran Qureishi said business conditions have worsened in each month of 2020 so far, with the latest deterioration marked by historical standards.
During the month under review, output was noted to have declined at a steep pace, as companies reduced activity, and customers stayed away to lower transmission of the virus.
Employment levels were as a result reduced at a record pace, alongside a marked drop in input purchases.
The month also saw an overall fall in input prices, the sharpest in over five years, owing to ongoing efforts to lower spending and salaries. Subsequently, output prices were reduced as firms tried to salvage client sales.
Weak sales
The report also reveals that businesses reported lower activity due to weak sales, impacted by travel restrictions around Nairobi and Mombasa, which meant some firms were unable to acquire inputs.
Those surveyed for the report also noted that customers reduced spending due to a lack of cash and an unwillingness to travel for fear of catching COVID-19. Export sales were also down due to lockdowns in other countries.
“…due to weak domestic demand conditions, firms have looked to reduce overall output prices too. Given the tough economic environment, exacerbated by Covid-19, higher costs passed onto consumers initially resulted in a decline in sales.”
Job cuts
The report also found that businesses made additional cuts to employment, with the latest drop in workforces sharp and the quickest ever seen in the series history.
Firms linked this to lower demand and a worsening outlook, with the 12-month forecast for activity dropping to the weakest since August 2016.
“Business conditions have contracted for five consecutive months now. In fact, the employment sub-index fell by the sharpest level in May since data collection began. Consequently, the reduction in the workforce has reduced overall input prices for private sector firms,” he said.
Meanwhile, the impact of travel restrictions on supplier delivery times eased in May, with Kenyan firms seeing just a marginal rise in lead times overall. Vendors were partly helped by reduced traffic, while a further drop in input demand meant that suppliers were less busy compared to April.
Notably, efforts to cut purchases and employment costs led to a drop in overall input prices during May, the first time this has occurred since January 2015. Firms often noted reducing salaries due to a lack of new work, while energy costs also fell.
As result, output prices dropped solidly in May, marking the quickest decline since the series began in the start of 2014, as firms tried to secure customer sales and curb the negative impact of the pandemic.
Going forward, Qureishi warned the impact of the virus will be felt in economic activity in the second quarter of the year.
