Political Stability Drives Private Sector Growth In December

A less volatile political environment drove up Kenya’s private-sector activity which improved for the first time in December since April 2017.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index released yesterday shows that private-sector economic activity rose to 53.0.

Panelists reported that reduced political tensions and improved customer demand were the key factors behind greater output.

The monthly indicator which is based on activity in the manufacturing and services sector shows that readings above 50 signal an improvement in business conditions, while any lower readings indicate poor performance in the private sector.

The survey shows that this was the fastest expansion since December 2016 when business activity was reported at 54.1.

The prolonged electioneering period and tighter access to credit resulted in reduced consumer spending throughout most of 2017. Less cash movement in the economy consequently led to a decline in output, new orders, employment and stocks of purchase.

Evidently, the monthly survey shows that private-sector activity plunged to a record-low in October at 34.4 points.

The seasonally adjusted PMI has been operating below the 50 points line since May, when it posted 49.9. In June, it dropped to 47.3 before gaining to settle at 48.1 in July.

In August, it dropped to 42 points before shrinking further to 40.9 in September, from which the health of the Kenyan private sector began to rebound in November rising to 42.8.

The report cited that a less heated political climate encouraged greater customer turnout during the period. As per the survey, new export orders also shot up for the first time in five months indicating more demand for Kenyan products in international markets.

“In response to greater output requirements -and subsequent capacity pressures- firms increased their payroll numbers during December,” the report stated.

The report also indicated higher consumer prices during the period as a result of increased cost of production.

“Subsequently, firms added to their pre-production inventories, thereby ending a four-month sequence of depletion. Overall, the rate of accumulation was the most pronounced since January,” the report stated.

Stanbic Bank regional economist for East Africa Jibran Gureishi said going forward the private sector would recover, backed by increased activity in the agriculture and tourism sectors.

“Looking ahead, we remain optimistic that growth will recover over the coming year supported by the agriculture and tourism sector, while a resumption in public spending will also add some much needed stimulus,” he said.

In 2017, Kenya’s private sector was also hit by poor credit access as a result of the interest rate cap law and a prolonged drought period.

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