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Kenyan businesses suffered a marked fall in demand at the start of the third quarter of the year, latest PMI data shows.

This was driven by customers continued reining in on spending amid steep inflation.

Political protests further accelerated the downturn, according to surveyed firms, leading to a sharp contraction in output the fastest since August last year.

A deterioration in the exchange rate and rising fuel prices and taxes culminated in another substantial rise in business costs in July, the latest Stanbic Bank Kenya Purchasing Managers’ Index indicates.

PMI is an economic indicator drawn from monthly reports and surveys form private sector manufacturers. It surveys product managers, who are the individuals that buy the materials needed for a company to manufacture its product

In the latest index, the rate of input price inflation was among the quickest since the survey began in 2014.

Output prices subsequently increased to a sharper degree as business optimism waned slightly, while jobs growth eased.

The headline figure derived from the survey is the PMI for July.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The latest reading indicated a greater slump in operating conditions over July, with the pace of deterioration accelerating to the fastest in almost a year.

At 45.5, the index was down from 47.8 in June, registering below the 50.0 neutral mark for the sixth month in a row.

Deteriorating operating conditions were driven by a sharp and accelerated fall in new business inflows, as Kenyan firms highlighted a drop in client demand due to the cost-of living crisis.

This comes even as inflation numbers eased with the Kenya National Bureau of Statistics reporting a 7.3 per cent index, down from 7.9 per cent.

Firms surveyed in the PMI however noted that political demonstrations had adversely affected sales with four of the five monitored sectors recording a decline in sales in July.

“July’s PMI headline trajectory comes as no surprise given events during the past month,"Economist at Standard Bank, Christopher Legilisho, said in a statement yesterday.

He noted political protests, an increase in pump prices by approximately Sh12.61 in July, the further tightening of financial conditions as well as a further depreciation of the shilling.

Kenya is estimated to lose about Sh3 billion a day when opposition-led countrywide protests are held, the Kenya Private Sector Alliance notes.

The Kenya Association of Manufacturers puts industry losses at about Sh2.86 billion, pegged on the about Sh1 trillion the sector contributes to the Kenyan economy annually, as per the Economic Survey 2023.

“Investors rely heavily on a stable political and social environment that assures the safety of their investments whilst guaranteeing that business operations will not be disrupted,” chairman Rajan Shah said.

Agriculture was the only category to post inside growth territory.

With overall sales falling rapidly, Kenyan businesses indicated a sharp drop in output over the course of July, which was the second-worst since 2017 when excluding lockdown-affected periods.

The Stanbic Bank Kenya PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.

The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.

In July, firms often noted that weak orders resulted in cash flow issues that limited activity.

Price pressures at Kenyan companies remained severe in July, amid reports of a sharp rise in input costs due to a decline in the shilling exchange rate.

Year-to-date, the shilling has shed about 15 per cent of its value from the Sh124.49 it averaged against the dollar in January. It was exchanging at Sh142.77 to a unit of the dollar yesterday.

Higher fuel prices and increased tax burdens were also cited, while some firms reportedly upped their workers' salaries amid the cost-of-living crisis.

Inflation seems set to stay stickily high due to Kenyan businesses facing intractable input, output and wage price pressures. The survey noted input price inflation in July as being higher than in June, and also the third highest since data collection began in 2014,” said Legilisho.

Notably, the rise in overall input costs was one of the sharpest seen since data collection began in 2014, resulting in a robust and faster uplift in selling charges.

Heightened costs and weak demand contributed to a cooling of employment growth in July, with firms posting only a slight rise in workforce numbers.

Concurrently, businesses cut their input purchases sharply, and ended a four-month run of inventory growth as stock levels were unchanged.

Lead times on inputs continued to shorten, but the rate of improvement slowed from June and was only mild.

Regarding future output, only 14 per cent of surveyed Kenyan firms forecast growth over the next 12 months, leading to a slight weakening in the overall level of confidence.