Captain of industries in Kenya fears that business activities will remain muted in the second quarter of the year due to the ongoing global financial strain.

While respondents in the latest CEO Survey by the Central Bank of Kenya (CBK) expect inflation to ease in the near term, the cost of inputs notably electricity and farm inputs are expected to leave business activity essentially at the same level as in the quarter ended December 31, 2022.

According to the survey, businesses witnessed low activities in the first three months of the year to Q4 2022, with professional services, real estate and manufacturing sectors most affected owing to domestic inflation, limited availability of foreign exchange and seasonal factors.

The rate of those expecting demand, production and sales to rise in the coming quarter ending Jue 30 reduced by an average of 12 per cent.

Those expecting demand to rise in the quarter ended March 31 was at 25.5 per cent compared to 31 per cent in the previous quarter.

The number of CEOs expecting demand to remain the same rose to 47.3 per cent. Those expecting the demand to decrease also rose to 38.7 per cent compared to 23.7 in the quarter ended December 31, 2020.

Close to 17 per cent reported improved production in the quarter under review while 47.3 per cent and 38.9 per cent reported the same and reduced growth respectively.

The Survey inquired from CEOs about their levels of optimism in the growth prospects for their companies and sectors, as well as the growth prospects for the Kenyan and global economies over the next 12 months

"Business optimism about the company and sectoral growth prospects was tempered by concerns over domestic inflation, weakening of the Kenya Shilling, prolonged drought and cost of credit,'' CBK says.

However, some respondents remained optimistic about specific growth strategies that they have put in place to grow their firms. Firms in the professional services, manufacturing, tourism, ICT sectors also reported opportunities for growth in their respective sectors.

The agriculture sector continued to report higher optimism for the growth of their companies on expected rains and the government fertilizer subsidy programme which is expected to boost agricultural production.

Respondents were more concerned about the prolonged drought which has resulted in the sixth season of failed rains thereby negatively impacting production.

They were constrained by the increased cost of farm inputs, which they have been unable to pass on to consumers due to already depressed demand.

The majority of the respondents in the manufacturing sector reported lower or the same growth prospects for their company and sector over the next 12 months.

The respondents cited a significant increase in the cost of production due to the weakening Shilling, constrained availability of foreign exchange for imports, increased labour costs as well as increasing electricity costs as factors that were expected to dampen growth.

Additionally, respondents noted that consumer demand continued to reduce due to high inflation. In the services sector, respondents highlighted that growth prospects for the EAC region were likely to be beneficial, particularly for the ICT sector.

Growth in the tourism and travel industry was also expected to benefit from seasonal factors, with forward bookings from the leisure market looking positive.

Respondents in the healthcare sector reported positive growth prospects supported by the Government’s push for universal healthcare and the sector’s strategic positioning as an essential service provider.

Nonetheless, the prolonged drought, rising cost of living and political undercurrents were cited as threats to the country's growth prospects. On the global economic threats posed by the lingering war in Ukraine and the persistent inflation in advanced economies.

Increased government spending associated with the close of the government fiscal year is expected to support business activity while seasonal factors may also support agriculture, transport and storage firms.

Optimism regarding growth prospects for the Kenyan economy weakened, weighed down by domestic inflation, which has reduced consumer spending.

On the growth of the global economy, respondents attributed their subdued optimism majorly to the lingering war in Ukraine, interest rate hikes in advanced economies and the effects of the collapse of two banks in the U.S.

The reduced optimism in growth prospects led to a fall in the overall Business Confidence Index to 9.8 per cent from 29.8 per cent between January and March.

Optimism regarding growth prospects for the Kenyan and global economy weakened.

It was weighed down by domestic inflation, which has reduced consumer spending, weakening shilling and persistent drought.

Respondents attributed their subdued optimism for the growth of the global economy majorly to the lingering war in Ukraine, interest rate hikes in advanced economies and the effects of the collapsed banks in the U.S.