Firms are banking on digitisation, cost management and business diversification to mitigate both external and internal factors posing threat to growth of enterprises in the near term.
Increased taxation, cost of doing business, high inflation and the weakening shilling stand out as domestic factors that could constrain firm’s growth in the near term. Externally, firms highlight energy prices, macroeconomic volatility and global inflation as threats to their expansion.
A Central Bank of Kenya (CBK) CEO Survey sought to establish internal and external factors that could strengthen firms’ outlook over the next 12 months. The survey results highlighted skills retention and development, increased marketing, strong supply chains, strengthening of corporate governance and union relationships as top internal factors that could strengthen firms’ outlook.
“Firms expect to mitigate these constraining factors through management of costs and risks, diversification of their businesses, and digitisation of their operations,” notes CBK in the survey.
“A stable macroeconomic environment, a stable Kenya Shilling and an enabling business environment were highlighted as other factors that could strengthen firms’ outlook in 2023.”
The September 2023 CEOs Survey revealed that company, sectoral and global growth prospects in the next 12 months remain largely unchanged. However, prospects for improved agricultural production and easing inflation boosted optimism for growth of the Kenyan economy.
On the prospects for global growth, respondents expect these to improve slightly, but risks to global growth remain, in particular the war in Ukraine and the subdued global economic outlook. Business activity in third quarter of 2023 remained subdued compared to second quarter of 2023 due to high input costs and reduced consumer demand.
Nevertheless, increased business activity was reported for some firms especially those in tourism, financial services, motor vehicle manufacturing and education. Surveyed firms expect improved business activity in 2023 Q4 on account of seasonal factors. Expansion into new markets, customer centricity and talent management, remain the key drivers of firms’ growth.
The Survey which was conducted between September 4 and 15, 2023 inquired from CEOs their levels of confidence/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.
In addition, the Survey interrogated CEOs on business activity in 2023 quarter three (Q3) compared to 2023 quarter two (Q2), and their expectations for economic activity in the fourth quarter of 2023 (Q4).
Firms in the agriculture sector expect that business activity will remain largely the same. Seasonal factors are likely to affect demand in critical export markets. Further, firms are concerned about the impending El Nino rains, which are likely to impact production with crops being affected by pests and diseases. Businesses in the manufacturing sector expect a marginal improvement in the business conditions.
“Firms expect increased demand due to seasonal factors, but price increases could dampen demand. Consequently, the priority for businesses will be sustained volume growth while keeping output prices largely at the same level.”
In the services sector, firms expect increased business activities due to a rise in demand for products and creation of new partnerships with counterparties in the industry. Firms in financial services, wholesale and retail and tourism expect increased demand for their services, due to seasonal factors. Purchase prices are expected to remain elevated for firms across all sectors. In terms of operating capacity, the Survey findings show that most respondents were operating below capacity and could increase production if there was an unexpected increase in demand/orders.
Firms reported that capacity was still significantly higher than demand hence abundant room for expansion. Firms which reported possible difficulty in expanding their operations cited reduced orders and customer inability to bear higher prices, thus difficulty to operate at full capacity. Other reasons cited included low turnaround time and low revenues, unpredictability of the business environment and constrained cash flow.
