The Kenyan private sector bounced back in May after a ‘very difficult’ April as firms enjoyed a solid rise in new business and slight output increase, the Stanbic Purchasing Managers Index (PMI) shows.
Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The headline PMI reading rose from 49.3 in April to 51.3 in May to signal a modest uplift in the health of the Kenyan private sector. A PMI reading above 50.0 indicates improved business conditions while that below the 50.0 mark denotes deteriorating conditions.
It was the first increase in the headline index in five months and the fastest improvement in business conditions since January.
When the lender released its April PMI, it reported that the business environment was at its worst since November 2017 as the PMI had fallen to a 17 month low.
Fast forward, new orders across the private sector grew solidly midway through the second quarter of May 2019, after relatively little growth in the previous month.
Several panelists interviewed by the lender reported acquiring new clients, including ones from abroad with export sales increasing at the softest rate for 16 months.
With new orders rising, output levels expanded at Kenyan firms in May.
However, the increase was marginal and weaker than that seen throughout the last sequence of growth, which ended in March.
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This was partly due to continuing cash flow problems in the economy. However, many businesses were still able to raise activity in line with higher demand.
“Purchasing activity was also up from the previous month, albeit extending the trend of weakening growth to six months. Notably, many firms held back on purchases as input prices rose at a marked pace,” reads the PMI “The rate of inflation was the highest since last October, as new taxes such as importation fees on commodities came into effect. Firms responded with the quickest rise in selling charges this year so far,”
Meanwhile, Kenyan businesses resumed employment growth, noting a modest rate of job creation after a slight fall in April.
Panelists mostly related this to higher demand levels and increasing marketing roles. Despite this, firms were unable to keep up with new orders as backlogs grew at the fastest rate since last September.
According to Stanbic, business sentiment also ticked up in May, reaching the highest in nearly five years. While firms were buoyed by a renewed rise in new orders, they also cited further growth factors over the coming year.
Some panelists noted hopes of greater economic stability and fewer cash flow problems, while others looked to plans of new branch openings.
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Commenting on the PMI, Jibran Qureishi, Stanbic’s Regional Economist for the East African region said “Activity in the Kenyan private sector recovered in May after the agriculture sector slowdown witnessed over the past couple of months,”
“However, both input and output costs rose sharply in May perhaps due to higher power and transport costs. In any case, should the government clear arrears owed to the private sector as promised on Madaraka day, private sector activity could benefit from a huge boost.”
