Kenya polls cast shadow over private sector

Tuesday July 18 2017

Youth attend a campaign rally ahead of the

Youth attend a campaign rally ahead of the Kenyan election. PHOTO | FILE  

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The private sector in Kenya has recorded the worst performance in recent times as uncertainty surrounding the August 8 election continues to impact businesses.

A decline is already manifested in economic growth, with GDP expanding by 4.7 per cent in the first quarter of 2017 against a government target of 5.5 per cent.

In comparison, Uganda’s private sector has maintained an upward trajectory, with output, new orders, employment and purchase of stocks posting growth, according to a Stanbic Bank survey.

South Africa, which is also experiencing political and economic upheaval, registered a slight deterioration in overall private sector operating conditions.

The private sector in Kenya is in decline due to political uncertainty and a credit squeeze, caused by the government’s capping of interest rates.

While the government continues to maintain a brave face, insisting the economy is on a strong footing, massive layoffs across various sectors and the near collapse of the retail sector paint a bleak picture.

Over the past fortnight, two leading commercial banks, Barclays and Standard Chartered, have announced plans to close down some branches while leading retail chains Nakumatt and Uchumi supermarkets are hanging on a thread.

“The private sector continues to slow down due to the political uncertainty ahead while reduced access to credit has also led to subdued domestic demand,” said Jibran Qureishi, a Stanbic Bank economist.

He added that with the August election in Kenya taking centrestage and banks limiting credit access, the private sector is bound to remain in the woods for some time.

Data provided by the Central Bank of Kenya shows that lending to the private sector fell to 4.3 per cent in December 2016 compared with more than 17 per cent a year earlier.

Due to mounting pressure to abolish rate caps from the International Monetary Fund and other multilateral institutions, Kenya has formed a committee to review the impact of the interest rates law and advice on the way forward.

According to the Stanbic Bank Purchasing Managers’ Index (PMI) survey, Kenya’s private sector activity deteriorated from 49.9 in May to 47.3 in June due to a fall in output as new orders remained stagnant. This is the third contraction in the past four months.

The PMI survey ranks readings above 50 as an improvement in business conditions, while readings below 50 connote deterioration.

In Uganda, the private sector posted a performance improvement of 52.8 in June, up from 51 in May, the fifth rise in as many months.

Rise in output in the construction, industry and service sectors outweighed declines in the agriculture and wholesale and retail sectors.

The survey shows showed that both output and new orders increased for the fifth successive month although new export orders fell, suggesting that demand for goods and services in key export markets declined.