Kenyan Private Sector Shows Strongest Growth Since Early 2022
Business activity in the Kenyan private sector reached its highest level since February 2022 in October, driven by a more favorable economic environment. This positive trend was highlighted by the monthly Private Sector Purchasing Managers’ Index (PMI), which showed an increase to 52.5 points in October, up from 51.9 points in September. Readings above 50 indicate improvement in business conditions compared to the previous month, while readings below 50 signal deterioration.
The report noted that companies observed a further improvement in sales intake as the broader economy strengthened. Rising demand encouraged firms to increase their purchasing activity for the first time since April. Additionally, the improved economic environment was supported by a milder increase in business expenses, with input costs rising at the slowest pace in over a year.
According to the report, the PMI survey indicated a continued rebound in the Kenyan private sector following disruptions caused by protests in the second quarter of the year. Output and new business intakes increased for the second consecutive month, with both growth rates accelerating. The latest expansion in output was the strongest since December 2021.
Notably, the wholesale and retail sector was the only one to see a noticeable uptick. Several firms mentioned offering discounts to attract sales as economic activity improved. Firms frequently cited robust demand conditions amid improving economic prospects, along with the impact of new product launches and promotional pricing strategies.
All main sectors monitored by the survey experienced an upturn in activity in October, contributing to a broad-based increase in input procurement. Total purchasing activity rose for the first time since April. There were also some initiatives to enhance workforce capacity, although the pace of job creation remained marginal.
Businesses reported relatively stable conditions regarding supply chains and price pressures at the start of the fourth quarter. Lead times shortened for the ninth consecutive month, with panelists often attributing efficiency gains to subdued input demand in recent months and increased vendor competition.
However, the pace of improvement eased from September’s four-year high. With purchases increasing and delivery times improving, Kenyan firms were able to expand their input inventories during October.
Price Trends and Inflation
Regarding prices, firms indicated that input costs rose in October, but only marginally. The overall rate of inflation was the slowest in 13 months, with both purchase prices and overall wage costs increasing at a slower pace than in September. Firms mainly cited a combination of rising import prices and higher taxes, including increases in VAT and fuel duties.
Output prices also increased, but the rate of growth was similarly modest. Notably, the wholesale and retail sector was the only one to see a noticeable uptick. Several firms mentioned offering discounts to attract sales as economic activity improved.
Future Outlook
Output expectations dipped to a four-month low in October, yet they remained among the strongest since early 2023. Exactly 20 percent of survey respondents forecasted an increase in activity by October next year, while the rest maintained a neutral outlook for the private sector.
According to Christopher Legilisho, an economist at StandardBank, businesses also reported quicker deliveries reflecting increased efficiency and vendor competition. However, firms were less optimistic about future output conditions. Employment was stable in October for most firms as they maintained their workforce, while backlogs shrank as they cleared outstanding orders.
“Pricing indicators were soft in October, as input prices, purchase prices, staff costs and output prices increased only modestly. Low price pressures imply that, while output conditions have improved, they are not fueling demand-driven inflation.”