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Supply chain disruptions will persist in coming months forcing Kenyan firms to jack up prices hence dragging economic recovery efforts, a report based on local purchases shows.

Local companies indicatedsustained efforts to stockpile inputs in May, signalling concerns of shortages in the supply chain. It was the fourth straight month such a situation is happening, according to the Kenya Purchasing Managers’ Index (PMI), which raised the red flag over a shrinking services sector.

Among the contributing factors include increased demand for supply of goods, port congestion, shipping issues, lack of inventory and dysfunctional markets brought by the Russian invasion of Ukraine and lingering Covid-19 knocks.

Business confidence

“Business confidence dropped to a record low for the third straight month in May, amid increased uncertainty over supply chains, inflation, geopolitical tensions, and the resulting impact on sales in domestic markets,” reads the Monday survey findings.

These are the latest signs of mounting economic pain amid rising inflation rates, and weakening value of the Kenya shilling, even as the country readies itself for national elections planned for August 9.

Businesses reported a drop in activity during the month, for the second consecutive month, with the latest S&P Global Kenya Purchasing Managers’ Index registering a fall of 48.2 from 49.5 a month earlier. The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) dropped below the 50.0 no-change mark in April, having slid to 49.5 from 50.5 in March.

The 50.0 mark separates growth in activity from contractions and readings below 50 show a deterioration.

“Economic activity in Kenya contracted for the second consecutive month in May due to inflationary pressures that resulted in a drop in customer demand and a reduction in firms’ output. Input price inflation remained at an 8-year high driven by rising fuel prices, higher taxes, and input shortages,” noted Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.

Worrying however, is growing anxiety over a looming elections that may force firms revert to hoarding, as rising shipping costs and difficulties in importing stocks abound.