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Reduced spending by consumers as a result of high cost of living and reduced cash flow is beginning to have negative impact on growth, a new survey reveals.

Latest labour market survey by GeoPoll says low demand has forced several businesses to apply the brakes on hiring as they contend with sluggish consumer spending, higher interest rates and the impact of a strong dollar.

It is now projecting a decelerated employment rate, noting in its analysis that the situation could last several months amidst uncertainty over the frail economy, adding that recruiters are becoming more tentative about hiring new staff.

The Africa MSME Pulse Survey Report 2023 by the firm, which sampled 110 Kenyan companies between mid-December 2022 and mid-January 2023, also cited inflation rate, lingering effects of Covid-19, political uncertainty and supply issues as some of the other reasons employers were trimming their workforce.

“The likelihood of businesses hiring staff in the next three months varies dramatically by country. In Kenya, the largest segment 45 per cent claim it is “not likely,” the survey findings by the leading research organisation read in part.

Such challenges, according to the report’s drafters, has seen business owners contribute personal savings to support struggling businesses on reduced economic activities as they cope with the impacts of high cost of living.

Economic disruption

They point at large-scale signs of widespread economic disruption in the markets where the survey was conducted namely, Kenya, Nigeria, Ethiopia and South Africa. Several businesses, particularly in Kenya, have abandoned agency marketing models in favour of their own internal team to market their products and services, mainly via social media outlets to cut costs.

With six months into the new administration, the William Ruto – led regime is no closer to solving one of the economic debates of 2023, according to local economists.

“The situation has been compounded by the low cash circulation in the economy. This is because counties are yet to pay suppliers and development projects have also dried up, meaning less money in the hands of people to go around,” said Peter Macharia, an economist.

Economists have been forecasting an economic downturn for months now, and most like Macharia, see no sign of letting up, at least not just yet.

“The government relies heavily on tax collection to oil its operations, but the manner in which it is overtaxing Kenyan businesses could see more companies fold altogether. They are shooting themselves in the foot,” said Macharia who also runs a digital lending firm Jijenge Credit Limited.

Whether the economic downturn is deep or shallow in these early weeks of 2023 is up for debate, but the idea that the economy is going into a period of contraction is pretty much the consensus view among economists.

“What you will see if this carries on (choking taxation) is capital flight where investors will look to markets like Rwanda, DRC or Ethiopia where profit margins are likely to be realised,” Samuel Nyandemo who teaches economics at the University of Nairobi said in a telephone interview.