Kenya’s private sector activity improved for a fourth straight month in August as firms saw a faster expansion in new businesses compared to July, according to the latest PMI survey data by Stanbic bank.

The improvement in the Markit Stanbic Bank Kenya Purchasing Managers’ (PMI) headline index which rose to 51.1 from 50.6 in the previous month, was attributed to increased demand during the month, as well as employers’ hiring ability.

Those readings have remained above the 50.0 neutral mark for the fourth month in a row. 

Readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

The upturn in job numbers, for instance, was the quickest since May when the private sector recorded one of its best performances in the pandemic period, but only modest overall and slower than the series long-run average.

During the month under review, employment rose in all five main categories  with construction sector sector  registering the sharpes increase, while manufacturing, services and wholesale and retail saw only modest rises. 

Market activity

Agriculture firms reduced their selling prices on the month. According to survey respondents, the recovery in market activity after the Covid-19 lockdown drove an improvement in cash flow and customer demand. 

“In August, the pace of the recovery in business conditions accelerated driven by higher levels of demand and employment,” commented Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank.

Business environment took a hit last month due to the country’s high taxation regime which kicked off on January 1, which had a knock-on effect on the production costs for most businesses and marked the toughest third quarter for employers.

Equally, higher fuel costs and input shortages also hampered business growth during the month.

Effective January 1, 2021, through the Finance Act, 2020, the government introduced among other tax measures, a 1.5 per cent tax on income from services accrued or derived in Kenya through a digital marketplace.

The tax is applicable on the gross transaction value of the service provided and is due at the time of payment.

It also introduced a minimum tax of 1 per cent on gross turnover as well as the rate of Value Added Tax  from 14 per cent in 2020 to 16  per cent.

The return of 16 per cent Value Added Tax (VAT), for instance, continues to divide policy makers with businesses, particularly those in real estate, publishing and supply feeling the heat. 

The survey panel predicts a favourable last quarter of the year owing to improved macroeconomics as seen in the softening of inflation rate in the month of August.  

“Looking forward, the slower increases in input and output prices reported could support further improvements in demand should less stringent public health restrictions be maintained,” noted the survey.

The rate of inflation softened considerably from July’s 16-month high, but was nevertheless broadly in line with those seen in the prior two months. 

Tax increases

Where costs rose, firms continued to highlight recent tax increases on products, alongside material shortages and higher payroll expenses.

The overall year on year inflation rate as measured by the Consumer Price Index (CPI) was 6.57 per cent, in August 2021. 

This was mainly driven by rise in prices of commodities under: food and non-alcoholic beverages (10.67 per cent); transport (7.93 per cent); and housing, water, electricity, gas and other fuels (5.07 per cent) between August 2020 and August 2021.