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Business executives have warned that the next three months of the year could see a wave of small businesses struggle to stay afloat as the cost of sustaining operations surge.

They say the country is in a crisis which most of them concede has not been seen in decades. The concern comes at a time the country has been ranked the most difficult place for businesses after South Sudan in the East African region.

A report dubbed Ease of Doing Business in the East Africa Community (EAC) by the East African Business Council indicates that Kenya performed moderately with an index score of 3.43, putting it at position six out of the seven partner States surveyed. What this means is that if one is contemplating a start-up business, they are better advised to reassess their options or better still, hire a business advisor for their target venture.

Business environment

“One will have to make a significant business pivot in order to survive in the current business environment as an entrepreneur or would- be business owner, because it is tougher now than before,” says Peter Macharia, an independent economist.

With the current economic uncertainty, Macharia who also runs a micro-lending firm Jijenge Credit Limited says, business owners might throw a wrench into their plans (of starting a business or sustaining already existing but struggling ventures).

Small and medium sized enterprises (SMEs) have found themselves sitting on a powder keg – having to put up with unusual economic instability caused by  recent fiscal measures by the State aimed at raising more money through taxes, fluctuating currency exchange rates as well as the high cost of fuel.

Many businesses are also repaying loans they were forced to take out, first during the Coronavirus pandemic and the periods that follow, when the country went into a political “wait-and-see” mood and the European conflict that has been a major blow to the global economy and one that continue to hurt growth and has raised commodity prices.

Food and energy prices significantly pushed up inflation, in turn eroding the value of incomes and weighing on demand globally.

For a long time now, the only time local businesses showed slight improvement was last month, when the August Purchasing Managers’ Index (PMI) by Stanbic bank, estimated Kenya’s index at 50.6 during the month, up from 45.5 in July.

The headline PMI signalled an expansion in business conditions for the first time since January. However, the index was only slightly above the 50.0 mark, indicating that the expansion was only marginal. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration. This cocktail of challenges has already proved lethal to some. “Tough business conditions and inflation pressures remain a pressing concern for Kenyan businesses, as input prices and staffing costs were seen rising due to a weaker exchange rate as well as higher taxes related to the recently enacted tax measures in the Finance Act,” said Christopher Legilisho, an economist at Standard Bank.

What’s worse, some small businesses are also faced with the looming demands for higher wages and salaries with their net earnings having been squeezed with the introduction of enhanced national insurance contributions on National Hospital Insurance Fund (NHIF) and National Social Security Fund (NSSF) as well as the affordable housing levy at 1.5 percent of the gross monthly salary.

The higher cost of fuel for instance and other basic commodity items means a growing divide between the wealthy and the middle or working class, with the latter facing significant financial headwinds owing to a brittle economic outlook.

Labour market

While inflation – a measure of the cost of living over a 12-month period, has eased to 6.7 percent, which is within the official target of between 2.5 and 7.5 percent, most Kenyan households will end the year on a low.

Kenya’s new tax package for instance, a host of which were back-dated to July 1, have disrupted the local labour market, with employers in many sectors like auto and manufacturing industry confronting a truly tight equilibrium for the first time in decades and face the prospect of salaried employees’ ability to spend on luxury condensed by tough economic times.