Players in Kenya's private sector experienced modest growth in September, marking strong customer demand and better cash flows even as cost pressures persisted amid new hiring, the latest Stanbic Bank Kenya PMI states.

During the month under focus, the headline Purchasing Managers' Index edged up to 51.3 from a lower 49.7 recorded in August.

This uptick shows modest improvement in activity in Kenya's private sector, the fastest growth on record since January.

September growth, which matches July print in the sector was partly attributable to new business lines, uptick in demand, marketing and fresh capital injection across the industry.

Stanbic survey shows that fresh orders have been on the rise since June with a faster acceleration reported since August.

Yet the recovery remained uneven. Business activity contracted for the seventh month running, although the rate of decline was the softest in the current sequence and only slight. 

Firms once again signalled that inflationary pressures had dampened output, while some reported cutbacks linked to shortages of agricultural goods. Other companies, however, were encouraged by improving sales and recovering cash flows.

Sectoral performance diverged sharply with manufacturing, construction and services all recording expansions in September, while agriculture and wholesale and retail remained under pressure. Agriculture businesses struggled the most to complete orders on time, according to survey comments.

“New orders increased for a fourth consecutive month, supported by robust customer demand and improved cash flows, yet output contracted for a seventh straight month as higher fuel, transport and agricultural input costs, alongside material shortages, limited firms’ ability to convert sales into production,” said Christopher Legilisho, Economist at Stanbic Bank.

The survey pointed to renewed expansion in purchasing activity in September, following a four-month sequence of contraction. 

Employment continued to rise across the Kenyan private sector. The seasonally adjusted Employment Index indicated higher staffing levels for the fourth month running, which firms mainly linked to a rise in new business. 

Despite easing slightly to a four-month low, the rate of job creation remained quicker than the survey average. 

However, wage costs also rose during September. Despite softening from August’s seven-and-a-half-year high, the rate of increase remained historically strong amid reports of pay uplifts linked to cost-of-living pressures.

Around 30 per cent of monitored firms reported an increase in total input costs in September, compared with just 1 per cent seeing a fall. The rate of cost inflation also quickened from August, as panellists commonly noted higher prices for fuel, transport and agricultural products. Firms often remarked on an uplift in fuel costs, as well as increased prices for foodstuffs such as milk due to shortages.

As firms sought to maintain profit margins, average prices charged by Kenyan businesses rose sharply during September. One in five monitored companies increased their prices charged, whereas only 2 per cent reported a decline. 

About 31 per cent of survey respondents forecast a rise in activity levels over the coming 12 months, while the remaining firms gave a neutral outlook. Companies anticipating an improvement mostly commented on capacity expansion efforts, technology investments, increased marketing, and new products and services.

“The near-term outlook is therefore cautiously positive with demand momentum supportive of activity, but a sustained expansion will require an easing of cost pressures and improved input availability; otherwise, growth may remain modest and increasingly inflationary,” Legilisho warned.

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