Kenyan private sector companies saw a solid improvement in business conditions in October, as new orders rose at a sharp rate, albeit slightly softer than in September, the latest Markit Stanbic Bank Kenya Purchasing Managers Index (PMI) survey revealed on Tuesday.
The headline PMI dropped from 54.1 in September to 53.2 in October, nonetheless signaling a solid improvement in the health of the private sector economy, noted the report.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
However, according to the report, cash circulation issues continued to restrain business activity, leading to further backlog accumulation.
“Private sector activity was softer in October as firms again lament what they term as ‘cashflow’ issues. We have in the recent past linked this to the combination ofdelayed payments of arrears owed to the private sector which was also compounded by the interest rate capping law,” said the regional economist at East Africa Stanbic, Jibran Qureishi.
“The imminent repeal of the interest rate cap is indeed a positive move and will embolden commercial banks to price credit risk again and more importantly for SMEs,” he added.
Input price inflation slowed to a two-year low, allowing firms to reduce their selling charges for the first time since April. Output expectations weakened to a ten-month low amid reduced optimism for the future.
New business received by Kenyan firms was up sharply during October, despite a slower rate of growth compared to September.
Surveyed businesses were encouraged by a strong inflow of new clients, often related to referrals from previous customers, noted the report.
“It was also noted that efforts to improve marketing strategies and service quality helped to increase demand. Sales to foreign clients meanwhile rose at a sharp, and faster, pace,” added the survey.
The PMI is based on data compiled from a survey sampling approximately 400 private sector companies, which have been carefully selected to accurately represent the true structure of the Kenyan economy, including agriculture, mining, manufacturing, services, construction and retail.
JK/APA