Kenya’s Private Sector Moves Back Into Growth as New Orders Accelerate. Here’s What Could Still Hold Businesses Back.

Kenya’s private sector returned to growth in July, with the Stanbic Bank Kenya PMI rising to 51.3 from 50.0 in June. A reading above 50 means business conditions improved from the previous month, while one below 50 means they worsened. July was the first month since February that the index rose above 50, ending four months of stagnation or decline.

Firms hold back on price increases
Businesses largely avoided passing higher costs on to customers in July, even as fuel, transport and material expenses remained high. Only 15% of surveyed firms raised their prices during the month, meaning price increases slowed sharply from June’s record high to their weakest pace since April. This came even as about 37% of companies said their operating costs had risen. Overall business costs also remained close to the 31 month high recorded in June. The gap suggests that some firms chose to absorb part of the extra costs instead of passing them fully to customers, potentially putting pressure on their margins as they sought to protect recovering demand.

Orders rise while production falls
Even as businesses faced higher costs, demand continued to improve, with new orders rising at the fastest pace since January. Firms attracted customers through referrals, marketing campaigns and new products and services, extending the recovery in orders into a second consecutive month. However, stronger demand did not translate into higher production. Output declined for the fifth consecutive month as elevated costs and pressure on company cash flows restricted activity. Although the decline was the weakest during that period, firms were still unable to fully respond to improving sales.
Supply problems added to the pressure. Delays in receiving imported components contributed to a second consecutive monthly increase in unfinished work, while supplier delivery times lengthened again because of input shortages and higher costs. Some firms increased their stocks to guard against shortages and meet stronger demand, while others reduced them to preserve cash.

Hiring and confidence improve
As orders increased, businesses hired more workers to deal with heavier workloads, with employment rising at the fastest pace so far this year. Much of the increase came from short term workers. Businesses also became more optimistic about the year ahead, with confidence reaching its highest level since February 2023. Firms expected demand to improve and also pointed to diversification, innovation and efforts to strengthen their supply chains.
Overall, the July survey shows a recovery that is still facing constraints. Businesses are receiving more orders, hiring more workers and becoming more optimistic, but high costs, pressure on cash flows and supply delays are still making it difficult to increase production.