- Kenya protests led to a steep decline in business activity in July.
- Kenya’s private sector reported backlogs of work build-up and lengthened supplier lead times.
- In the month under focus, however, rates of inflation remain muted.
July 2024 has proven to be a turbulent month for Kenya’s economy, as widespread protests wreaked havoc on the nation’s private sector. The resulting decline in business activity and output has raised concerns about the long-term implications of political instability on Kenya’s economic health.
According to the Stanbic Bank Purchasing Managers’ Index (PMI) survey Kenya protests, which started in June with calls for the rejection of Finance Bill 2024, have triggered a significant downturn in business conditions, posing grim implications for various sectors, and the broader economy.
The PMI Plunge: A stark indicator of economic strain
The Stanbic Bank PMI report for July 2024 offers a sobering snapshot of the state of Kenya’s private sector. The headline PMI figure plunged to 43.1 from 47.2 in June, signaling a marked deterioration in business conditions—the steepest decline since April 2021.
A PMI reading below 50.0 indicates contraction, and this sharp drop highlights the severe impact of ongoing protests on the Kenyan economy.
According to the report, the primary drivers of this decline were notable reductions in output and new orders. Businesses struggled to operate amid the chaos, with many unable to open due to blockades or disruptions caused by the protests.
Customers, wary of the political instability, held back on new orders, further compounding the woes of already struggling businesses.
Christopher Legilisho, an economist at Standard Bank, aptly summarized the situation: “The July PMI is a fair representation of business activity during the month. Private sector business activity deteriorated, reflecting ongoing demonstrations and unrest in parts of Kenya for some weeks now, discouraging output and new orders. Business operations were disrupted, and customers delayed spending decisions due to the uncertainty.”
Sectoral impact: Agriculture and beyond
The Kenya protests have not spared any sector, but the impact has been particularly pronounced in agriculture–the country’s economic pillar. The Stanbic Bank PMI survey indicates that four of the five broad sectors covered saw a decrease in business activity, with agriculture suffering the sharpest decline.
This downturn in agriculture is alarming, given that the sector is a critical pillar of Kenya’s economy, providing employment for millions and contributing roughly 22 percent to the country’s GDP.
Manufacturing, on the other hand, was the only sector to post a rise in output during this tumultuous four-week period. However, even this growth was not enough to offset the overall decline in economic activity.
The construction sector, usually a robust contributor to economic growth, also faced challenges, with delays in project completion exacerbated by the protests, the survey notes.
The protests disrupted the supply chain, leading to delays in receiving purchased items from suppliers and the accumulation of backlogs of work. For the first time in 10 months, suppliers’ delivery times lengthened, reflecting the extent of the disruption caused by the unrest, which has slowly morphed into a push calling for the ouster of President William Ruto.
The backlogs of work also accumulated to the greatest extent since March 2023, indicating that businesses are struggling to keep up with demand amid the ongoing instability.
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Rising Costs and Inflation: A Double Whammy
As if the disruption to business operations wasn’t enough, companies also had to contend with rising costs in July. The PMI report noted that input costs increased for the second consecutive month, driven by high living costs and increased taxation.
This rise in costs inevitably fed through to higher selling prices, although the rate of inflation remained softer than in 2023.
Legilisho highlighted the cost pressures faced by businesses: “There was a slight increase in input prices, purchase prices, staffing costs, and output prices, reflecting the higher cost of living and taxation.”
However, he also pointed out that the impact of these price increases varied across sectors, with agriculture, services, and wholesale and retail trade seeing price hikes, while construction and manufacturing experienced price declines.
Despite the challenging environment, some businesses attempted to offset rising costs by scaling back purchasing activity and reducing stocks of inputs. However, these measures were not enough to prevent a modest increase in output prices for the third consecutive month.
This situation presents a double-edged sword for businesses: raising prices to cover costs risks alienating already cautious consumers, while absorbing the costs could erode profit margins.
Fragile confidence: The road ahead amid Kenya protests
Perhaps the most concerning aspect of the Stanbic Bank PMI report is the sharp drop in business confidence. The report indicates that confidence levels were the second-lowest on record, only marginally above the historic low seen in February 2024.
This fragility in confidence reflects the deep uncertainty that pervades the Kenyan business environment today, driven by the ongoing protests and a worsening political stability.
Legilisho captured the essence of this fragile sentiment: “Notwithstanding reduced overall activity, job levels expanded for a seventh month in a row as firms increased their capacity to address mounting backlogs which have been exacerbated by the protests. Business confidence about the coming year weakened to a level last seen in February and was still relatively fragile.”
The decline in confidence is particularly worrying because it suggests that businesses are becoming increasingly pessimistic about the future. This pessimism could lead to further cutbacks in investment, hiring, and expansion, creating a vicious cycle of economic stagnation that could be difficult to break out of.
The human cost: A ripple effect on livelihoods
Beyond the statistics and economic indicators, the Kenya protests have a profound human cost. The disruption to business operations has had a direct impact on employment and livelihoods.
While the PMI report noted a fractional increase in employment as firms sought to address backlogs, the overall picture is one of uncertainty and insecurity for workers.
With many businesses struggling to stay afloat, job losses could become a harsh reality for many Kenyans. The protests have also exacerbated the already challenging cost of living, with rising prices for basic goods and services further straining household budgets.
For many Kenyans, the economic fallout from the protests is not just a matter of abstract numbers—it is a daily struggle to make ends meet.
Navigating the storm in the months ahead
The July PMI report serves as a stark reminder of the fragility of Kenya’s economic recovery in the face of political instability. The Kenya protests have dealt a blow to the private sector, leading to sharp declines in output and new orders, rising costs, and a worrying drop in business confidence. As the country grapples with the aftermath of these protests, the road to recovery will be long and challenging.
For Kenya to navigate this storm, it will require not only a resolution to the political tensions driving the protests but also targeted economic policies to support businesses and restore confidence. The government, in collaboration with the private sector, must work to create an environment where businesses can thrive, jobs can be secured, and the economy can regain its footing.
As Kenya counts the cost of the July protests, the focus must now shift to rebuilding and ensuring that the lessons learned from this period of unrest are used to strengthen the resilience of the nation’s economy for the future.
