Kenya’s CEOs have identified ten internal factors and another eleven external areas that could strengthen their organizations’ outlook in the next 12 months.
- •Improved efficiency, diversification of revenue streams, and development of new products top internal factors identified by the chief executive officers drawn from over 1000 private sector firms in a Central Bank of Kenya CEO Survey conducted in March, 2024.
- •Other internal factors they say are necessary to drive growth in the next 12 months include cost containment, skills retention, increased marketing, automation, strong supply chains, corporate governance and union relationships.
- •CEOs have identified stable economic environment, easing cost of doing business, and certainty and resolution of taxation issues as external factors that could strengthen outlook over the next 12 months.
“In terms of domestic factors that could constrain their growth, respondents continued to highlight the business environment (cost of doing business), increased taxation, the economic environment (high interest rates), and reduced consumer demand,” said CBK in the CEO Survey Report.
The business environment, increased taxation, and the economic environment (high interest rates) were key concerns for Chief Executive Officers leading firms in the services sector.
In the manufacturing sector, firms were more concerned about the business environment, increased taxation and low consumer demand. Meanwhile, the business environment and the weather conditions were of more concern to the firms in the agriculture sector.
The Survey sought CEOs perceptions on business activity in the first quarter of 2024, and respondents reported improved business activity in 2024 Q1 compared to 2023 Q4.
Firms reported increased demand orders, production volumes and growth in sales, albeit with unchanged number of full-time employees. Though elevated, input and purchase prices were lower in 2024 Q1 compared to 2023Q4, largely on account of easing commodity prices.
Business activity in the manufacturing sector remained subdued, largely due to the low consumer purchasing power and the increased cost of production, particularly cost of energy and credit. Firms in the services sectors reported mixed business activity supported by seasonality and sector specific demand. Firms in the financial services sector, education, ICT and communication, professional services, health, real estate, wholesale and retail trade reported increased activity.
The survey conducted by Central Bank between March 11 and 22 this year inquired CEOs levels of confidence in the growth prospects for their companies as well as the growth prospects for the Kenyan and global economies over the next 12 months.
On expectations of business activity in the second quarter of 2024 relative to the first quarter of 2024, majority of CEOs reported expectations of increased business activity in the next quarter.
Most respondents in the manufacturing sector expect business activity to either remain the same or increase, largely driven by seasonality factors. Firms expect to utilize their existing idle capacity to meet the demand.
Firms in the services sector expect improvement in business activity, supported by seasonality factors and sector specific growth in demand. However, liquidity constraints, high cost of operations, uncertainty around taxation, and geopolitical risks are likely to weigh down the sector performance.
Firms which reported possible difficulty in expanding their operations cited difficulties in securing finances for working capital and high overhead costs. Other reasons cited included subdued demand.
Agriculture sector firms expect improved business activity in the next quarter, supported by good weather conditions in line with the long rains season. This is expected to boost agricultural production. However, majority of the respondents expect the sales prices to remain unchanged or be lower due to increased supply.
“The findings of the survey show that most respondents are operating below capacity and could utilize the idle capacity if there was an unexpected increase in demand/orders. Majority of the firms reported high inventories sufficient to cover a sudden increase in demand. Some firms reported possible difficulties in expansion, particularly due to liquidity constraints, increased cost of borrowing, and increased cost of production, (particularly cost of energy), issues around taxation, and infrastructure.”
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