A January 2024 Central Bank of Kenya (CBK) survey shows that a majority of sampled CEOs expect improved or unchanged business activity in the first quarter of 2024.
- The interviewed CEOs reported higher or unchanged volumes of business activity.
- They also reported that they continue to hold onto unutilized inventory due to low consumer demand.
- The forecasted rainfall is, however, expected to yield a good harvest, hence some let up on input costs.
Firms in the agriculture sector expect improved business activity on account of seasonal factors. This latest CBK report shows that firms in the flower industry in particular, expect increased demand, production, and sales associated with the Valentine’s Day celebrations. The forecasted rainfall for the first quarter of 2024 is further expected to boost agricultural production in general.
In the services sector, firms expect improved business activity due to seasonal factors. Firms in the tourism sector expect continued activity in the first quarter as businesses resume their normal operations after the December holidays. According to the CBK Survey, the majority of businesses in the manufacturing sector expect business activity to be the same or lower.
Elevated Input Costs
The CEO Survey indicates that purchase prices are expected to remain elevated for firms across all sectors. This is due to high interest rates regime, increased taxation, and the impact of a weaker Shilling, with global geopolitical tensions potentially affecting supply chains.
The Survey findings show that most firms were operating below capacity and could increase production if there was an unexpected increase in demand/orders.
- Firms have reported holding high inventory, sufficient to cover demand increases.
- Firms also reported possible difficulty in expanding their operations and cited difficulties in securing finances for working capital.
- Other reasons cited included increased overhead costs, notably, the cost of electricity, fuel, labour, and an increase in taxation which has worsened the cost of doing business.
The Survey sought to establish the drivers of firm expansion and growth, domestic and external factors that could constrain their growth and/or expansion over the next year, and their mitigating factors.
The results show that talent management, expansion into new markets, and customer centricity are the key drivers of firms’ growth over the next year. The CBK also points to key concerns of many chief executives including the business cost of doing business, high inflation, increased taxation, and a rapidly depreciating Kenya Shilling exchange rate against the US$ and other major world currencies.
The business environment and the economic environment were of greater concern for firms in the services sector. In the manufacturing sector, firms were more concerned about the business environment and the exchange rates.
- Firms in the agriculture sector on the other hand were most concerned about the business environment, and increased taxation.
- With the recent easing of global inflation, CEOs interviewed expressed more concern about increasing geopolitical tensions even as they continued to be concerned about energy prices and macroeconomic volatility.
- Agriculture sector firms were most concerned about geopolitical tensions while manufacturing and services sector firms were most concerned about energy prices and macroeconomic volatility, respectively.