Kenyan firms experienced one of the worst conditions in March this year, as many suffered from pandemic-related fall in sales, shortage of raw materials and decline in the number of customers.
According to the latest Purchase Manager Index(PMI)Survey Data, the March readings fell significantly to 37.5, down from 49.0 in February 2020. This is the second-worst reading in the survey’s history.
Figures above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
“The sharp drop in the PMI doesn’t really come as a surprise. The negative impact of COVID-19 is quite broad-based and is likely to affect various sectors across the economy. However, the tourism and floriculture sectors have been hit the hardest so far, admittedly due to global cross border travel restrictions and waning luxury spending in markets such as Europe,” said Jibran Qureishi, Regional Economist E.A at Stanbic Bank.
Purchasing Managers’ Index™ (PMI™) surveys are now available in over 40 countries and also for key regions including the Eurozone. They are the most closely-watched business surveys in the world, favored by central bank officials, financial markets participants, and decision-makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends
Many Kenyan firms surveyed in March, said worries around the virus meant that customers canceled or reduced new orders, leading to a steep fall in total sales. This is the second-worst reading in PMI’s history in Kenya.
New orders from foreign clients declined at a record pace in March as the pandemic led to a marked reduction in exports worldwide. Kenyan businesses particularly noted a drop in new orders from Europe.
For the first time in 11 months, companies reported less pressure on both current workload requirements and backlogs. Input buying also reduced, leading to a solid decline in inventory levels.
The shortage of many raw materials in March is attributed to the pandemic, with firms sourcing their inputs from China, one of the most affected nations.
Thus, the price of raw materials has risen at the quickest pace since June last year. While weaker demand for inputs led to faster delivery, reduced availability meant that the rate of improvement was only modest.
Some firms raised prices to counteract falling sales revenues, but others reduced prices in an effort to revive consumer demand.
Despite increase in confirmed COVID-19 cases in Kenya, firms remain optimistic about the future. Many have cited plans to widen products and services and open new branches. Others have put their plans on hold until the virus is brought under control.
“Sourcing raw materials from markets such as China has been cumbersome. Yet, Chinese factories are likely to restart production as early as mid-April which may somewhat soften this negative impact. Arguably, there will be a notable impact on economic output this year as supply chains globally are disrupted and negative demand shocks are felt too. But of course timing will be everything. The longer the duration, the more acute or severe the impact will be,” said Mr Qureishi.