Business conditions in Kenya deteriorated sharply last month on the back of uncertainty over the General Election, according to the latest Stanbic Bank-HIS Markit Purchasing Manager’s Index. The situation is likely to persist after the Supreme Court nullified the Presidential election.
The private sector activity slid to 42.0 points in August from 48.1 in July, hitting fresh lows since the series began in January 2014.
The overall downturn was driven by a fall in business activity.
The index cited low money circulation and weak demand conditions as the key reasons given by panelists for fallen output.
New orders fell for the first time in the survey’s history. Firms attributed the decline in domestic demand to a lower customer turnout due to the political climate and weaker purchasing power among clients.
“Notably, the anxiety around a tense General Election in August was one of the major factors that weighed down the private sector; however this angst is likely to extend over the coming months due to the recent decision by the Supreme Court to nullify the presidential election result,” said Jibran Qureishi, the economist for East Africa at Stanbic Bank.
New export orders fell for the first time in over three years as international demand for Kenyan goods and services was reduced.
Employment in the Kenyan private sector also fell during August, the first decline in the survey history.
“The decision by the court is indeed a reflection of Kenya’s strengthening institutions and will certainly appease the foreign investor community.
That said, as we have been pointing out previously, the promise of the private sector remains under risk should the ease of access to credit remain a challenge,” said Mr Qureishi.
The markets have reacted negatively to the ruling.
The new presidential poll, which by law must be held within 60 days after the ruling, is set to usher in short-term turbulence in the financial markets which normally thrive on policy and political certainty.
A political standoff is likely to brew between the main parties before the new poll after opposition leader Raila Odinga made a raft of demands including removal of the Independent Electoral and Boundaries Commission (IEBC) officials on Tuesday.
