Private sector activity drops due to lack of money at households

Wednesday, February 5th, 2020 22:20 |
Cash. Photo/PD/Courtesy

DEMAND: Kenya’s private sector activity dropped in January to a level last hit in April, hurt by lower household demand and poor weather that slowed output in many businesses, a survey showed yesterday.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) for manufacturing and services fell to 49.7 in January from 53.3 in December. Readings above 50 indicate growth.

“Overall activity levels contracted solidly at the start of the year, as firms reported that a lack of money at households led to much softer demand pressure,” the survey report said.“Poor weather conditions also curbed output at many businesses.”

Economic growth

The finance ministry said in January economic growth probably slowed to 5.6 per cent last year, compared with government’s initial estimate of about 6 per cent, and from 6.3 per cent in 2018.

The ministry expects growth of 6.1 per cent this year, while the Central Bank forecasts economic output will expand 6.2 per cent in 2020. Kenya removed a cap on lending rates in November. 

The cap, put in place in 2016, was blamed for stifling private sector credit growth, especially to small businesses.

Jibran Qureishi, regional economist for East Africa at Stanbic Bank, said this would help improve business conditions.

“Business confidence for future output soared, which doesn’t come as a surprise given some of the recent reforms such as the repeal of the interest rate capping law and ongoing clearance of private sector arrears,” he said.

Kenya abolished control on the cost of loans last year after Parliament failed to raise the required two-thirds majority or 233 lawmakers to overturn President Uhuru Kenyatta’s memorandum on the removal of a controlled interest rate regime.

The repeal was a big win for commercial banks, the Central Bank of Kenya and international financial institutions such as IMF and World Bank which had all been pushing for the removal of rates caps, arguing that the law had failed to achieve its purpose of freeing affordable credit to the private sector.

Banks avoided lending to the private sector particularly to micro, small and medium-sized enterprises whom they consider high risk borrowers and instead channelled their funds to risk-free government securities in the rate cap era. – Reuters and PD Reporter

More on News