Kenya’s private sector has posted growth in business deals for the first time in seven months on easing political tension and moderating food prices, the findings of a closely watched survey show.

The Stanbic Kenya Purchasing Managers Index (PMI) survey found companies raised output in August, albeit marginally, prompting them to increase hiring at the fastest rate in two years.

The renewed growth in output was the first since January, according to the survey based on feedback from about 400 managers drawn from key economic sectors of agriculture, manufacturing, construction, wholesale, retail, services and mining.

This came in a month the country experienced a thawing of tension between the governing party and the opposition, ending violent anti-government protests in July over rising cost of living, amongst other grievances against the William Ruto administration.

“Survey panellists frequently cited that greater political stability led to a recovery in output, particularly in services and manufacturing,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for August on Tuesday.

“Job creation accelerated and purchasing activity picked up, whilst firms grew more confident about their output prospects.”

Investment decisions

The hard stance taken by ruling the William Ruto-led Kenya Kwanza Alliance and the opposition Azimio One Kenya Alliance coalition, headed by veteran politician Raila Odinga, had unnerved investors, prompting a delay in investment decisions.

Businesses in major towns and cities, including the capital Nairobi, for example, shut down on July 7 after the opposition leaders called for demonstrations over rising cost of food.

Demonstrations happened in three days from July 12, but the cases of business closures were fewer due to enhanced police deployment.

The ruling coalition and the opposition in August reached a deal on 10-member bi-partisan national dialogue team, shared equally, to negotiate issues emerging from the disputed outcome of the 2022 presidential election.

The team will report to Dr Ruto and Mr Odinga, before the resolutions, including input from the public, are presented to Parliament for approval.

The PMI reading — a measure for month-on-month private sector activity such as such as output, new orders and employment — for the month stood at 50.6.

This marked the first time since January the composite index ticked above the 50 level that separates growth from contraction in monthly private sector activity.

Firms sustained hiring for six months running in August largely to “boost in existing teams and support sales activities”, the report suggests, citing feedback from respondents.

This marked the longest run of expansion in workforce since the beginning of 2022.

“The latest increase in staffing was solid and among the quickest recorded for two years,” the report states, adding that increased hiring came at a time firms slowed pay raises to counter elevated inflation.

“The rate of wage inflation eased for the first time in this sequence [since March], after reaching a 13-month high in July. Wages were generally raised due to the higher cost of living.”

Kenya’s inflation slowed to 6.73 percent in August, the first time it touched below the seven percent mark in 16 months, on moderating growth in food prices.

A 21.16 percent depreciation of the shilling against the US dollar in the year through August, amidst a rise in fuel prices in July on doubling of value added tax to 16 percent, has kept the pressure on prices elevated in a net import economy.

Corporate production

The uptick in corporate production and sales was, however, mild.

Surveyed managers cited sticky growth in input prices and cash flow pressures for constraining growth in output, while the resultant high cost of final products hurt greater expenditure by customers whose earnings have been stagnant or negative in real terms.

"The August Purchasing Managers Index (PMI) implies economic growth recovering compared to July, as well as a likely positive economic performance in third quarter [July-September period] of 2023,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report.

“However, tough business conditions and inflation pressures remain a pressing concern for Kenyan businesses, as input prices and staffing costs were seen rising due to a weaker exchange rate as well as higher taxes related to the recently enacted tax measures in the Finance Act.”

A fifth of the surveyed corporate managers expect business activity to grow in the coming months, with some planning to open new outlets and others seeing their range of products and services widening.