A July 2023 CEOs Survey by Central Bank of Kenya(CBK) has revealed subdued business optimism about firms and sectoral growth prospects in Kenya on account of high interest rates, the political noise in the country, and the weakening Kenyan shilling.
This CEOs Survey was conducted between July 3 and 14, 2023 by the CBK and complements the other surveys (Market Perceptions Survey and Agriculture Sector Survey) conducted every two months prior to the Monetary Policy Committee (MPC) meetings.
Although business prospects in Kenya remain grim as the year moves to the last quarter, CEOs interviewed remained optimistic that a fall in monthly inflation index, expected improved performance of the agricultural sector coupled with the Government focus on the digital economy, could trigger growth.
Growth prospects for the Kenyan economy has weakened with CEOs sampled citing the combined impact of the high cost of living and the weakening Shilling as growth-constraining factors.
On the prospects for global growth, respondents expect these to remain largely the same, noting that risks to global growth remained unchanged, in particular the lingering war in Ukraine and the subdued global economic outlook
While agricultural output will likely be supported by the good rainfall, orders and sales are likely to remain subdued due to the high cost of living and high food prices.
Businesses in the manufacturing sector do not anticipate an improvement in the business conditions.
CEOs interviewed said that the new tax measures could exert inflationary pressures while also reducing consumer demand. Disposable incomes are likely to drop with conservative consumers adjusting spending habits, hence reduced orders and sales.
In the services sector, firms in financial services and ICT expect increased demand for their services, as do those in tourism.
Nonetheless, majority of respondents anticipated that the prevailing political noise and high cost of doing business will slow down business activity.
Seasonal factors are also expected to contribute to a slowdown in activity for firms in transport and storage, since the quarter coincides with the start of the government financial year.
In terms of operating capacity, the CEOs Survey findings show that most respondents were operating below capacity and could increase production if there was an unexpected increase in demand/orders.
Firms reported that capacity was still significantly higher than the demand hence abundant room for expansion.
Further, some firms reported being well financed hence no difficulty in meeting increased demand.
Firms which reported possible difficulty in expanding their operations cited lack of orders and price pressures from customers which was making it difficult to operate at full capacity. Other reasons cited included unpredictability of the business environment and high cost of credit.
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 one year and their mitigating factors.
The results show that talent management, customer centricity and expansion into new markets are the key drivers of firms’ growth over the next one year.
In terms of domestic factors that could constrain their growth, respondents continued to highlight increased taxation, the business environment (cost of doing business) and the economic environment (high inflation).
While concerns over political noise have edged up, concerns on the performance of the Kenya Shilling have reduced albeit only slightly.
The business environment and increased taxation was of greater concern for firms in the services and agriculture sectors. Firms in the manufacturing sector on the other hand were most concerned about the economic environment.
Other highly ranking concerns were the exchange rate and reduced consumer demand, and weather conditions, particularly for agriculture sector firms. The Survey also established that most CEOs were most concerned about energy prices, global inflation, and macroeconomic volatility.
The objective of the CEOs Survey is to capture information on top firms’ perceptions, expectations and issues of concern.
The Survey provides CBK a sharper picture of the evolving economy, complementing information from other sources, thereby facilitating better decision by the MPC.
The Survey targets CEOs of key private sector organizations including members of the Kenya Association of Manufacturers (KAM), the Kenya National Chamber of Commerce and Industry (KNCCI) and the Kenya Private Sector Alliance (KEPSA).
CEOs covered in this CBK Survey were drawn from the manufacturing sector (19%), financial services (15%), professional services (15%), agriculture (10%), healthcare and pharmaceuticals (9%), tourism, hotels and restaurants (6 %), ICT and telecommunications (6%), transport and storage (5%), real estate (4%) and wholesale and retail trade (3 %).
Other sectors such as mining and energy, education, security, building and construction, and media accounted for two percent each or less.
Majority of the respondents (62%) were CEOs of privately-owned domestic firms, while the rest were privately-owned foreign businesses and publicly listed domestic companies.
