The economy generated new jobs at the fastest pace in two-and-a-half years last month, as payments to State contractors eased cash flow for private sector firms.
Companies surveyed in the monthly Markit Stanbic Bank Kenya’s Purchasing Managers Index (PMI) reported increased hires last month attributed to President Uhuru Kenyatta’s directive requiring State agencies to make quick settlement of pending bills in his June 1 Madaraka Day address to the public.
The survey findings – based on interviews with corporate managers largely in agriculture, manufacturing and service sectors – showed growth in new job opportunities last month was highest since December 2016.
June also recorded the second-largest expansion in manufacturers’ output this year after January, supported by the sharpest growth in sales in six months as a result of improved liquidity in the economy.
The survey showed most firms could not meet customer orders in June due to increased demand, including exports to countries such as the Netherlands, India, the US and China. Headline PMI, which measures business activity such as production, new orders, order backlogs and employment, rose to a 10-month high of 54.3 in June from 51.3 in May, a sign of improved operating conditions for private sector businesses.
PMI readings of above 50 ordinarily signal an improvement in business conditions on the previous month, while those below 50 show deterioration.
Jibran Qureishi, Stanbic Bank’s regional economist for global markets, said improved PMI reflects “the upbeat sentiment from private sector firms mainly due to the government releasing payments owed to both contractors and suppliers as well VAT refunds”.
“Furthermore, the pledge by the President at the Madaraka celebrations to ensure that containers are cleared quicker at the port while the commitment to clear private sector arrears in the FY2019/20 (year starting this July) outlined in the budget speech, should underpin economic activity if implemented in the second half of 2019,” Mr Qureishi added.
Mr Kenyatta directed State ministries, departments and agencies to settle all pending bills without audit queries by end of the financial year ended June 30, and urged the 47 counties to follow suit. “Pending payments have negatively affected many businesses, particularly those whose bulk of capital is now locked in non-payment. This has also reduced overall spending and business activity in our economy,” the President said.
In his June 13 Budget Statement, Treasury Secretary Henry Rotich said that some Sh10.9 billion verified pending bills were to be cleared by end of last month, adding that some bills whose value he did not disclose had been settled earlier. Mr Rotich had in the second supplementary budget approved last month increased the expenditure for National Youth Service (NYS) by Sh4.8 billion to Sh12.6 billion largely for settling pending bills, offering a big relief to suppliers whose dues had been frozen pending audit.
Nairobi County Assembly’s third supplementary budget last month also approved payment of Sh4 billion pending bills, out of which Sh2.7 billion was for works, small suppliers and part of Sh2.61 billion legal fees were to be settled before the end of June.
A number of organisations, including the World Bank Group, the Kenya Private Sector Alliance (Kepsa) and Kenya Association Manufacturers (KAM), had earlier in the year blamed mounting State bills for strangling cash supply in the economy, hurting corporate profitability and jobs.
Kepsa in April said pending bills had compounded cash flow challenges for companies which have since September 2016 been grappling with reduced access to credit following enforcement of ceilings on loan charges.
As a result, most companies had put on hold new investments, hiring of new employees and cutting budgets for corporate sponsorships, Kepsa’s head of head of policy research analysis and public-private dialogue Victor Ogalo had said.
“For investors seeking to invest in the country, this negative investment environment scares them away denying even more Kenyans potential new jobs,” Mr Ogalo had said. “This also means local SMEs, which employ nearly 85 percent of the workforce, face low demand from Kenyans and the large companies they supply.”