Kenya’s private sector activity in June fell at the sharpest pace in seven months because of concerns around the now-dropped tax proposals and protests that followed, findings of a closely-watched survey suggested.
Stanbic Kenya Purchasing Managers Index (PMI) — a measure of private sector activity such as output, new orders and employment— dropped to 47.2 from 51.8 in May.
Readings below 50 signal a decline in month-on-month private sector deals while levels above point to growth.
“In June, momentum in private sector activity declined, reflecting several concerns, top of the list being the proposed increase in taxes via the Finance Bill 2024, and the widespread protests in response, with unrest in Kenya restraining output and new business because customers delayed spending decisions in the face of such uncertainty,” Christopher Legilisho, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report on Wednesday.
The youthful demonstrators poured onto streets of Kenya’s four cities and major towns across the country from June 20 to oppose plans to impose new and higher taxation measures for the year starting this month.
The countrywide protests, largely organised by youth who are not aligned to political or ethnic groupings, saw Parliament Buildings breached, protesters shot dead, and others injured last week, prompting President William Ruto to decline to assent to the Finance Bill 2024.
The protests, which have allegedly been infiltrated by hired goons, have paralysed business in major urban centres, with hundreds of retail stores looted.
“After registering a solid expansion midway through the quarter, private sector output dropped markedly in June, in line with a renewed and steep fall in new business intakes,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for June. “According to panel members, tough economic conditions brought on by the cost-of-living crisis, as well as protests surrounding the country's finance bill hurt sales volumes.”
Dr Ruto was banking on the new taxes and expenditure cuts largely targeting non-essential expenditure such as hospitality and renovation of offices as well as slashing allocations for semi-autonomous government agencies to place the country on the path to a balanced budget by the year 2027.
A balanced budget will mean keeping borrowing at bare minimal levels, something the country has failed to achieve in the past, including President Ruto’s first full financial year in power ending this month.
The plan involved reducing the budget deficit from 5.7 percent of gross domestic product, a measure of economic output, in the current financial year to 3.3 percent of GDP in the financial year starting in July.
This was partly to comply with an International Monetary Fund (IMF) programme that requires Kenya to increase taxes as well as cut expenditures to keep the deficit in the budget at minimal levels.
