Manufacturing Picked Up in August on Increased Production In Kenya

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Growth in the manufacturing sector recovered slightly in August on increased production and order backlogs, a monthly survey showed yesterday, following the historic visit by US President Barack Obama from July 24 to 26.

The sector’s headline index improved slightly to 55.8 per cent from 54.5 per cent in July, the monthly Standard Chartered-MNI Business Sentiment Indicator released yesterday suggests, marking the first increase since April.

Production increased by 2.4 per cent month-on-month with companies putting growth in the coming months at 3.7 per cent, while order backlogs were up 22.6 per cent, largely coming from a weak base.

Factories reported that new orders rose by a marginal 0.2 per cent, with future growth projected at 2.3 per cent. “US President Obama’s visit to Kenya in late July appears to have had a positive impact on sentiment, with the hosting of a Global Entrepreneurship Summit showcasing Kenya to foreign investors,” London-based Standard Chartered bank chief economist for Africa, Razia Khan, said in a statement.
“However, many Kenya-specific factors continued to weigh on confidence.” The report says that Kenyan companies continue to see weakening of the shilling against the bullish dollar, inflationary pressures and difficulties in securing loans as main challenges to business activities.

The Central Bank’s Monetary Policy Committee left the key lending rate unchanged at 11.50 per cent during its August 5 meeting to allow the previous 300-basis point raise to fully transmit into the economy.

Businesses surveyed in the monthly BSI are however still worried that the continued volatility of the shilling could result in higher interest rates especially after the rise in base lending rate, the Kenya Bankers Reference Rate, to 9.87 per cent took effect last month.

The shilling was yesterday exchanging for 104.69 per dollar, 18.12 per cent weaker than 88.63 level on September 3, last year. The present exchange levels were last witnessed in November 2011, which was corrected by an 11 percentage raise on the CBR in three months.

‎”We believe that conditions are meaningfully different this time, and we forecast a more muted tightening cycle,” Khan said. “We see only another 100 bps of policy tightening in this cycle, although more exaggerated FX (foreign exchange ) weakness than we currently forecast would pose an upside risk to our CBR forecast.”

Companies nonetheless expect the weaker shilling and infrastructure improvements to boost export orders, that were 4.4 per cent lower in August, in the coming months. “Future expectations rose 10.8 per cent month-on-month in August,” the BSI states.

“At 73.1, future expectations for export orders were at their highest level since March 2015.” The index for credit availability fell 9.4 per cent compared to July, suggesting that businesses see access to loans becoming difficult. “Kenyan companies expect credit availability to worsen,” the Stanchart economists say in the report.


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