Kenya: Stanbic PMI index records slowed business sentiment

Kenya's private sector activity faced a significant slowdown in the month of June as the Stanbic Purchasing Managers Index (PMI) dropped to 47.8 points, indicating a decline in business sentiment. The inflationary pressure across the region has contributed to tighter liquidity conditions, leading to a decrease in optimism within the private sector. Daisy Nitwe, the Lead for Derivatives and Structured Solutions at Global Markets in Stanbic Bank Uganda, provided insights into the economic dynamics affecting Kenya and Uganda, shedding light on key factors influencing investment decisions and market trends. Daisy Nitwe highlighted the divergence in policy directions across East Africa, with countries like Uganda and Tanzania implementing inflation-targeted monetary policies to address rising inflation rates. In contrast, developed markets like the U.S. are experiencing a different scenario, with plans to tighten monetary policies further. This policy disparity could potentially drive investors towards markets offering higher returns, leading to forex outflows and impacting local currencies. Nitwe predicted a gradual depreciation of the Kenyan Shilling due to previous illiquidity issues but anticipated stability in Uganda's currency, supported by strong coffee exports and effective government policy frameworks. Nitwe emphasized the importance of evaluating debt sustainability and interest payment ratios when making investment decisions, noting the favorable debt levels and revenue-to-interest ratios in East African countries. Despite a global decline in Foreign Direct Investments (FDIs), East Africa maintains its appeal to investors, with Kenya, Uganda, and Tanzania showcasing resilience and returning to pre-pandemic FDI levels. The region's growth prospects and favorable investment climate position East Africa as an attractive destination for capital inflows. In a notable revelation, media reports indicated a significant influx of dollars from Uganda to Kenya, attributing this trend to robust trading partnerships and investment opportunities between the two countries. The exchange of agricultural products and equity investments are key drivers behind this financial flow. Looking ahead, Nitwe highlighted the importance of monitoring liquidity conditions, retail demand trends towards the year-end, debt sustainability, private sector growth through PMI indicators, and global market policies to gauge the region's economic performance. As the East African economic landscape continues to evolve amidst shifting global dynamics, stakeholders are advised to remain vigilant and adapt to changing market conditions. With a focus on sustainable growth and prudent investment strategies, the region aims to leverage its resilience and attractiveness to secure continued economic stability and prosperity.