Kenya’s private sector is defying the May floods to boost economic growth

Private sector activity in Kenya defied devastating floods and grew at the fastest pace in over a year and a half, helped largely by easing inflationary pressures and a stabilizing shilling, according to a closely watched monthly survey on Wednesday, June 5.

The Stanbic Kenya Purchasing Managers Index (PMI) – a month-on-month measure of private sector activity such as production, new orders and employment – rose to 51.8 in May from 50.1 a month earlier. The strongest increase in the PMI index in 20 months signals an increase in turnover in May compared to April. PMI readings above 50 signal growth in the private sector, while levels below this level indicate decline.

The surge in business activity defied corporate executives’ forecasts of a slowdown in transactions after severe flooding that began in late April and last month disrupted activity in key sectors of transportation, education and trade.

The PMI findings, based on feedback from around 400 business managers, showed that the services, manufacturing, wholesale and retail sectors saw increased activity despite the floods. However, agricultural and construction activities contracted this month due to floods that claimed the lives of more than 200 people and forced hundreds of thousands from their homes.

“Private sector activity was surprisingly strong in May, indicating continued improvement in economic activity as we expected some impact from the recent floods,” Christopher Legilisho, an economist at South Africa-based Standard Bank, parent company of Stanbic Bank, said in the PMI report.

“In May, production and new orders saw significant increases as companies reported increased consumer demand.”

Inflation, a measure of the increase in the cost of goods and services over the previous year, was largely unchanged at 5.1% in May, with food and energy costs holding steady, up slightly from 5.0 a month earlier.