Sectors most affected by anti-tax protests revealed

Youth-led tax protests that began two weeks ago turned into anti-government demonstrations after President William Ruto admitted guilt and refused to approve the bill, recommending that lawmakers remove all its provisions.

Results from the Stanbic Kenya Purchasing Managers Index (PMI) — based on the opinions of about 400 corporate executives across key sectors — suggested on Wednesday that clients “have held back on spending decisions due to uncertainty surrounding the country’s finance bill.”

This negatively affected production in all major sectors, except manufacturing, where respondents reported growth.

“After two months of strong corporate buying activity, there was a decline in purchases and inventories due to reduced sales in several sectors, namely construction, agriculture, wholesale and retail,” Christopher Legilisho, an economist at South Africa’s Standard Bank, parent company of Stanbic Bank, wrote in the June PMI report.

“Input prices, purchase prices and output prices all saw modest increases in anticipation of tax increases proposed in the 2024 Finance Bill. However, a stronger exchange rate and lower pump prices managed to contain costs.”

Overall, June’s PMI — a monthly measure of private sector activity such as output, new orders and employment — fell the most in seven months, falling to 47.2 from 51.8 in May.

The protests, which were incited by hired thugs, led to the near complete paralysis of four Kenyan cities and major urban centres during the days the demonstrations lasted.

The new higher tax measures that were withdrawn were intended to raise an additional 346 billion shillings to finance a budget of almost 4 trillion shillings for the fiscal year starting in July.

Dr Ruto has been banking on new taxes and spending cuts, which will largely cover non-essential spending such as hospitality and office renovations, as well as cuts to semi-autonomous government agencies, to put the country on track for a balanced budget by 2027.

A balanced budget will mean keeping debt to a minimum, something the country has failed to achieve in the past, including the first full financial year of the Ruto government, which ends this month.

The plan called for cutting the budget deficit from 5.7% of gross domestic product, a measure of economic performance, in the current fiscal year to 3.3% of GDP in the fiscal year starting next month.

This was partly to comply with an IMF programme that required Kenya to raise taxes and cut spending to keep the budget deficit to a minimum.

“After posting a solid expansion in the middle of the quarter, private sector output fell markedly in June, consistent with a renewed and sharp decline in new orders,” analysts at Stanbic Bank and U.S. analyst firm S&P Global said in their PMI report for June.

“According to panelists, difficult economic conditions caused by the cost of living crisis, as well as protests over the country’s financial bill, have negatively affected sales volumes.”

The PMI report suggests private-sector job opportunities rose at their weakest pace since the start of the year. The job market is likely to get tough after dozens of businesses were ransacked by gunmen allegedly hired by some politicians to infiltrate initially peaceful street protests.