Kenyan business leaders remain optimistic about the country’s economic prospects over the next 12 months, buoyed by a stable macroeconomic environment, favorable weather conditions, and company-specific growth strategies, according to the latest CEO survey by the Central Bank of Kenya (CBK). However, challenges such as rising operational costs, political disruptions, and subdued consumer demand continue to weigh on firms.
The CBK’s September 2024 CEO Survey, conducted between September 9 and 20, found that 48% of respondents expect their companies to grow in the next year, driven by strategies like cost management, product diversification, and technological innovation. Sectoral growth is also projected, especially in agriculture and tourism, thanks to seasonality factors and favorable export market conditions.
“Optimism for economic growth in Kenya is underpinned by a stable macroeconomic environment—lower inflation, a stable shilling, and good weather prospects,” the report noted. However, the report also highlighted significant threats to growth, including the high cost of doing business, political uncertainty, and liquidity constraints due to reduced consumer demand.
Growth Drivers Amid Challenges
The survey targeted over 1,000 CEOs from sectors including manufacturing, agriculture, tourism, and financial services. Respondents overwhelmingly pointed to company-specific growth strategies, such as expanding product lines and diversifying revenue streams, as key to overcoming external pressures.
In particular, the agriculture sector is poised for improved performance, with 66% of CEOs in the sector expecting growth. This optimism is driven by favorable weather conditions and increased demand for agricultural exports. “Good weather prospects and increased demand in export markets are expected to boost agricultural production in the next year,” said the report. However, sector leaders also warned of ongoing difficulties in accessing financing and navigating regulatory burdens from both national and county governments.
Similarly, tourism is expected to see sustained recovery as the country enters its peak season. According to the survey, the sector will benefit from increased activity through February 2025, bolstered by the festive season. Nevertheless, elevated taxes and levies remain a concern for tourism businesses.
In contrast, manufacturing continues to face stiff challenges, with 46% of respondents citing high production costs, liquidity constraints, and increased competition from imports as barriers to growth. Although the sector could benefit from recent regional trade agreements, many manufacturers are operating below capacity due to subdued demand and high borrowing costs. “Manufacturers are facing tough market conditions, with high operating costs limiting their competitiveness both locally and regionally,” the report stated.
Political Disruptions Impact Q3 Activity
The survey revealed that business activity in the third quarter of 2024 was lower than in the previous quarter, largely due to the political disturbances that disrupted economic activity. Production volumes fell as firms grappled with inventory build-up and declining consumer demand.
“Political instability in the country during Q3 affected production volumes and consumer activity,” the report noted. In particular, the services sector, which includes ICT, finance, and transport, saw stability in business activities except for higher input costs. Respondents in the manufacturing sector also reported a significant slowdown, with 40% noting a decrease in demand orders and sales growth in Q3 compared to Q2.
Despite this, many CEOs expect a rebound in the fourth quarter, spurred by seasonal demand and recovery from the political disruptions. According to the report, 41.7% of respondents forecast an increase in demand and production volumes for Q4, especially in sectors like tourism and retail, which typically see a surge during the holiday season.
Global Outlook and External Threats
Globally, Kenyan CEOs expressed cautious optimism, with many expecting declining global inflation and interest rate cuts in major economies to boost global growth. “Lower global inflation and interest rate cuts are positive signs for international markets, and Kenyan businesses are expected to benefit from the improved global economic environment,” said the CBK report.
However, geopolitical tensions and energy prices are looming threats that could impact the country’s supply chains and energy costs. “Geopolitical tensions continue to pose a threat, especially with their impact on global supply chains and macroeconomic volatility,” the report added.
Strategic Priorities and Policy Recommendations
To navigate these challenges, Kenyan CEOs are focusing on strategies like managing costs, improving operational efficiency, and diversifying their operations. In the next 12 months, firms also plan to strengthen product portfolios, enhance digital transformation efforts, and expand into new markets to bolster growth.
The report also offered recommendations to improve Kenya’s business environment, with CEOs urging the government to address issues like overregulation, labor strikes, and delayed payments to businesses. Other suggestions included lowering the cost of credit to make financing more accessible and settling pending bills to increase liquidity in the private sector.
“The business environment needs reforms to unlock Kenya’s full economic potential. We need to lower taxes, ease access to credit, and tackle corruption in key institutions,” one CEO from the financial services sector commented.
