CEO optimism high ahead of polls, CBK study shows

Friday, July 29th, 2022 06:00 | By
Central Bank of Kenya (CBK) Governor Patrick Njoroge. PD/FILE
Central Bank of Kenya (CBK) Governor Patrick Njoroge. PD/FILE

Kenya’s captains of industry are optimistic about the growth of the economy in the next 12 months, Central Bank of Kenya (CBK) Governor Patrick Njoroge says.

In a post-Monetary Policy Committee (MPC) virtual press briefing yesterday, Njoroge compared the MPC market perceptions survey CBK had done amongst banks and non-bank (rest of the private sector) players prior to the 2017 and 2018 General elections, which he said was positive.

The survey says confidence levels for banks are at 79 per cent as of July 2022, compared to 26 per cent in 2017, while 72 per cent of non-bank actors perceived the economy would do better, against 35 per cent since the last survey in 2017.

“This in effect shows with clear data, how people are proceeding with making economic decisions. Last time, there was a lot of wait-and-see attitude in terms of decisions. Here, you can see there hasn’t been much of a wait-and-see attitude,” Njoroge said.

“The economy is going on despite what some had thought would be problematic. So I really think this is a phenomenal outcome,” he added.

Asked the reasons for the positive perception, Njoroge said he had no answer, but has a hunch on what it could be.

However, a similar survey carried out in may 2022 showed that 53 per cent of chief executive officers pegged their optimism on a return to normalcy post Covid-19 pandemic, increased vaccinations and relaxation of containment measures  while 31 per cent expected peaceful elections and resumption of economic activities post elections.  About 22 per cent of respondents based their optimism on continued government expenditure on infrastructure. In the May study, the CEO’s were concerned about the heightened political activity and possible slower activity on account of deferred investment and expansion decisions, a rise in inflation and the Russia-Ukraine war as the main risks to the optimism.

Policy uncertainties

Analysts have, however, poured cold water on the yet-to-be-released survey, saying they did not perceive optimism in the near term, that is during and after elections.

“Investors do not like policy uncertainties, as no one knows for sure what will happen,” said Kevin Ngige, an analyst with investment banker Genghis Capital, in reference to the Azimio la Umoja and Kenya Kwanza stand on Kenya’s external debt repayment. Whereas Azimio stands for renegotiating new debt terms with rich countries, Kenya Kwanza says it will stop borrowing immediately, stop projects not budgeted for by the government and seek ways of increasing revenue. 

Ngige said such confusing policy signals, coupled with the recent 0.75 per cent hike in the US Fed reserve bank’s interest rates were not good for the business environment, especially for foreign direct investment (FDI), which he expected to “shrink even more before, during and after elections.

He predicted that the monthly Purchasing Managers Index (PMI) by Stanbic would fall below 50 per cent, indicating a reading below 50 points suggests a contraction in activity. PMI is the headline indicator for purchasing and supply executives closely watched by investors, business and financial professionals. 

Ngige, who expects things to cool in the third quarter after the election fever has settled, said Kenya’s hope lies on remittance and the International Monetary Fund and exports, which he said are even dwindling on account of supply chain disruptions caused by the Ukraine-Russia war.

More on Business