CEOs predict an improved Q1 in 2023 — survey

Business activities in the first quarter of 2023 are expected to improve across all sectors according to a survey of chief executive officers (CEOs).

Commissioned by the Central Bank, the captains of industry say demand on orders, production volumes and sales are all expected to improve for the majority of firms as they expand production and anticipate increased government spending.

Most firms in wholesale, retail, financial and tourism sectors expect business activities to be supported by seasonal factors like travel and festivities.

“Though demand and sales are expected to increase, respondents envisage that the high cost of living will restrain the upward movement of sales prices,” the survey by Central Bank of Kenya (CBK) says.

The effects of the poor rainfall, inflation and high energy costs are likely to keep purchase prices elevated.

In terms of operating capacity, the survey findings shows firms were operating below capacity, and could increase production if there was an unexpected increase in demand.

Consumer demand

Firms that reported possible difficulty in expanding cited financing challenges and lingering supply chain challenges as the main reasons constraining their ability to expand.

Other reasons cited include foreign exchange challenges for importation, freight costs, inflation, energy prices, and buyers being cautious on expenditure on ‘luxuries’ hence low demand for certain products.

“Respondents continued to highlight the economic environment such as high inflation and a stronger US dollar and reduced consumer demand as the main domestic factors that could constrain their growth,” said the CBK in the survey.

On business activity in the fourth quarter of 2022 compared to the third quarter of 2022, the CEOs said that business activity improved following the conclusion of the elections.

Demand and production volumes and sales were higher or the same for the majority of respondents as business activity picked up after the elections.

The prices of goods and services purchased remained elevated due to factors affecting the cost of production such as fuel costs and supply chain constraints while the number of full-time employees remained the same for the majority of respondents.

Firms in the agriculture sector reported that production volumes would be affected by the depressed rainfall with firms reporting layoffs due to increased labour costs attributed to the strengthening of the US dollar and British Pound.

Firms in the manufacturing sector reported increased business activity following conclusion of the elections with businesses expecting this trend to be supported by increased sales due to end of year festivities.

“Nevertheless, prices of key products such as wheat and other inputs such as electricity and fuel oil remained high, with firms unable to pass on increased costs to consumers,” the Central Bank survey says.

In the services sector, firms reported a general increase in demand for goods and services due to increased economic activity. This was especially so for financial services, tourism and real sector firms. Nonetheless, domestic and global inflation remain a key concern for services sector firms.