Higher taxes choked private sector’s growth, says report

Kenya’s private sector activity grew at its slowest pace in 10 months September, weighed down by the effects of higher taxes on production costs, a new survey says.

The latest Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) says that companies have reported slower output levels and order growth, indicating the economy is feeling the pressure of tax changes brought by the government.

In the current fiscal year, manufacturers have also been hit by an increase in energy costs, following a review of power tariffs.

“September data signalled a slower improvement in business conditions in Kenya’s private sector, with the latest expansion being the weakest in the current 10-month phase of growth,” say Stanbic and Markit in the report.

“Slowdowns in output and new order growth were key factors behind the lower headline PMI figure. In terms of inflation, price pressures sharpened amid reports of higher taxation and fuel bills.”

The PMI reading for September stood at 52.7, compared to 54.6 in August. PMI readings above 50 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

The slowed growth, the survey says, partly reflects the higher operating costs faced by businesses, which have in turn translated to an increase in selling prices for goods and services at the fastest pace since February 2014.

Companies continued to hire more workers, the report says, although at a rate that is below the average in the long run as they adjust to the environment of higher production costs.

The movement in private sector activity is usually a good indicator of the performance of the general economy, largely keeping in trend with GDP growth numbers at any given time.