Recovery in the Manufacturing Sector Improves the Business Climate; but Future Outlook Remains Downcast

The Business Climate Index (BCI) slightly improved from 100.3 in the previous quarter (April-June 2019) to 100.8 in the current quarter (July-September 2019). The slight improvement was largely driven by improvement in business perceptions in the manufacturing sector. Favourable business perceptions in the manufacturing sector are attributed to the reduction in the power tariffs for industrial consumers and stable power supply owing to provision of independent power lines for each industrial park. In addition, the appreciation of the shilling could be another reason for the good performance of the manufacturing sector given its reliance on imported inputs. Business perceptions in the manufacturing sector were also bolstered by higher profitability, labour availability, lower cost of labour and improvements in general business environment during the quarter. However, the positive perceptions were counteracted by the deterioration in the performance of the agriculture sector hence the marginal improvement in the overall BCI. Business perceptions and expectations for the next quarter (October – December 2019) remain subdued on the account of anticipation by firms regarding reduction in sales turnover, inadequate labour, and generally lower business optimism.