A new survey reveals potential impediments to Kenya’s private sector growth

A new survey reveals potential impediments to Kenya’s private sector growth
  • Proposed tax increases in Finance Bill 2023 threaten private sector growth. 
  • Depreciating shilling and reduced market liquidity pose challenges to businesses. 
  • Rising costs of doing business and weak shilling impact the manufacturing sector and increase the influx of cheaper imports.

According to a new survey, the Finance Bill's proposed tax increases, the shilling's ongoing depreciation, and less market liquidity might all impede private sector growth.

At a time when families are grappling with less disposable income and consequently lesser buying power, these are considered key contributors to the cost of doing business in the country, along with the increase in gasoline costs.

The industry is now experiencing the most significant losses in manufacturing, and things may worsen if the taxes suggested in the Finance Bill 2023 come into force. Because of the weak shilling, importers and dealers have had to spend more to buy dollars to pay suppliers, passing the costs along to customers.

The economic climate (high inflation and the deteriorating Shilling) and the business environment (cost of doing business) were cited by respondents as domestic issues that might limit their development in the short term in the Central Bank CEO's Survey for May 2023.

The country's total inflation rate jumped to 8% in May from a 10-month low of 7.9% in April, mostly due to rising food and energy costs. Pump prices rose last month as a result of the removal of fuel subsidies, but the Kenyan shilling has remained weak against the US dollar.

Since January, when it was averaging 123.42 against the US dollar, the main trade currency, the shilling has lost roughly 12% of its value. Year to date, it has lost nearly 20%.

Banks were selling local currency to importers and dealers for above Sh142 when CBK set the exchange rate for it yesterday at 138.75 units to a dollar. As government receipts outweighed government payments during the week ending May 31, liquidity in the money market somewhat decreased.

Compared to the 4.25% cash reserves requirement (CRR), commercial banks have surplus reserves of Sh27.7 billion.

Businesses plan to reduce the constricting forces by diversifying their markets, increasing sales and marketing, and digitizing their processes, according to CBK. However, if any of the ideas in the Finance Bill 2023 are adopted, manufacturers in the nation have warned that the industry will be severely impacted, particularly because of the influx of less expensive imports from nearby nations.

In its Finance Bill, the National Treasury has proposed raising a variety of taxes and levies, which will raise the price of numerous commodities in Kenya in comparison to regional markets.

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