Agriculture grows as manufacturers struggle with unsold stocks - CBK Survey

Kenya’s Agriculture sector was the main support for the economy over the three months ending December, as it grew on the background of improved rainfalls, even as the Manufacturing sector continued to struggle.

New data shows that about 73 per cent of companies in the Agriculture sector increased production during the period compared to the preceding three months to September, even employing more workers.

More company executives also reported a growth of demand for agricultural goods, and 54.5 per cent of interviewed CEOs in the sector noted that sales were higher during the last quarter of 2023, compared to the third quarter, the Central Bank of Kenya (CBK) CEOs survey shows.

“Firms in the agriculture sector reported increased demand, production, and sales following adequate rainfall. Correspondingly, the number of full-time employees increased,” the CBK Survey says.

On the contrary, businesses in the manufacturing sector continued to feel the weight of poor demand for their goods, high costs of doing business due to a weak shilling and challenges accessing US Dollars for use in importing raw materials.

Manufacturers, the survey shows, experienced sluggish demand for their goods, even during the festive season when spending grows.

“Manufacturing sector firms reported that business activity remained sluggish, moderately supported by the festive season, with depressed consumer demand and high cost of doing business continuing to weigh down business activity. Additionally, firms reported challenges in accessing foreign currency, hence some constraints in sourcing raw materials,” the survey says.

The sector had the highest number of company executives (52.9 per cent) reporting poor demand for their goods between October and December 2023 and lower sales during the quarter compared to the three months to September (75 per cent of CEOs)

Businesses in both sectors, however, reported similar trends on challenges with high prices when making purchases, due to the weak shilling.

Close to two-thirds of CEOs in both sectors, 62.5 per cent in the Manufacturing sector and 63.6 per cent in the Agriculture sector reported that purchases were more expensive during the quarter compared to the previous similar period,

“Nevertheless, respondents decried the depreciation of the Kenya Shilling which had led to sharp increases in the cost of acquiring key equipment and machinery,” the survey noted.

In terms of productivity across the sectors, the survey noted that while 72.7 per cent of CEOs in the Agriculture sector indicated production volumes were high in the last quarter of 2023, 58.8 per cent of CEOs in the Manufacturing sector indicated that production volumes were lower during the same period.

“Production volumes were lower for majority of respondents in the manufacturing sector, as consumer demand remained subdued. For majority of firms in the services sectors, production volumes remained the same due to similar reasons. Agriculture sector firms reported the highest production volumes following favourable weather conditions,” the survey stated.

The survey notes that this year firms in the agriculture sector expect improved business activity on account of seasonal factors, with the forecasted rainfall for the first quarter of 2024 expected to boost agricultural production.

“Majority of businesses in the manufacturing sector expect business activity to be the same or lower. Respondents note that they continue to hold onto unutilized inventory due to low consumer demand. The forecasted rainfall is, however, expected to yield good harvest, hence some let up on input costs,” the CBK stated.

Most businesses across sectors report the cost of doing business as the biggest factor constraining their growth, followed by high taxes.

Many plan to manage costs and tap technology by digitizing their operations as the main ways of countering challenges they are facing.