Kenyan CEOs remain bullish about improved business prospects in Q1 2025

Chief Executive Officers (CEOs) of Kenyan companies remain bullish that business activity in the first quarter of 2025 relative to the fourth quarter of 2024.

This despite the Central Bank of Kenya CEOs Survey for January 2025 showing a larger proportion reported improved business prospects in 2025 Q1 relative to 2024 Q4 despite the subdued demand.

“The balance of opinion shows expectations of higher demand orders, production volumes, and growth in sales. However, purchase and sales prices are expected to remain elevated, while the number of full-time employees is expected to remain largely unchanged,” says the survey report.

According to the survey, the CEOs reported improved optimism in growth prospects for the Kenyan economy in the next 12 months on account of expectations of favourable weather conditions and macroeconomic stability.

The report indicates that business optimism for company and sectoral growth prospects improved supported by sector specific strategies and sector opportunities.  Respondents in the survey reported improved growth prospects for the global economy in the next 12 months, supported by declining interest rates and low global inflation. However, concerns around geopolitical tensions and uncertainity on the impact of tariffs on trade remain.

Indicators of business activity improved in 2024 Q4 relative to 2024 Q3, partly driven by festive season related demand with production volumes and sales expected to be higher in 2025 Q1 compared to 2024 Q4, driven by improved prospects of favorable economic outcomes.

At the same time, the survey shows that customer centricity, talent management, expansion into new markets and technological innovations were reported as the key drivers of firms’ growth over the next 12 months.

The cost of doing business, taxation and reduced consumer demand were reported as the key factors that could constrain firms’ growth.

The survey assessed the CEOs’ optimism in the growth prospects for their companies, sectors, the Kenyan and global economies over the next 12 months.

The survey outcome shows higher growth prospects for the Kenyan economy, mainly attributed to expectations of favourable weather conditions and macroeconomic stability (stability of the shilling, declining interest rates, and low inflation.

However, the cost of doing business remains a concern. Company growth prospects for the next 12 months are higher, supported by specific strategies to boost growth, such as diversification of markets and product portfolio, customer centric approach to operations, improving efficiency through innovations, increased marketing of products, partnerships and strategic acquisitions. However, liquidity challenges (including from pending bills and limited access to credit facilities), subdued consumer demand, and cost of doing business are key factors that could constrain growth at company level.

“Firms also reported higher sectoral growth prospects. However, drivers of growth are varied across sectors. The agriculture sector growth prospects are higher, driven by expectations of favorable weather conditions and improved demand for agricultural exports, particularly in the European Union. However, respondents in the sector reported that any additional farm produce levies could hurt the sector,” the survey report says.

Meanwhile, challenges around limited air freight capacity for agricultural exports persist. The manufacturing sector is expected to perform better, supported by stability of energy prices and the exchange rate, and declining interest rates.

However, cost of doing business, competition from imports and subdued consumer demand are key concerns by players in the sector. The financial services sector growth prospects are largely driven by portfolio diversification, growing customer base and the declining interest rates, which are expected to enhance loan repayments and flow of credit to the private sector.

“However, liquidity constraints due to economic conditions remain at both household and business levels,” adds the survey.

The education sector continues to benefit from increased demand for educational services and uptake of digital learning.

The Information and Communication Technology (ICT) sector growth prospects are driven by growing demand and innovation, particularly on pro fintech products.

“The tourism, hotels and restaurants sector growth is largely supported by increased demand for travel. However, respondents reported that unfavourable policies in the sector such as multiple levies and taxes, and increased park fees for tourists (both local and international) continue to hurt the performance of the sector,” it says.

Meanwhile, growth prospects for some sectors moderated. For instance, firms in the health sector reported expectations of subdued activity, mainly due to the transitional challenges with the new Social Health Insurance Fund, particularly on delayed payment of claims. Moreover, they reported that the sector faced uncertainty around donor funding of health programs as a result of the policy changes by the new US Administration.

The wholesale and retail trade, and transport and storage sectors are likely to be impacted by the reported subdued consumer demand. Firms reported improved global growth prospects in the next 12 months, supported by declining interest rates in major economies and low global inflation. However, concerns remain over continued geopolitical tensions, the expected policy changes by the new US Administration, and the resultant impact.

The survey sought CEOs’ perceptions on business activity in the fourth quarter of 2024 relative to the third quarter.

“More firms recorded improved business performance in the fourth quarter of 2024, partly driven by seasonal factors. Particularly, the balance of opinion in the January Survey shows that more respondents reported higher demand orders, production volumes, and sales growth in the fourth quarter of 2024 compared to the third quarter. Similarly, sales and purchase prices were higher reflecting price stickiness, and cost of doing business,” the CBK survey indicates.

Meanwhile, the number of fulltime employees remained stable, indicative of the appropriateness of the staffing levels in handling the level of business activity.