East Africa CEOs upbeat region’s economy could tip into a recession over the next year – KPMG outlook

A majority of business leaders in East Africa feel there is little chance the region’s economy could tip into a recession over the next year, an outlook that is in contrast with the view of top global corporate chiefs, a new survey shows.

The KPMG 2022 CEO Outlook survey shows that 72 percent of chief executive officers in East Africa do not believe there will be a recession in the next 12 months, while 86 percent of global CEOs anticipate an economic slump.

This comes as Kenya faces a litany of problems ranging from burgeoning debt to surging inflation and growing hunger caused by one of the worst droughts in decades.

A recession is a significant decline in economic activity characterised by layoffs and an uptick in unemployment and is identified by a fall in the gross domestic product (GDP) in two successive quarters.

The majority of top CEOs running multinational outfits expect the global economy to slide into recession, citing the shocks caused by the Covid-19 pandemic, Russia’s invasion of Ukraine and climate disasters on all continents.

Kenyans last endured a recession in 2020 at the peak of the Covid-19 pandemic when the economy contracted consecutively in quarter two and quarter three by -4.1 percent and -3.5 percent respectively.

The KPMG data shows 59 percent of the CEOs drawn from various sectors in East Africa expect earnings to decline by up to 10 percent in the wake of the anticipated recession.

“In preparation for the anticipated recession, 25 percent of East Africa CEOs have frozen hiring and 49 percent are planning to implement a freeze in the short term, while 49 percent of the CEOs are considering downsizing their employee base in the short term,” read the findings released yesterday

This points to a tough job market.

The KPMG survey carried out between July 12 and August 24, 2022, sampled 51 business heads in East Africa, 35 percent of who are based in Kenya and whose companies have annual revenues of more than Sh60.5 billion ($500 million)

In Kenya, a biting drought has hurt earnings from farming, which accounts for nearly a third of the GDP while surging inflation has seen consumers reduce their shopping baskets — hurting firms that deal in non-essential commodities like airtime and beer.

Official data shows Kenya’s inflation hit a 65-month in October at 9.6 percent from 9.2 percent a month earlier on the back of costly food, fuel as well as home equipment and appliances.

Unique insight

The KPMG survey provides unique insight into the mindset, strategies and planning tactics of CEOs today and compared to the pre-Covid pandemic period as well as before and after Russia’s invasion of Ukraine on February 24.

“Despite a global pandemic, inflationary pressures, geopolitical tensions, and a looming recession it is positive to see that our East Africa CEOs are optimistic about the growth prospects of their countries, industries, and companies,” said Benson Ndung’u, senior partner and CEO, KPMG East Africa.

Adverse weather conditions in Kenya have exacerbated inflationary pressures caused by supply chain disruptions and the war in Ukraine.

The World Bank downgraded Kenya’s 2023 growth outlook to five percent from 5.5 percent amid concerns over increased commodity prices including fuel and the effects of an ongoing drought.

The International Monetary Fund has also expressed concern that the rise in food and energy prices will spill over to other goods and services — known as second-round effects — particularly fuel prices that have a big pass-through effect on transport costs.

SOURCE: DAILY NATION