Kenya’s private sector activity dropped significantly in July, recording its sharpest decline in a year, with businesses blaming ongoing protests, high fuel costs, and falling demand for the poor performance, a new industry survey shows.

The latest Purchasing Managers’ Index (PMI) by Stanbic Bank shows that the health of the private sector economy continued to weaken for the third straight month, with the headline index falling to 46.8 in July from 48.6 in June.

A score below 50 signals worsening business conditions, while any reading above indicates improvement. This is the lowest point the index has reached since July 2024.

The drop came against the backdrop of widespread demonstrations in Nairobi and other towns, sparked by anger over state brutality and rising living costs.

On July 7, close to 60 people were reported dead and property worth billions destroyed during a day of mass protests. The report noted that this disruption, combined with inflation and sluggish demand, led many firms to cut back operations and output.

“The decline was largely concentrated in the manufacturing and services sectors, conflicting with higher output across agriculture, construction and wholesale and retail,” the report stated.

In total, 38 per cent of surveyed firms said they experienced a slowdown in business activity during the month. Many attributed this to political unrest, rising input costs, limited cash flow and reduced customer spending.

These conditions pushed the decline in total new orders to the fastest rate seen in the past 12 months.

Sales volumes also dropped sharply at the start of the third quarter, extending a three-month streak of declines.

According to survey participants, the combination of protests and inflation severely affected consumer demand. Firms said customers held back on purchases due to the rising cost of living.

Employment levels remained stable in July, but firms significantly reduced their purchases of inputs. The report highlights that the fall in buying activity was the steepest in almost three years, led by large cutbacks among manufacturers. Inventories also dipped, marking the first monthly decline in stockpiles this year.

Companies were able to clear more backlogs in July due to lower demand freeing up capacity. While the backlog decrease was modest, it was the largest recorded since April 2021.

Input costs soared during the month, driven mainly by a sharp rise in fuel prices and higher taxes. Respondents pointed to recent adjustments in fuel prices by the Energy and Petroleum Regulatory Authority (EPRA) as a key factor. This led to overall cost burdens climbing at their fastest pace in seven months.

To stay afloat, several businesses passed the extra costs on to consumers, causing average selling prices to rise significantly — the largest increase since January.

According to Christopher Legilisho, Economist at Standard Bank, the jump in fuel prices and tax adjustments contributed heavily to the pricing pressures faced by businesses.

“Overall, the private sector activity is mixed in the sense that certain sectors are doing well, while other sectors are struggling under the weight of weak consumer demand conditions,” he said.

Despite the difficult month, the report indicates that Kenyan businesses remained slightly more optimistic about future activity in July for the second month in a row.