Weekly Commentary – 5th May 2023

Top Gainers and Losers in the Equities Markets

• Kenya’s Gross Domestic Product (GDP) for Q4 2022 stood at 3.8% compared to 8.6% in Q4 of 2021. The annual GDP increased by 4.8% in 2022, a slower rate than the 7.6% reported in 2021 and below analysts’ estimate of 5.5%. The most prominent sector was service-oriented activities, which accounted for 61.1% of total GDP. Agriculture accounted for 21.2% of total GDP, while industry-related activities represented for 17.7%. Private final consumption expenditure, rose from KES 8,970.8 billion in 2021 to KES 10,107.2 billion in 2022. The government’s final consumption spending also increased by 12.3% in 2022. The Gross National Income increased from KES 11,823.5 billion in 2021 to KES 13,163.2 billion in 2022. Gross National Disposable Income increased by 11.5% to stand at KES 13,932.0 billion in 2022.

• The National Treasury released the Finance Bill, 2023. Upon approval, salaried individuals earning above KES 500,000 on a monthly basis, will be required to part with 35% PAYE from the current 30%. Additionally, the Treasury, removed sections of the law that provided for halving of VAT on petroleum products from 16% to 8%. This means that the cost of petroleum products will rise, causing a ripple effect on inflation. Furthermore, the increased monthly NSSF and NHIF contributions will significantly cause a shrink in employees’ take home pay. The National Treasury also proposed to increase the excise charge on money transfer services provided by telcos from 12% to 15%, while bank costs are expected to decline as a result of the proposed reduction in excise duty from 20% to 15%.

• The National Treasury has proposed a 3% deduction from employees’ base pay, with the employer matching another 3%, towards the National Housing Development Fund as part of the Finance Bill, 2023. The maximum amount that can be deducted to the housing fund is to be capped at KES 5,000. Employees who qualify for affordable housing will use their accrued contributions to finance the purchase of a home under the affordable housing scheme. Employees who do not meet the criteria for affordable housing may access their contributions after 7 years or upon retirement (whichever occurs earlier). At that point, contributors then have the option of transferring their accrued benefits to a pension scheme registered with the Retirement Benefits Authority, a person registered and qualified for affordable housing, their spouse or dependent children, or they can withdraw their contributions and be subject to the prevailing tax rates.

• The Stanbic Bank Kenya PMI dropped from 49.2 in March to 47.2 in April 2023. The most recent data pointed to a strong and faster drop in the private sector economy as rising inflation and political turmoil caused a sharp decline in consumer demand. Output and new orders both fell significantly. Manufacturing and services led the most recent output decline, in contrast to growth in agriculture, construction and wholesale & retail industries. While backlogs continued to grow, employment increased at its quickest rate since the year began. Overall, the cost inflation remained quite high due to rising import prices brought on by a weaker currency.

• The Central Bank of Kenya (CBK) announced the issuance and implementation of the Kenya Quick Response Code Standard 2023 (KE-QR Code Standard 2023; or the Standard).The Standard was created through collaboration between CBK, Payment Service Providers, banks and card schemes. The Quick Response Code Standard will be implemented in phases as the parties align their operations with the set out standards as they raise customer awareness. The Standard will lay out the procedures for issuing Quick Response (QR) Codes to customers and companies that accept digital payments from Payment Service Providers and institutions governed by the CBK. The Standard will help promote inclusivity by enabling organizations of diverse sizes and client focus to enhance use of digital payments. Long-term, the usage of standard QR Codes will facilitate the introduction of new products and extend the benefits currently enjoyed by clients making payments across various institutions and mobile money networks.

• The US Federal Reserve raised the lending rate by 0.25% to a tactical range of 5%-5.25% in May. The decision was in line with market analysts’ expectations. As they pursue their goal of returning inflation to 2%, the Committee will regularly monitor incoming data and consider the monetary policy implications. Furthermore, policymakers will consider the cumulative tightening of monetary policy in calculating the amount to which additional policy firming may be necessary to accomplish the intended goal. Officials also stated that, while the US banking system is strong and robust, tighter credit conditions for families and businesses are likely to have an impact on economic activity, hiring and inflation, the extent to which is unknown.

• The S&P Global/CIPS UK Composite PMI rose to 54.9 in April from 52.2 in March exceeding analysts estimates of 53.9. Growth was mainly driven by service providers, which increased to 55.9 in April from 52.9 in March. The stronger sales pipeline for services encouraged enterprises to create more jobs whereas manufacturers eliminated jobs. On the price front, lower transportation and raw material costs offset rising service provider salaries, keeping inflation at historically high levels.