Escalating tensions in the Middle East and growing energy costs have emerged as the leading concerns for Kenyan businesses, dampening optimism and heightening fears over the country’s economic outlook.
According to a recent survey by the Central Bank of Kenya (CBK), conflict in the Middle East is viewed as the most significant external risk facing businesses, surpassing concerns over U.S. trade tariffs. The survey, conducted in May among more than 1,000 chief executives, found that 67.1 per cent of respondents believed the conflict posed a major threat to their operations, compared to 36.3 per cent who expressed similar concerns about U.S. tariffs.
While geopolitical instability topped the list of external risks, energy costs emerged as the most pressing day-to-day concern. Nearly 48 per cent of business leaders said they were highly worried about rising fuel and electricity expenses, compared with 37 per cent who cited geopolitical tensions as their greatest concern.
Business executives are also becoming increasingly cautious about global economic prospects. Only 22.6 per cent expect stronger global growth in the coming months, while nearly half anticipate a slowdown. This marks the second consecutive CBK survey showing that most firms foresee weaker international economic conditions.
Although the Central Bank has gradually lowered its benchmark lending rate since August 2024, the benefits have not been felt uniformly across the business community. About 62.5 per cent of respondents reported that borrowing costs had declined, but 21.9 per cent said interest rates on their loans had actually increased.
More than half of the surveyed firms described access to credit as moderately difficult, indicating that financing challenges persist despite the monetary easing cycle.
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The findings also show that businesses are relying less on bank loans to finance operations. The proportion of funding sourced from commercial banks dropped from 40.1 per cent in July last year to 24.1 per cent in May. Meanwhile, internally generated funds continued to account for roughly half of total business financing, suggesting many firms still prefer self-financing even as credit becomes cheaper.
The survey paints a picture of businesses navigating weaker demand, slowing sales, and rising operating costs during the second quarter of the year.
About 41.8 per cent of firms reported lower sales compared with the first quarter, while only 27.6 per cent experienced growth in sales. Demand followed a similar trend, with 36.6 per cent reporting a decline compared with 26.7 per cent that recorded stronger demand.
At the same time, inflationary pressures continued to squeeze businesses. Nearly 68 per cent of firms said the cost of inputs and purchases had increased, while only 41.4 per cent raised selling prices. This suggests many companies have been unable to fully pass higher costs on to consumers and are instead absorbing part of the burden through reduced profit margins.
Business confidence also weakened noticeably. Only 38.9 per cent of firms expect stronger growth over the next 12 months, down from 46.5 per cent in March and significantly lower than the 67.4 per cent peak recorded in November last year.
The May survey therefore reflects the lowest level of company-level optimism among the five business surveys conducted by the CBK, highlighting growing concerns over both domestic and international economic conditions.
