(Adds background on Kenyan April PMI)
By George Obulutsa
NAIROBI, May 8 (Reuters) - Kenyan manufacturers are largely operating below capacity and say economic growth prospects are dim due to a cash crunch, drought and corruption, a survey by their umbrella association showed.
The survey, called the Manufacturing Barometer, was carried out by the Kenya Association of Manufacturers in the first quarter of this year.
It found that 47 percent of those surveyed operated at about half capacity, 33 percent operated at 75 percent of installed capacity and a fifth operated near full capacity.
President Uhuru Kenyatta said the sector was one of his top four priorities when he started his second term in 2017, due to its potential to create jobs.
But the government has struggled to boost the sector due to high electricity tariffs and illicit imports of goods such as sugar and cigarettes.
A Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI)survey released on Monday showed activity in Kenya’s private sector contracted for the first time in 17 months in April, hurt by drought and strained cash flows.
The manufacturing sector grew by 4.2 percent in 2018, official data showed, and contributed 7.7 percent of the country’s annual economic output of about $80 billion, down from a share of 8 percent in the previous year.
The sector’s contribution to gross domestic product (GDP) has been falling gradually since 2014, when it stood at 10 percent.
Kenyatta’s government aims to raise the contribution of manufacturing to 15 percent of GDP by 2022.
The outlook for the sector this year could worsen due to persistent dry weather, the association said in the report.
“The agricultural sector slowed down on account of the delays in rains. This will have an effect on the industry,” it said. “Due to the current cash crunch and runaway corruption, the metrics are not looking promising.”
Private sector credit growth has slumped since the government capped commercial lending rates in September 2016 to lower the cost of credit.
Delays by the Kenya Revenue Authority in processing tax refunds were likely to hurt manufacturers’ cash flow, the report said.
Some survey respondents said delays in clearing cargoes at the Mombasa port were leading to lost sales and higher demurrage charges.
The survey also found 76 percent of respondents planned to freeze hiring of new full-time employees, or reduce their numbers.
The manufacturing sector covers a range of businesses, including food and beverage production, metal products fabrication, pharmaceuticals and cement production.
$1 = 101.1000 Kenyan shillings Editing by Dale Hudson and Mark Potter