Perceived Effects of Selected Macroeconomic Indicators on Sustainable Competitive Advantage in Food and Beverage Firms In Kenya

Abstract

Kenya’s industrialization, like that of most Sub-Saharan Africa countries, has been slow and continues to grow at an equally slow pace. Key among the constraints to growth are poor economic policies geared at promoting processing and value addition. Being largely an agrarian economy, the country will continue to depend on agricultural led industrialization with the food and beverage processing sector being the largest at 21.8 percent of all manufacturing value add sectors in the country by 2011. Among the key determinants of industrialization is a favourable political and social economic stability that provides a stable macroeconomic environment for both local and foreign investors to put their money into ventures that spur economic growth. This study sought to analyze perceived effects of selected macroeconomic indicators of inflation, exchange and interest rates on the food and beverage manufacturing sector in Kenya. Top executives of 95 firms were surveyed on their perception of the effects of the selected macro- indicators on their firms’ operating environment and economic performance. From the target firms, 32 responded giving a rate of 33.7 percent. Analysis revealed that effects of macroeconomic factors on sustainable competitive advantage of food and beverage firms in Kenya was not statistically significant (p= .142) for inflation, (p = .767) for exchange rate and (p= .086) for interest rates at 95 percent confidence interval (? =0.05) as perceived by industry top executives. Further analysis revealed that multicollinearity was indicated (tolerance factor <0.1 and Variance Inflation Factors of >10). The implication of the findings was that macroeconomic factors have not had an adverse effect on performance of food and beverage processing firms in Kenya. This was most probably due to the fact that most of the firms under survey were privately owned family businesses which derived their funding from family resources and were not necessarily involved imports or exports trade that would expose them to adverse interest or exchange rate fluctuations. Most manufactures in Kenya find their market internally with limited exports to the East African region. The fact that Kenya has enjoyed relative peace over the years has further contributed to a stable macroeconomic environment as confirmed by these findings. There is need for the Government to endeavour to maintain and improve on the macros for industrialization to take off. Multi-collinearity could also have introduced distortion of the findings.

Key words: Inflation, interest rates, exchange rates, macroeconomic, economic performance, multicollinearity