Nigeria private sector expansion slows to a halt in August-PMI

Business a.m.

Business conditions in Nigeria’s private sector remained broadly stagnant in August, despite some signs of improvement, according to the Stanbic IBTC Bank Purchasing Managers’ Index (PMI).

The PMI inched up to 49.9 in August from 49.2 in July, staying just below the 50.0 neutral mark, indicating that overall operating conditions remained stagnant for the second consecutive month. 

Continuing the trend observed in previous months, business activity  decreased slightly in August, as the PMI’s findings continued to reflect stagnation in overall business conditions. With a score below 50.0, the PMI indicated that business conditions deteriorated compared to the previous month. A score above 50.0 indicates an improvement in business conditions compared to the preceding month.

The report stated: “New orders returned to growth, the rate of expansion was only modest and insufficient to result in a rise in business activity, which fell fractionally. Employment continued to increase, however, as firms worked through outstanding business at a faster pace.

“Companies continued to contend with sharply rising input costs, with the rate of inflation quickening since July. In turn, firms increased their selling prices at a faster pace. Companies reported that demand remained muted amid strong inflationary pressures, but there were some signs of encouragement as new orders returned to growth.

“New business was up slightly, reversing a decline seen in July. That said, the pace of expansion was much softer than the series average. New business rose across three of the four monitored sectors, the exception being services.”

Respondents to the Stanbic IBTC Bank PMI survey reported higher costs for various inputs, with animal feed and paper experiencing the greatest price increases. Logistics and transportation costs also rose due to higher fuel prices.

Meanwhile, the dollar-naira exchange rate weakened, which according to the respondents, may have contributed to the increased cost of imported inputs.

Amid the challenging economic conditions, private sector employment saw a modest increase in August, extending the current streak of job creation to four months.

Private sector firms in Nigeria witnessed a reduction in their backlogs of work at the joint-fastest rate since June 2022, thanks to the simultaneous rise in staffing levels and stagnation in new order inflows.

The rapid rise in input costs experienced by firms during the third quarter of this year continued in August, further exacerbating the challenges faced by businesses in the country.

The already difficult economic environment was further exacerbated by the rapid increase in purchase costs in August, with firms reporting a five-month high in inflation. Prices for materials and transportation rose sharply, while the weakening currency added to cost pressures.

Amidst these inflationary trends, businesses also saw a rise in staff costs as they adjusted salaries to reflect the higher living costs experienced by employees.

Despite a slight improvement from July’s historic low, business sentiment remained among the weakest recorded since the survey began, indicating that private sector firms remain pessimistic about the near-term outlook.

Muyiwa Oni, the head of equity research West Africa at Stanbic IBTC Bank, provided further insights into the findings of the PMI survey. According to Oni, the stagnation in overall business conditions was consistent with the slight contraction in business activity observed in both July and August.

In his analysis of the PMI survey findings, Oni noted that while an uptick in sales led some companies to ramp up their output, other firms reported weak demand despite the cost pressures they were facing.

The head of equity research further observed that while manufacturing and wholesale & retail sectors witnessed an increase in activity, the agriculture and services sectors experienced a decline in activity.

Oni noted that the inflationary trends observed in the survey extended to output prices, with nearly half of the respondents indicating that they had increased their prices in August. This represents a five-month high in output price inflation, suggesting that businesses are facing mounting pressure to pass on their rising costs to customers.