Onome Amuge
Nigeria’s private sector experienced a contraction in October, driven by a sharp increase in input costs which dampened customer demand, according to the Stanbic IBTC Purchasing Managers Index (PMI) report for October.
The rise in input costs also led to delays in order completion and discouraged companies from buying inputs. However, the continued expansion of businesses led to an increase in employment.
The headline figure from the survey conducted by Stanbic IBTC, is a composite index based on five individual indices measuring different aspects of the private sector economy. A value above 50.0 indicates that business conditions are improving, while a value below 50.0 suggests that conditions are deteriorating.
In October, the PMI fell below the 50.0 threshold for the first time in seven months, indicating a deterioration in overall operating conditions. The PMI fell to 49.1 from 51.1 in September, signaling a modest worsening of conditions.
One of the most significant challenges for firms in October was the unprecedented increase in input prices. The rate of inflation for input costs rose to a record high, surpassing the previous record set in May. This was attributed to a combination of global supply disruptions, soaring commodity prices and the depreciation of the naira.
The sharp rise in purchase costs was attributed to a combination of factors, including the devaluation of the naira and the lingering impact of the removal of the fuel subsidy. The rising cost of living, especially transportation costs, also led companies to significantly increase salaries for their employees.
Inflation accelerated in October at one of the fastest rates on record, further straining consumers’ purchasing power. The slowdown in demand was evident from the decline in new business, which contracted at the steepest rate since April’s cash shortage. This, in turn, led companies to reduce their stock purchasing for the first time in seven months. Although new export orders continued to grow in October, the rate of expansion slowed to a four-month low. Overall, the weak demand environment and high input costs combined to dampen firms’ expectations of future output, with sentiment down to a seven-month low.
The inability to secure inputs, as well as missed customer payments, led to an increase in backlogs of work for the second month in a row. Although employment continued to rise at a healthy pace, it was not enough to clear the backlogs of work.
Businesses cited expansion plans as the main reason for the continued hiring in October. Companies remained optimistic about the future outlook, although their confidence remained below the series average.
A decline in supplier delivery times, due to less congested roads and greater competition among vendors, was another factor that may have contributed to the relatively muted business sentiment, the report showed.
Overall, the survey data continued to suggest that firms face challenges from a slowing economy and rising costs, but remain optimistic about future growth prospects.
