PMI expands in July amidst weakening manufacturers’ confidence

Although the Central Bank of Nigeria (CBN) reported an expansion in the country’s manufacturing purchasing managers index (PMI) for the month of July (57.6 points), local manufacturers’ confidence in the economy has dropped in the second quarter.

Manufacturing and non-manufacturing PMI points are aggregated by the CBN following a survey conducted by its statistics department. Respondents are purchasing and supply executives of both sectors.

But the second quarter (Q2) composite outcome of the Manufacturers’ CEO’s Confidence (MCCI) index which came in at 50.6 points, reflects a weaker manufacturers’ confidence in the economy when compared with Q1 performance of 51.3 points.

Some of the challenges cited by the manufacturers to inform the weakening confidence were poor electricity and gas supplies, non-reliability of gas supply, scarcity of diesel, high cost of LPG.

According to the Manufacturers Association of Nigeria (MAN), the MCCI data is an indication of shrinking manufacturing activity, as the index essentially, gauges manufacturers’ perception using a set of diffusion factors, macroeconomic conditions, and business operating environment indicators.

Specifically, the current MCCI revealed that more sub-sectors and industrial zones performed below the 50-point threshold against what obtained in the first quarter.

MAN, thus advocated for the government to urgently address the challenges responsible for the observed downward trend.

MAN attributes the weak performance to the persistence of numerous operating challenges limiting manufacturing activities. Precisely, the indexes of current business condition in Q2 dropped to 43 points from the 45.5 points recorded in Q1; Current Employment Condition, which stood at 38 points also weakened to 35 points, while production expectation in the next three months decelerated marginally from 65.5 points to 64.5 points during the period in review.

However, indexes of ‘Business Condition for the next ‘3 months’ improved from 54.5 points recorded to 59 points between Q1 and Q2. ‘Employment Condition for the next ‘3’ months’ also strengthened marginally from 52.5 points to 53 points during the period.

The improvement in ‘Business Condition’ and ‘Employment Condition’ for the next ‘3’ months’ expressed the degree of hope and intensity of the level of expectation of CEOs of manufacturing concerns that government would do the needful to make manufacturing operating environment friendlier before year-end.

Analysis of sectoral responses showed that seven manufacturing sub-sectors performed slightly above the 50-point threshold of good performance in the following order: Domestic/Industrial Plastics, Rubber & Foam (54.5); Motor Vehicle & Miscellaneous Assembly (54.5). others are Food, Beverage and Tobacco (53.5); Pulp, Paper & Paper Products Printing, Publishing & Packaging (52.0); both Textile, Wearing Apparel, Carpet, Leather and Leather Footwear and Chemical & Pharmaceuticals recorded 51 points; while Electrical & Electronics stood at 50.5 points.

Three other sub-sectors were below 50 points in the following order: Wood & Wood Products (48.0); Non-Metallic Mineral Products (47.5); and Basic Metal, Iron & Steel, Fabricated Metal recorded 46.5 points in the second quarter of 2019.

MAN explained that although a majority of the sub-sector recorded fairly improved level of performance, there is still a need for Government to initiate robust support measures that will not only stimulate better performance in all the sub-sectors but save those with performances below the 50-point threshold from imminent collapse.

“We recommend that government improves basic infrastructures within strategic economic hubs nationwide, classify manufacturers as strategic users of gas, expand the roads leading to Lagos Ports and make other ports outside Lagos functional to reduce cargo traffic, and stimulate economic activities in those locations. “Government should also streamline existing forex windows, make more forex available for importation of manufacturing inputs that are not locally available and provide appropriate incentives for the struggling sub-sectors,” MAN added.