Nigeria’s Purchasing Managers’ Index (PMI) report signals a worrying trend for Nigeria’s private sector, as business activity dipped into contraction for the first time in five months.
The PMI for August registered at 50.2, down from 51.7 in July, revealing only marginal improvement over the previous month and marking the lowest in the current five-month sequence of improving business conditions.
Diminishing Demand and Rising Costs
One of the most startling aspects of the report is the drastic increase in both input costs and output charges, reaching the highest levels since the survey’s inception nearly a decade ago.
- According to the report, “both overall input costs and output charges increased to the largest extent since the survey began almost a decade ago. Inflation again reflected higher transportation costs as a result of the removal of the fuel subsidy, plus currency weakness. Rising transportation costs also caused supplier delivery delays.”
Unsurprisingly, these conditions have acted to diminish demand, as steep price increases make it challenging for firms to secure new orders.
Struggling Employment and New Orders
Rates of expansion in new orders and employment were also sluggish. The rate of new business acquisition has been the softest in the current five-month growth sequence.
- August saw only a marginal increase in new business, with the rate of expansion the softest in the current five-month sequence of growth. Similarly, employment also rose only marginally.
The employment sector also experienced only a marginal rise. These indicators point to a private sector struggling to cope with the escalating costs and subdued demand.
Midway through the third quarter, business activity indicated that not all sectors are created equal in this downturn.
- “Meanwhile, business activity decreased slightly midway through the third quarter, ending four months of expansion.”
- “Sector data pointed to a drop in activity in wholesale & retail and no change in services. Meanwhile, agriculture and manufacturing continued to see output increase.”
Meanwhile, the service sector saw no significant change, revealing a mixed impact across sectors.
Supply Chain and Delivery Delays
Companies are not merely grappling with higher costs; they’re also facing delays from suppliers.
- Although firms have continued to expand their purchasing activity, high transportation costs have affected the speed of input receipt.
- Delivery times from suppliers have only shortened marginally, stalling the marked improvement in delivery times in recent months.
Wary Business Sentiment
Despite these challenges, business sentiment has improved from its record low but remains historically weak.
- Businesses forecasting a rise in output over the next year often linked their optimism to expansion plans and increased advertising activities.
- Yet, the sentiment is far from buoyant, underscoring the general caution pervading the private sector.
The Larger Picture
The report comes amid the government’s struggle to contain inflation and stimulate economic growth.
- The significant pressures affecting the private sector, especially rising costs and sluggish demand, could potentially ripple across the broader economy, affecting consumer spending and employment.