Standard Chartered-MNI business sentiment indicator for Nigeria rises  

The Standard Chartered-MNI Business Sentiment Indicator (BSI) for Nigeria rose 6.3 percent to 64.6 in September.

This was the highest level since December 2014, and helped to drive the third-quarter (Q3) 2015 average to 62.5, up from 61 in Q2 and 62.1 in the same quarter of 2014.

The Standard Chartered MNI Business Sentiment Indicator – or BSI – for Nigeria is a diffusion index, summarising in a single number how optimistic businesses feel about current and future economic conditions.

Standard Chartered partners with MNI a well-known data provider that has long produced the Chicago PMI among other indicators, to construct the Standard Chartered-MNI BSI.

Four of the five components that make up the headline indicator, and together account for 85 percent of the headline, rose in September: order backlogs (+28.4%), supplier delivery times (+6.4%), new orders (+5.9%), and production (+3.4%). Perhaps worryingly for the outlook for the coming months, however, employment fell to its lowest level since January 2015.

Business sentiment in 2015 has been supported by post-election euphoria, despite sustained weak oil prices, subsequent fiscal strain and indications that economic activity has slowed.

Sarah Baynton-Glen, Africa focused economist at Standard Chartered Bank noted that “sentiment has improved since March-April elections to 62.5 in Q3 from 61.0 in Q2, and 62.1 a year ago. However, firms are concerned about the near-term risks; 12 out of 15 future expectations indicators fell.”

Among other observations, the BSI indicator shows that, Nigerian businesses have consistently been concerned about the impact of the naira exchange rate on their businesses.

“The current conditions indicator has remained below the break-even 50 level since our series began. In September, companies considered the exchange rate to be even more of a constraint for their businesses. The current conditions indicator fell to 24.9. Future expectations were also weak as concern about further FX depreciation remains.”

“The Standard Chartered-MNI Business Sentiment Indicator (BSI) for Nigeria rose 6.3% to 64.6 in September. This was the highest level since December 2014, and helped to drive the Q3-2015 average to 62.5, up from 61.0 in Q2. While our BSI reveals improved sentiment in Q3, businesses reported being increasingly concerned about the near-term outlook. Twelve (12) of fifteen (15) future expectations indicators fell in September. Sustained weaker oil prices and the impact on government revenues and economic activity continue to be felt. This may weigh further on sentiment in the coming months,” the bank noted.

Nigeria’s second quarter (Q2) GDP print disappointed, showing growth of just 2.35percent year-on-year (y/y). “In September, Nigerian businesses reported higher demand (both new orders and export orders reached their highest levels since December 2014) and a subsequent increase in production and productive capacity”, it noted.

Each month, up to 200 formal-sector businesses, active in different segments of Nigeria’s economy, respond to questions on Nigeria’s current and future economic conditions. Although c.80 percent of the respondents polled are Lagos-based, the businesses that they represent are active across Nigeria. Their responses are collated to generate a single number that captures sentiment. The headline BSI (current conditions index) for Nigeria is made up of a number of components, with different weights assigned: new orders (a 35% weight), production (25%), employment (15%), order backlogs (15%) and supplier delivery times (10%).

Respondents are asked whether business activity has increased, decreased, or remained the same, compared with the previous month. They are also asked about their expectations over the next quarter.

“Yet while our BSI reveals an improvement in sentiment in Q3, businesses reported being increasingly concerned about the near-term outlook. In August 4of 15 future expectations indicators decreased. In September, 12 of 15 future expectations indicators fell. Sustained weaker oil prices and its impact on government revenues and economic activity continue to be felt. This may weigh further on sentiment in the coming months. FX market conditions – the effect of the Nigerian naira exchange rate fell to just 24.9 in September – the related price increase and decreased credit availability were also concerns,” Standard Chartered noted.

“There is the risk that sentiment may fall in the coming months, but seasonal factors may also be at play in supporting business sentiment in the lead-up to the holiday season. Respondents noted increasing production in September in anticipation of higher holiday demand in the coming months. Our indicator, only launched in March 2014, cannot yet be adjusted for seasonality”, it stated.

In September firms reported being slightly less optimistic about overall business conditions in Nigeria. The current conditions indicator dropped 2.3% m/m to 80.5. The future expectations indicator remained broadly unchanged at 97.0 in September from 97.4 in August. Despite pressures on the economy, largely stemming from the risk of a more prolonged period of lower oil prices, business sentiment appears to be holding up reasonably well.

Nigerian businesses reported higher production, to meet strong new orders trends in September, recovering from a slight drop in August. Current conditions increased to 73.9 in September, 3.4 percent higher than its August level. Future expectations remained little changed, down 1.3 percent to 93.9. Despite FX restrictions introduced by the Central Bank of Nigeria, there is little evidence of a meaningful improvement in production driven by these changes. The indicator is little changed from a year ago.

New orders current conditions reached their highest level of 2015 in September. The indicator increased 5.9 percent month-on-month (m/m) to 73.4. Future expectations remained high at 94.7. New orders have the highest weight in the headline BSI (35%), and the strong growth here in September helped to drive the gains in the headline indicator.

Export orders current conditions also rose to their highest level since December 2014, at 62.2, potentially reflecting some lagged impact of a weaker Naira. While the increase in export orders has likely been helped by a weaker Naira, FX availability concerns and rising prices may also have limited some of the potential benefit for companies. Future expectations remained high at 87.5, reflecting firms’ optimism about the short-term outlook.

Both current conditions and future expectations of productive capacity rose in September. Current conditions increased 4.1 percent m/m to 70.8 as Nigerian companies reported investing in production. Future expectations rose to 89.5 in September, indicating that firms anticipate investing further in productive capacity in the near term, perhaps in the lead-up to the holiday period.

 

IHEANYI NWACHUKWU