Nigeria: Slight improvement masks ongoing concerns

•Sentiment in Nigeria increased to 52.6 in April, an improvement of 2.3% on March 2016’s series low

•This was the second-lowest headline reading since our indicator began in March 2014

•Sentiment showed a broad decline: just 6 of 15 current conditions indicators rose

•Firms reported their financial positions and productive capacity reached series lows

The Standard Chartered-MNI Business Sentiment indicator (BSI) for Nigeria increased by 2.3 percent m/m in April, to reach 52.6 from a series low of 51.4 in March. Although the headline BSI improved slightly, Nigerian firms continued to have a fairly bleak assessment of the Nigerian economy in April.

9 out of 15 current conditions indicators deteriorated month on month, with 3 reaching series lows (productive capacity, financial positions and overall business conditions). Those indicators that did not fall were very weak, with 2 below the breakeven 50 level, signaling negative sentiment; the rest were only marginally above 50.

Firms reported that higher input prices and Central Bank of Nigeria (CBN) policy constrained demand in April. Both domestic and international demand for Nigerian goods remained weak, indicating that the real economy may be feeling the impact of current FX policy and rising input price pressures. Domestic new orders improved slightly in April to marginally above the breakeven 50 level at 52.2, while export orders dropped to their lowest level since January 2015 at 50.8.

Production indicators saw a related drop. The production indicator reached its lowest level since May 2014, while productive capacity fell to a series low. However, firms continued to be optimistic that in the near term activity will pick up, with all production and demand expectations remaining above 75.0.

Firms surveyed also reported that their financial positions had reached a series low as interest rates paid increased, credit was less available and the Nigerian naira (NGN) exchange rate continued to damage their businesses. The ‘effect of the NGN exchange rate indicator’ remained extremely low at just 9.0. CBN tightening in March seemed to feed into expectations for higher interest rates. Future expectations of interest rates paid rose to their highest level in April since August 2015. 

Nigerian businesses indicated that their financial positions are currently the weakest since the series began, as demand and productivity fell, so the banking sector may be reluctant to lend to Nigerian companies. Firms reported in April that they are having more difficulty accessing credit, which could add downside risk to the near- term growth outlook. 

Despite a still-subdued picture of current conditions, future expectations continue to be positive. Nigerian firms have consistently been more optimistic about the near-term prospects than current conditions. 10 of 15 future expectation indicators increased.

Overall business conditions fell to a second consecutive series low in April. The indicator dipped 11.1% to 59.8. Future expectations increased slightly, up 0.8% to 91.8; Nigerian businesses continued to be more optimistic about near-term prospects than current conditions.