Business activity expands for first time since May

Business activity in Nigeria improved marginally in September for the first time in five months, but confidence remains unchanged, according to a new Purchasing Managers’ Index (PMI) released on Tuesday.

The latest monthly Stanbic IBTC Bank’s PMI data, compiled by S&P Global Market Intelligence, showed the headline index increased to 51.1 in September 2023 from 50.2 in the previous month, the lowest point over the past five months.

Readings above 50.0 signal an improvement in business conditions, while those below shows deterioration.

“New orders increased for the sixth month running in September as some firms signalled an improvement in demand. While the rate of expansion quickened from that in August, it remained only modest as market conditions remained weak and customers were deterred by price hikes,” the index report said.

It said output returned to growth, meanwhile, following a slight reduction in August.

“In a similar vein to new orders, however, the pace of increase was only modest amid widespread demand weakness. Three of the four monitored sectors saw output expand, the exception being manufacturing,” it added.

The PMI index, which measures the performance of the private sector, is derived from a survey of 400 companies from agriculture, manufacturing, services, construction and retail sectors.

It is a composite index based on five individual indexes with the following weights: new orders (30 percent), output (25 percent), employment (20 percent), suppliers’ delivery times (15 percent) and stock of items purchased (10 percent), with the delivery times index inverted so that it moves in a comparable direction.

May’s PMI index (54.0) saw the highest growth since the beginning of the year.

“Before the September print, the PMI had declined consecutively over the past three months. Prices remained elevated, with input and purchase prices remaining at period highs,” Muyiwa Oni, head of equity research, West Africa at Stanbic IBTC Bank, said.

He said input prices increased materially across the major sectors covered, with inflationary pressures most pronounced in wholesale and retail and manufacturing.

September’s PMI is also the first expansion since President Bola Tinubu administration started in May.

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“Any expansion that has happened maybe as a result of low base effect. That is manufacturers’ production has become very low for about six to seven months and in order to restock, there is a slight uptick from August,” Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry, said.

According to Israel Odubola, a Lagos-based research economist, the data does not tell the true story in economic activities.

“At the numerical and statistical point of view, it is an improvement. But looking at the real state of things, nothing has changed as we have not really seen any tangible improvement in the economy,” he said.

The Federal Government reforms such as the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, increased the cost of living of cash-strapped consumers in Africa’s biggest economy.

Since May 29, when Tinubu announced the removal of the petrol subsidy, petrol price has tripled to N617 from N184, while the value of the naira has plunged following the floating of the currency.

The floating of the naira increased the official exchange rate from N463.38/$ on June 9, to N755.29/$ as of September 29. At the parallel market, the naira depreciated to N1, 005/$ from 762/$.

The high cost of dollars and the implementation of a 7.5 percent value added tax on diesel imports have pushed its pump price to as high as N1,200 per litre.

Inflation in Africa’s most populous nation rose to an 18-year high of 25.80 percent in August from 24.08 percent in July.

“Businesses are contracting or closing shop everyday. So, any data or statistics that proves otherwise should be questioned,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.

He said there are factories that cannot produce due to the scarcity of foreign exchange.

“Even the letter of credits is being rejected by exporters in overseas. So, when factories are shutting down or some are in limbo, how do you now say businesses is expanding,” he added.

According to authors of the PMI report, majority of the respondents also signalled an increase in purchase prices linked mainly to exchange rate weakness and higher fuel costs.

“Staff costs were also increased at the second fastest pace since the survey began in January 2014 because of high transportation costs for workers,” they said.