• Monday, May 20, 2024
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BusinessDay

Inflationary pressure dents Nigeria’s business activity in August

NBS report on growth, population signal stagnating economy  – Economist

Surging prices amid dwindling household incomes have taken a hit on economic activities in Nigeria’s manufacturing sector in August.

Nigeria’s Purchasing Managers Index (PMI), a gauge for manufacturing sentiments eased to 52.3 in August 2022 from 53.2 in July, signaling another improvement in business conditions, but showing weaker growth than the long-run series average, according to StanbicIBTC Bank PMI report for August.

“Private sector output of Nigerian firms rose in August for the second month running, although the pace of growth eased slightly from July,” according to the report.

The PMI report noted that firms reported that an uplift in demand supported output growth, but the rate of expansion was weaker than the long-run series average.

“Sub-sector data indicated agriculture firms recorded the strongest expansion, followed by wholesale and retail, and services. However, manufacturers recorded a decline in activity.”

The report also stated that the inflationary pressure witnessed its highest upsurge in August 2022 when compared to previous records since November 2021.

Africa’s biggest economy is facing the highest rates of inflation since October 2005, with households suffering the biggest hit to their income.

Food inflation is at a 14-month high, hitting 22.02 percent in July, while headline inflation accelerated to 19.64 – a 17-year high.

The report attributed the escalation experienced in the prices of goods and services in Nigeria during the month under review to “unfavourable exchange rate movements and higher commodity prices,” as about 61 percent of firms recorded a rise in purchase costs while 38 percent left them unchanged.

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Fuel prices have soared since Russia invaded Ukraine in February, raising costs for firms in Nigeria, where businesses rely on diesel-fired generators for power amid unstable grid electricity.

The price of diesel has soared by almost 178 percent year to date to N800 per litre from N288 in January, forcing some firms to restructure their production hours, while others completely shutting down operations.

According to the Manufacturer Association of Nigeria (MAN), energy cost accounts for 40 percent of factories operating cost.

“Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange, and now over 200percent increase in the price of diesel be advised to shut down operations?” asked Segun Ajayi-Kadir, director-general of the MAN in a July press statement.

“Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?” He asked again.

The PMI report for August also stated that higher commodity and transportation expenses by businesses exerted upward pressure on purchase costs.

BusinessDay analysis of the first-half of the 2022 year financial statement of five FMCGs companies listed on the Nigerian Exchange Limited (NGX), including Unilever Nigeria plc, Nestle Nigeria plc, Cadbury Nigeria plc, NASCON Allied Industries plc, and Dangote Sugar Refinery plc, showed that the amount spent by the companies on transportation cost rose to N43.19 billion in 2022, up from N33.79 billion, indicating a 27 percent increase.

“The overall rate of input price inflation was the second-fastest in the survey’s history, surpassed only by that seen in November 2021,” said the report.