Nigeria’s business activity shrinks for first time in seven months

Business activity in Nigeria has contracted for the first time in seven months, a new Purchasing Managers’ Index (PMI) report has shown.

The latest monthly PMI by Stanbic IBTC Bank released on Wednesday showed the headline index dropped to 49.1 in October from 51.1 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.

The last time the country’s business activity shrank was in March following the fallout of the severe cash shortages caused by the naira redesign policy of the Central Bank of Nigeria.

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“The headline PMI dropped below the 50.0 no-change mark for the first time in seven months in October, thereby signalling a deterioration in business conditions in the private sector,” the report said.

It said at 49.1, the index was down from September’s reading of 51.1 and signalled a slight worsening of operating conditions.

“Central to the challenges for firms in October was the sharpest rise in overall input prices since the survey began almost a decade ago. Purchase costs were up rapidly, largely due to currency weakness but also the lingering impacts of the removal of the fuel subsidy,” it added.

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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.

Muyiwa Oni, head of equity research, West Africa at Stanbic IBTC Bank, said the inflationary environment depressed consumer demand in the month of October, pausing the steady pace of new business expansion for the first time in six months.

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“Majority of the respondents also signalled an increase in purchase prices linked mainly to exchange rate weakness and higher fuel costs,” he said.

He added that the rate of inflation hit a new peak in the survey’s history. “September inflation print continued to show increased cost pressure as the Consumer Price Index increased to 26.72 percent from 25.8 percent in August.”