Nigeria PMI reading rises to 53.8 in May

The latest report of FBN Capitals manufacturing Purchasing Managers’ Index (PMI) showed a pick-up in the headline reading from 50.0 in April to 53.8. This compares with the reading for the manufacturing PMI in China for May (the official version, not HSBC’s) of 50.8.

The index is a familiar data release at the start of the calendar month in developed markets (such as the ISM in the US), the larger emerging markets like Brazil and China, and a few other frontier markets such as Vietnam.

The index, which is unweighted, is based on the responses of a number of manufacturing companies to set questions on core variables in their businesses.

In the FBN model, purchasing managers are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved, are unchanged or have declined. The sample is a representative blend of large, medium-sized and small companies.

“We have seen several pronounced swings since we launched our index in April 2013. In our view these are consistent with Nigeria’s frontier market status. Changes in the operating environment such as access to electricity, fuel and credit, as well as swings in business confidence, help to explain these movements. The challenges are the greatest for the small firms,” said FBN Capital analysts led by Gregory Kronsten in a note released June 2.

According to Kronsten, the latest headline reading is more consistent with the growth in the manufacturing sector of between 5.2 percent and 8.4 percent year-on-year (y/y) in the 10 quarters through to Q3 2013, which are drawn from the old series of the national accounts.

“Our positive take from this latest report is that new orders, while weaker on the month, remained in positive territory, at 55. The larger firms provided the strongest reading for new orders. At the same time, the reading for the workforce picked up, with the improvement due to the large and medium-scale firms. This should support a recovery in the headline reading going forward,” Kronsten said.

“Less welcome was the lower reading for output, well below water at 45. Again, the larger firms were the strongest respondents.”

PATRICK ATUANYA