Economic experts have charged the Nigerian government on need to urgently and vigorously implement its sustainability plans to spur economic activities and save the ailing economy from deeper woes. This is especially as the Purchasing Managers’ Index (PMI) slumps further to 41.1 percent.
The PMI, which measures the prevailing direction of economic trends in the manufacturing and services sectors, has recorded a steady decline in five consecutive months from 60.8 percent in December 2019 to 41.1 percent in June 2020.
The PMI has been largely affected by the lockdown of both the local and global economy to curtail the spread of the COVID-19 pandemic, and according to experts it is expected to decline further in preceding months except strict efforts are made to implement policies and plans that can boost economy activities.
The Monetary Policy Committee of the CBN, at its monthly meeting held in July, noted the gradual, but persistent decline in the Manufacturing and non-Manufacturing Purchasing Manager’s Indices below the benchmark.
The Manufacturing PMI declined to 41.1 index points in June 2020 from 42.4 index points in May 2020. Conversely though, the non-Manufacturing PMI improved to 35.7 index points in June 2020 from 25.3 index points in May 2020.
The Committee attributed the trend in the Manufacturing and non-Manufacturing PMI to slower growth in production levels; new domestic orders; employment rate; raw materials supply, and new export orders.
Johnson Chukwu, CEO, Cowry Asset Management, in an interview with BusinessDay says there is an urgent need for the government to develop and implement economic policies to boost the nation’s economy as well as purchasing power of the citizens.
Chukwu notes that the contraction in PMI speaks to the level of confidence on the economy of the country, which has remained weak as the impact of the Covid-19 pandemic rubs off on all sectors.
“As it stands today, we may be expecting consumption to further decline, and if the manufacturers perceive a continuous decline, they may not be encouraged to produce,” he states.
Apart from the economic sustainability plan, there is need to develop and ensure implementation of specific policies to address issues relating to the different sectors, he notes.
“Like the survival fund, if they can begin an early implementation of the fund, it will go a long way in stabilising the economy.
“While we celebrate the CBN N50 billion fund for MSMEs, there is need to ensure that more resources are channelled to them from time to time to create a sustained growth, stimulate and encourage them to produce more, so as to moderate further decline,” he advises.
Also speaking with BusinessDay, Aliu Hassan, an Abuja-based economist, says Nigeria may face deeper contraction in preceding quarters of 2020, as PMI drops below 50 percent for the second consecutive months amid economic uncertainty.
“With Nigeria having PMI figure below 50 for the second consecutive months shows that there may be more decline in the remaining quarters of 2020. The global economy is still shaking, hence the need for more deliberate efforts to ensure economic stability in Nigeria,” Hassan states.
As the manufacturing index recorded a decline, production level, new orders, employment level, and raw material inventories all recorded further decline compared to their May 2020 figures.
Hassan stresses that as key sectors continue to record declines, there may be increase in unemployment rate, businesses may be forced to lay off workers in order to keep up with production cost coupled with poor demand.
Chijioke Ekechukwu, former director-general, Abuja Chamber of Commerce, notes that the Covid-19 pandemic has pushed down demands as well as purchasing power, which has led to the reduction in production capacity of the manufacturing companies.
“As long as the economic downturn persists, most countries still record reduction in economic indices. However, if the sector becomes a priority to the government, efforts can be focused on ensuring that it increases its production capacity.
“Manufacturing companies are currently producing lesser quantities because purchasing power of the people is low, which also leads to reduction in demand,” Ekechukwu notes.
