Nigeria’s economy will slow again in the third quarter (Q3) of 2019 adding to the lower growth witnessed in the previous quarter of the year.
The slowdown of economic activities is premised on a slower expansion seen in the Purchasing Managers’ Index (PMI) within the period which expanded at a slower pace compared with the previous quarters, according to monthly PMI data obtained from the Central Bank of Nigeria and compiled by BusinessDay.
Since 2015 when the apex bank started tracking the data, the PMI has been a leading indicator of economic activities, exhibiting a positive correlation with the gross domestic product (GDP). When it expands, the economy follows, and vice versa.
In the second quarter of 2019, the PMI warned of a contraction in economic activities after it slowed in the period to 58.15 points from 58.3 points in the previous quarter. The GDP also slowed.
Economic activities in Africa’s largest economy slowed to 1.94 percent from a revised 2.01 percent reported in the second quarter of 2019, data from the National Bureau of Statistics show.
“The PMI has a close relationship with growth in GDP since it measures the direction of business activities, output and the level of production across different sectors and segments of the economy,” said Philip Anegbe, head of research at Lagos-based investment house, Cardinal Stone.
Rewind to 2016, when Nigeria suffered a lengthy recession that crippled economic activities. The PMI already flashed the red light.
At that time, the PMI figure on an annual computation contracted sharply to an average of 44.6 points from as high as 50.7 points the previous year. Even when economic activities rebounded in 2017, the PMI had already flashed it as the data expanded at a faster pace.
The CBN’s PMI report is based on survey responses, indicating the changes in the level of business activities from purchasing and supply executives of manufacturing and non-manufacturing organisations in all 36 states in Nigeria and the Federal Capital Territory (FCT).
A score of 50 points indicates an expansion of business activities while a score below that level indicates a contraction.
For the third quarter, the data showed an unimpressive performance when compared with the preceding quarter.
“There is really no specific policy that has been introduced to jumpstart the economy across all sectors,” said Ayodeji Ebo, MD/CEO, Afrinvest Securities Ltd.
“Everything in the economy looks at standstill. No innovation, no direct investment whatsoever that should warrant an increase in GDP,” Ebo said on phone.
The third quarter of the year witnessed a lot of policy uncertainties, from an outright restriction by the CBN on dollar provisions to importers of food items into the country to a closure of the country’s busiest border to check the influx of smuggled items including fuel, rice, fish, turkey and chicken, a situation analysts say would impact greatly on trade.
The CBN had in March this year cut its benchmark interest rate to 13.5 percent from 14 percent in a surprise move as part of an attempt to stimulate growth and signal a new direction. It was the first rate cut since November 2015.
The apex bank also ordered the adoption of a 60 percent loan-to-deposits ratio for commercial banks so as to force banks to lend to the real sector of the economy.
However, while this has pushed banks to extend credit further, it is yet to translate into growth for Africa’s most populous nation as companies still struggle with lower sales on the back of falling disposable income.
This has prompted most manufacturing goods companies to start trading cash for credit in order to stimulate revenue. A lack of clear policy implementation from the government that would drive reforms is hurting growth of business in the country, said Ibrahim Tajudeen, head of research at Chapel Hill.
“Hence, it is no surprise if we see growth slowing in the third quarter of the year,” Tajudeen said on phone.
Despite declining company revenues and falling consumer income, the government plans to increase value-added tax (VAT) from 5 percent to 7.5 percent by 2020, a move analysts say would make firms shift the burden to consumers in the form of higher prices.
MICHAEL ANI
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