Business activities in Africa’s biggest economy expanded in April 2023, as the naira returns to normal circulation, after recording two months of decline, a new Purchasing Managers’ Index (PMI) has said.
According to the latest monthly PMI by Stanbic IBTC Bank on Tuesday, the headline PMI improved to 53.8 last month from 42.3 in March and 44.7 in February. Readings above 50.0 signal an improvement in business conditions, while readings below 50.0 show deterioration.
“The headline PMI moved back above the 50.0 no-change mark for the first time in three months during April. There were signs of recovery in the Nigerian private sector as the cash crisis eased. Firms reported renewed expansions in new business and output amid improved access to funds. Companies remained cautious with regards to hiring, however, and employment fell slightly,” it said.
The report showed that there were mixed trends in terms of prices at the start of the second quarter.
“Input costs increased at a sharper rate, but further efforts to attract customers led firms to increase their selling prices at the softest pace for three years,” it showed.
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The Index which measures the performance of the private sector is derived from a survey of 400 companies from agriculture, manufacturing, services, construction and retail.
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.
The recovery in operating conditions reflected an easing of the cash crisis which has severely affected the economy in recent months, analysts at Stanbic IBTC Bank said.
“Panellists reported a more normal business environment as customer numbers improved in line with greater access to cash. As a result, both output and new business expanded sharply in April, ending two-month sequences of decline in each case,” the analysts said.
They added that rebounds in activity were seen across each of the agriculture, manufacturing, services and wholesale & retail sectors.
“Business sentiment remained subdued in April, despite a slight pick-up from March. In fact, optimism was among the lowest seen since the survey began in January 2014,” they said.
Since the beginning of the year, Nigerians have been buffeted by a chronic shortage of cash caused by the naira redesign policy of the Central Bank of Nigeria (CBN). This has disrupted economic activities and the livelihoods of many people.
Data from the CBN show that the currency in circulation dropped to the lowest level in 14 years and five months to N982.1 billion in February from N1.39 trillion in the previous month.
But it rose by 71.41 percent to N1.68 trillion in March after the CBN moved naira notes from its vault to deposit money banks in response to the Supreme Court order to extend the legal tender status of the old N200, N500, and N1, 000 notes to December 31, 2023.
Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank, said the easing of the cash shortage challenge in April saw improvement in both output and consumer demand.
“While the easier access to cash caused business activities to expand across key sectors (Agriculture, manufacturing, services and wholesales and retails sectors), firms however maintained caution in increasing staff head count,” Oni said.
“Sure, business sentiment is still relatively weak as recovery in business activities and the access to cash would likely be gradual and continue in near term.”