• Friday, October 11, 2024
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Business activity hits 5-month low on further price squeeze

African three projects make list of top 20 PMI most influential projects

Business activity in Nigeria has dropped to the lowest in five months, a new Purchasing Managers’ Index (PMI) has shown.

The latest monthly PMI by Stanbic IBTC Bank on Friday showed the headline index dipped to 50.2 in August from 51.7 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.

“Nigerian private sector business activity dipped into contraction midway through the third quarter of the year as severe and strengthening price pressures acted to diminish demand,” the index report showed.

It revealed that both overall input costs and output charges increased to the largest extent since the survey began almost a decade ago.

“Inflation again reflected higher transportation costs as a result of the removal of the fuel subsidy, plus currency weakness. Rising transportation costs also caused supplier delivery delays,” it added.

The report revealed that August’s headline PMI was the lowest in the current five-month sequence of improving business conditions. “The index signalled only a marginal monthly strengthening of the health of the private sector.”

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.

Read also: Business activity in Nigeria hits lowest in 4months on rising prices

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.

“Steep price rises presented a challenge for firms to secure new orders. August saw only a marginal increase in new business, with the rate of expansion the softest in the current five-month sequence of growth,” authors of the report said.

“Similarly, employment also rose only marginally. Meanwhile, business activity decreased slightly midway through the third quarter, ending a four-month period of expansion,” they said.

They added that sector data pointed to a drop in activity in wholesale & retail and no change in services. “Meanwhile, agriculture and manufacturing continued to see output increase.”

Since May 29, when President Bola Tinubu announced the removal of subsidy on petrol, the price has tripled to N617 from N184, while the value of the naira has plunged following the floating of the currency.

The floating of the currency has increased the official rate from N463.38/$ to N738.18/$ as of Wednesday, August 30.

The gap between the official and black market expanded to N187.

Read also: Stanbic IBTC renames fintech subsidiary

The high cost of dollars and the implementation of a 7.5 percent value added tax on diesel imports have pushed its pump price by about 20 percent to as high as N870 per litre.

The cost of energy and FX pushed the country’s inflation rate to a near 18-year high of 24.08 percent in July 2023 from 22.41 percent in the previous month, according to the National Bureau of Statistics.

“Marked inflationary pressures remained a major hindrance to businesses in August. Both overall input costs and staff costs increased at the largest pace since the survey began,” Muyiwa Oni, head of equity research, West Africa at Stanbic IBTC Bank, said.

He added that inflation again reflected higher transportation costs as a result of the removal of the fuel subsidy, and exchange rate devaluation. “Rising transportation costs also caused supplier delivery delays.”

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