Business conditions stagnate as PMI contracts in August

Business activities in Nigeria stagnated in August due to low output rates and higher costs of production, a new Purchasing Managers’ Index has shown.

According to the report by Stanbic IBTC Bank, business conditions in the private sector were broadly stagnant in August as the “rate of expansion was only modest and insufficient to result in a rise in business activity, which fell fractionally”.

It stated that companies increased their cost of products to deal with the rising inflation in July. The headline PMIgew marginally to 49.9 points in August from 49.2 in July but remained just below the 50.0 no-change mark.

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“The stagnation in overall operating conditions was in line with the trend in business activity, which decreased fractionally for the second consecutive month. Companies reported that demand remained muted amid strong inflationary pressures, but there were some signs of encouragement as new orders returned to growth,” the report stated.

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.

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.

“On purchase prices, respondents noted higher costs for materials, most notably animal feed and paper, while logistics and transportation were also a source of inflation amid higher fuel prices. Some panellists noted the weakness in the USD/NGN pair. The increase in output prices reflected the pass-through of higher costs to customers,” Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank said.

The Nigerian economy grew by 3.19 per cent in the second quarter of 2024, driven by the service sector, according to the National Bureau of Statistics.

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Analysts have however questioned the impact of the GDP growth on business conditions and the lives of Nigerians.

Ken Ife, economist and lead consultant on private sector development to the ECOWAS Commission, noted that the growth in agriculture remains insufficient to meet the country’s needs, given the higher rates of population growth and urbanisation.

“The challenge is that the growth is much lower than the population growth rate of 3 percent and urbanisation rate of 4.6 percent, which signals continuing food security challenge,” Ife told BusinessDay.