Nigeria’s business activities hit 5-month high

Business activities in Africa’s biggest economy returned to normal as it recorded the highest growth since the beginning of this year, a new Purchasing Managers’ Index (PMI) has said.

According to the latest monthly PMI by Stanbic IBTC Bank on Thursday, the headline PMI improved to 54.0 in May 2023 from 53.8 in the previous month. Readings above 50.0 signal an improvement in business conditions, while readings below 50.0 show deterioration.

It also expanded for the second straight month after recording two contractions in February and March as a result of the cash crunch.

“May’s PMI marks the highest reading so far in 2023. The Nigerian private sector continued its recovery from the cash crisis, as access to money improved and business conditions returned to normality,” Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank, said.

He said the cash crunch experienced during the first quarter was due to the government’s demonetization of the naira, which resulted in a scarcity of banknotes, affecting both consumer demand and business production.

“With improved access to cash in May, firms were able to attract more customers and secure a higher volume of new orders in May. New business expanded significantly, with the growth rate being the fastest since April 2022,” he said.

He added business activity increased for the second consecutive month, albeit at a slightly slower pace than in April. “Growth was observed across all four sectors covered, with the wholesale and retail sectors leading the expansion.”

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.

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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.

In the first quarter of this year, Nigerians were buffeted by a chronic shortage of cash caused by the naira redesign policy of the Central Bank of Nigeria (CBN) as it 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.

According to the National Bureau of Statistics, the economy grew at a slower pace to 2.31 percent (year-on-year) in Q1, down from 3.52 percent in Q4 2022 and 3.11 percent in the same period last year.

Currency in circulation picked up 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.

New order growth hits 13-month high and employment was up only marginally amid a more subdued outlook, according to the PMI index.

“Although higher new orders encouraged firms to increase their staffing levels for the first time in four months during May, the rate of job creation was only marginal amid signs that spare capacity remained in the private sector,” it said.

According to the authors of the report, the weak pace of employment growth also partly reflected relatively softer sentiment regarding the year-ahead outlook for activity.

“Although business expansion plans and predictions of further improvements in new orders supported positive forecasts, confidence dipped and was the second lowest on record,” they said.

Oni of Stanbic IBTC Bank, added that input costs continued to rise sharply, leading to corresponding increases in output prices.

“Albeit, inflation in the coming months may face significant upside risks due to the elimination of petrol subsidies, which could impact both transport and food prices.”