Business activity in Nigeria has shrunk four times so far in 2023 on the back of reforms implemented by President Bola Tinubu, a new Purchasing Managers’ Index (PMI) has shown.
The latest monthly PMI by Stanbic IBTC Bank released on Friday showed the headline index dropped to the lowest in eight months of 48.0 in November 2023 from 49.1 in the previous month, marking the second straight month of contraction.
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Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.
The country’s business activity shrank in February (44.7) and March (42.3) following the fallout of the severe cash shortages caused by the naira redesign policy of the Central Bank of Nigeria.
“Companies in Nigeria continued to be negatively impacted by strong inflationary pressures in November, with new orders and output both falling as customers were either reluctant or unable to pay higher charges,” the report said.
It said purchase prices rose at the fastest pace in almost two years amid exchange rate weakness and higher costs for fuel and materials.
“At 48.0 in November, the headline PMI remained below the 50.0 no-change mark for the second month running midway through the final quarter of the year,” it added.
According to the report, the index signalled a modest deterioration in business conditions, and one that was the most marked since the cash crisis in the opening quarter of the year.
“The overall decline in operating conditions was in large part driven by further reductions in output and new orders. Both fell for the second month running, and to greater extents than in October.”
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%), output (25%), employment (20%), suppliers’ delivery times (15%) and stock of items purchased (10%), 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.
“The continuous contractions bear the reality of what truly is. It is not good for the economy to be contracting because it shows that the policies of government have yet to yield the required results,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.
He added that contractions indicate more poverty and joblessness and that governance is meant to be for the needs of the people and their welfare.
“Their well-being should be the upper-most priority. Let’s hope that when the 2024 budget is implemented, it will address some of the issues causing the contractions.”
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Business activities in South Africa, the second biggest economy in the continent also contracted to 41 in November, signaling that purchasing managers expect business conditions to deteriorate, according to Absa Group Ltd.’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research. The index stood at 43.4 in October.
Tinubu in May scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.
But his actions have worsened inflation currently in double-digits and at the highest level in 18 years. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
The naira has plunged to record lows across markets since the central bank allowed it to weaken by as much as 40% against the dollar in June.
The high cost of dollars and the implementation of a 7.5% value added tax on diesel imports, which was suspended last month in September, pushed its pump price to as high as N1,200 per litre.
According to the National Bureau of Statistics (NBS), the country’s inflation rate, a measure of the general price level, rose to 27.33% in October from 26.72% in the previous month.
In the third quarter of this year, Africa’s biggest economy recorded a flat growth in its Gross Domestic Product as it rose marginally by 2.54% (year-on-year) in real terms from 2.51% in Q2 and 2.25% in the same period last year.
“Companies raised their selling prices rapidly again in November, with the rate of inflation slowing only slightly and remaining among the strongest on record. The rise in selling prices was in response to higher input costs,” authors of the PMI report said.
They added that purchase price inflation quickened to a near two-year high on the back of exchange rate weakness and higher costs for fuel and materials.
‘Worries about the impact of inflationary pressures on demand caused business confidence to fall to the weakest since July’s record low. That said, business investment and plans to open new plants supported optimism that output will increase over the coming year.”
In October, the Presidential Fiscal Policy and Tax Reforms Committee, chaired by Taiwo Oyedele, presented recommendations to the president towards addressing critical economic issues including exchange rate management, impact of fuel subsidy removal, moderation of inflation and facilitating economic growth.
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Some of them are tax breaks for the private sector in respect of wage increases to low-income earners, transport subsidy and net increase in employment and suspension of Value Added Tax on diesel and tax waivers on Compressed Natural Gas (CNG), CNG conversion, and renewable energy items.
Others include comprehensive review of tariffs on the 43 items unbanned from accessing forex in the official market and fiscal policy review of other items prohibited for imports.
