Nigeria PMI expands 0.9% to 51.1 as private business activities expand in September

By Onome Amuge.

Nigerian private sector business activity expanded slightly in September, a reversal from the contraction in August, reflecting a slight improvement in business activity but still showing price pressure strain on businesses, according to the Stanbic IBTC Purchasing Managers Index (PMI) report for September.

The latest monthly PMI indicated a modest yet positive improvement in business conditions, as the PMI for September stood at 51.1, up from 50.2 in August, a slight monthly upturn in the private sector.

According to the report, readings above 50.0 signal an improvement in business conditions, while those below reflect deterioration. Therefore,  September’s PMI reading suggests that Nigeria’s private sector is experiencing a moderate uptick in activity, albeit still hovering just above the no-change mark.

Stanbic IBTC described the 51.1 index as an encouraging development despite the challenges faced by businesses in Nigeria amid strong cost pressures, driven by exchange rate weakness and higher fuel costs which  have continued to affect firms operating in the private sector.

These factors, it stated, have contributed to a steep increase in input prices, with some of the sharpest rate rises on record.

According to the report, new orders increased for the sixth consecutive month, reflecting an improvement in demand. However, the growth was considered modest, primarily due to market conditions that have been characterised by weak consumer demand and price hikes that deter customers.

“Output levels returned to growth in September following a slight reduction in August. Yet, similar to new orders, the pace of increase remained modest, with manufacturing being the only sector showing a decline,” it stated.

The report  attributed constrained demand in the private sector for the sharp rise in prices. This is as input costs surged, mainly due to exchange rate fluctuations and escalating fuel expenses. Companies also had to raise wages significantly to help their staff cope with higher transportation costs,leading to a notable increase in staff cost inflation.

Despite the rise in input costs, selling prices saw a steep rate of inflation, driven by the cumulative effects of increased purchase costs, despite being the weakest inflation rate since May.

On a positive note, employment continued to grow slightly for the fifth consecutive month, reflecting a cautious expansion. There was also a slight expansion in purchasing activity, but the rate of growth slowed to a six-month low.

Meanwhile, confidence in the year-ahead outlook for output remained unchanged in September, but it remains one of the weakest on record. Companies that predicted an increase in activity primarily linked it to plans to hire additional staff to support business expansion.

Sharing his insights on the latest PMI figures, Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank,noted that prices remained elevated, with input and purchase prices remaining at period highs.

Oni also pointed out that input prices increased materially across the major sectors covered, with inflationary pressures most pronounced in wholesale & retail and manufacturing.

He added that the majority of the respondents also signaled an increase in purchase prices linked mainly to exchange rate weakness and higher fuel costs. Notably,staff costs were also increased at the second-fastest pace since the survey began in January 2014 due to high transportation costs for workers.

The  PMI report, which  measures the performance of the private sector, is derived from a survey of about 400 companies from agriculture, manufacturing, services, construction and retail sectors.

It is a composite index of five individual indexes based calculated weights including new orders at 30 per cent, output at 25 per cent, employment at 20 per cent, suppliers’ delivery times at 15 per cent and stock of items purchased at 10 per cent, while  the delivery times index is inverted so that it moves in a comparable direction.