Cost Pressures Drive Nigeria’s Business Activity to 8-Month Low.
In July, Nigeria’s business activity experienced a significant downturn, falling to an eight-month low according to the latest Purchasing Managers’ Index (PMI) report by Stanbic IBTC Bank. The headline PMI index slipped to 49.2, down from 50.1 in June and below the neutral 50.0 mark for the first time in eight months. This decline reflects ongoing economic challenges driven by rising costs and reduced demand.
Key Points:
- Steep Price Pressures: The report highlights that input costs and selling prices continued to escalate rapidly, which has negatively impacted customer demand. This has led to decreased business activity and new orders across most sectors.
- Sector Performance: Out of the four broad sectors covered, three saw a decline in activity in July. The only exception was manufacturing, which experienced an increase in production.
- Inflation and Pricing: Selling prices have continued to rise sharply as businesses pass higher input costs onto consumers. Despite a general easing in the inflation rate to its slowest pace since May 2023, companies are still struggling with high purchase prices and staff costs.
- Business Confidence: Confidence among businesses has reached a new record low, reflecting concerns over rising costs and the uncertain economic environment. Although some companies have reduced charges to attract customers, overall optimism remains subdued.
- Future Outlook: Despite the current challenges, there are indications that businesses expect output to increase over the next 12 months. This is attributed to plans for expansion, including efforts to start exporting and opening new branches.
- PMI Composition: The PMI index is a composite measure based on five key areas: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%), and stock of items purchased (10%). The index is designed to offer a snapshot of the economic health of the private sector.
Additional Insights:
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, noted that inflation might have peaked in June and could moderate in the latter half of 2024. This potential easing is expected as the effects of recent economic changes, such as the removal of the PMS subsidy and currency depreciation, begin to fade.
The PMI report underscores the ongoing pressure on Nigerian businesses due to cost increases and highlights the broader economic challenges affecting the country’s private sector.
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