Business Confidence Drops as Nigeria’s Private Sector Improves for 29-Month
Business conditions continued to improve markedly in the Nigerian private sector during November amid improving demand and higher customer numbers, according to the Stanbic IBTC purchasing manager index.
Firms expanded their purchasing activity and employment, though business confidence dropped to the lowest since the survey began in January 2014. The PMI noted that inflationary pressures remained elevated, often reflecting currency weakness.
The headline PMI rose to 54.3 in November from 53.6 in October, pointing to a solid monthly improvement in business conditions in the Nigerian private sector, it stated.
The health of the private sector has now strengthened in 29 successive months, with the latest improvement the most pronounced since April, the PMI report stated.
It noted that new business increased at the fastest pace in six months amid reports of stronger demand and higher customer numbers. Companies responded to rising demand by increasing their business activity accordingly.
Output has now risen in each of the past five months as the PMI indicates that marked increases in activity were seen across each of the four broad sectors covered by the survey.
New order growth also encouraged companies to expand their employment and purchasing activity midway through the final quarter of the year. Staffing levels increased for the twenty-second month running and at the fastest pace since August.
Meanwhile, the rate of growth in purchasing activity was the steepest in four months. Similarly, inventories also expanded at a marked pace. Faster rises in output and new orders Inflationary pressures remain elevated Business confidence at survey-record low
Purchase costs rose at a sharper pace as the weakness of the Nigerian naira against the US dollar exacerbated rising raw material prices. Staff costs were also up, linked both to higher staffing levels and efforts to motivate workers by increasing wages.
The passing on of higher input costs to customers meant that output prices also increased markedly, with the rate of inflation quickening to a three-month high. Despite the generally positive picture for output and new orders in November, business confidence continued to decline.
Optimism dropped for the fourth successive month and was the lowest since the survey began in January 2014. Those firms that were confident in the year-ahead outlook for output mentioned business expansion plans and hopes for a further strengthening of demand
Commenting on the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The headline PMI rose to 54.3 in November from 53.6 in October, indicating an improvement in Nigerian private sector business conditions.
Indeed, the private sector business conditions have shown improvement for 29 months consecutively even as increased demand and new orders have driven increased output by firms, he added.
Oni said despite elevated raw material costs posing a strain on firms, firms are able to somewhat maintain production levels by passing on the cost to consumers. READ: Nigeria’s Private Sector Improves in October – PMI
“Sure, headline inflation continued to trend upwards reaching 21.1% y/y in Oct from 20.8% y/y in Sep 22. This was driven by both higher core and food inflation. However, m/m inflation declined for a third consecutive month to 1.2% from an average of 1.8% earlier in the year.
“Month-on-month inflation could decline further as the harvest session bodes positively for inflation. Nevertheless, there’s an upside inflation risk from flooding across Nigeria, negatively affecting harvests and thereby driving up food prices.
“Also, Nigeria’s central bank MPC has hiked the policy rate by 100 bps, to 16.5%, to quell inflation. Since May this year, hiking now totals a cumulative 500 bps —but inflation remains above the central bank’s target range of 6%-9%.
“We see inflation averaging 19% this year. Indeed, high inflation and aggressive monetary policy tightening could dampen growth prospects in the near term. Already, Nigeria’s GDP growth was sharply down to 2.25% year on year in Q3:2022, from 3.54% in Q2:2022 and 4.03% in Q3:2021.
“We now revise our respective growth forecasts for 2022 and 2023 to 2.8% y/y and 3% year on year, from 3.2% year on year and 3.3% year on year.”, Oni said. # Business Confidence Drops as Nigeria’s Private Sector Improves for 29-Month