Nigeria’s Private Sector Business Conditions Improve Strongly –PMI
Purchasing Manager Index (PMI) data for Nigeria’s private sector pointed to a substantial improvement in business conditions, according to Stanbic IBTC Bank report produced by IHS Markit for the month of February 2022.
According to the report, there were quicker expansions in output, new orders, employment and purchasing underpinned the latest improvement. At the same time, it stated that firms were hopeful that higher investments and customer numbers would support output growth over the course of the coming year.
On the cost front, the PMI report said there were unfavourable exchange rate movements, higher prices for raw materials and rising wages led to a substantial rate of input price inflation. Subsequently, selling charges were lifted sharply, according to the new report obtained by MarketForces Africa from IHS Markit website.
At 57.3 in February, up sharply from 53.7 in January, the latest expansion pointed to a robust overall improvement in business conditions, the report stated. Moreover, the latest figure signalled the strongest expansion since November 2019.
“A key driver of growth was the joint-quickest rise in new orders for over two years. Firms mentioned a general improvement in demand from both domestic and international markets”.
To cater for higher orders, the report said firms lifted their output levels, and for the fifteenth month in succession. Sub-sector data revealed a broad-based expansion with wholesale & retail recording the strongest increase.
Services, agriculture and manufacturing followed, respectively. Higher workloads led companies to raise their staffing levels in February, which they did so at a rate that was the quickest since last July.
It noted that as a result, wages rose at the second-quickest rate in the series history. Backlogs meanwhile fell sharply.
“Sustained periods of output growth as well as improving demand for Nigerian products and services led to higher levels of input buying.
“In a bid to meet future orders, firms added to their inventories. Vendor performance continued to improve during the month as a result of increased competition amongst vendors, advance payments and timely order requests.
“Favourable demand conditions underpinned optimism in February. Firms that foresee a rise in output expect business expansions, higher client numbers and greater investment over the coming 12 months”.
Overall input prices rose sharply. Higher prices for a number of inputs, as well as unfavourable exchange rate movements led to a robust rate of inflation, Stanbic IBTC PMI stated.
It also added that supportive demand conditions allowed firms to pass on a large proportion of their cost burdens with selling charges rising substantially
Speaking to the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “In February, the Stanbic IBTC Bank PMI reached a 2-year high of 57.3, up from 53.7 in January.
“The rise was attributed to a combination of a significant increase in new orders and, consequently, output levels. The positive momentum was broad-based as the report suggests increased employment levels”.
Oni explained that this also implies a response to the increased demand levels. Indeed, Nigeria’s economy expanded by 3.98% year on year in Q4:2021, relative to 4.01% year on year in Q3:2021, cumulating in a 3.4% growth for 2021.
“This marks a recovery from the pandemic-induced contraction of 1.9% year on year in 2020. The recovery in 2021 was supported by a robust non-oil sector growth of 4.44% year on year– following the 1.25% year on year contraction in 2020 – led by the services sector growth of 5.61% year on year.
“Public health restrictions were relaxed, thereby improving transportation and demand for goods and recreational services. “Despite the positive GDP print, the PMI report is also indicative of mounting inflationary pressures as the purchase cost index rose to 77.0 from 72.4 in Jan 2022.
“This corroborates our expectations of a sticky inflation outlook for 2022 as price pressures persist. Essentially, we expect headline inflation to average c.15% in 2022”, he said. #Nigeria’s Private Sector Business Conditions Improve Strongly –PMI
