Nigeria’s Private Sector Expands to 2-Year High – PMI

Nigeria’s Private Sector Expands to 2-Year High – PMI

The final month of 2021 revealed a robust expansion in Nigeria’s private sector with the purchasing manager index (PMI) improving to a 24-month high, according to Stanbic IBTC Bank

According to the latest report released on Monday, PMI hits a two-year high amid stronger output and new order growth. It reveals there were quicker uplifts in output and new orders.

As well, the report noted that record inventory buildings were central to the improvement recorded in the period. Despite the surge in new orders, the PMI report indicates that firms added to their headcounts at the softest pace for 11 months but were still able to keep backlogs at bay.

Meanwhile, purchase cost inflation accelerated to a fresh series high, and for the fourth month running. This tally with a previous report issued in November 2021 amidst a high inflation rate in the country.  

PMI report shows that output price inflation followed suit, also quickening to a new survey peak in December.

At 56.4 in December, up from 55.0 in November, the latest expansion pointed to a robust overall improvement in business conditions, according to Stanbic IBTC Bank PMI report.  

Moreover, the latest quarterly reading was at 55.2, the highest since the final quarter of 2019, the report stated, noting that a key driver of growth was the quickest rise in new orders for over two years.

“Firms mentioned fruitful marketing efforts and a general improvement in domestic and international demand. Subsequently, firms boosted output for the thirteenth month running, and at the quickest rate since August 2020”.

The report also noted that sub-sector data revealed expansions across the board, although manufacturers recorded by far the strongest increase. Wholesale & retail, services and agriculture followed, respectively.

Despite robust expansions in output, firms added to their headcounts at only a slight pace, the report indicates.  

Panel comments suggested that whilst sales had increased, firms were able to keep up with demand leading to a marked reduction in backlogs.

Meanwhile, it explains that historically elevated rates of new order growth led firms to engage in stockpiling strategies during the month.

“In fact, inventories increased at the quickest rate in eight years of data collection. Buying levels also increased substantially, and at the fourth-most marked rate in the series.

“As for prices, purchase costs rose at a survey-record rate for the fourth month running. Higher raw material prices, fuel costs and unfavourable exchange rate movements drove the increase.

“Favourable demand conditions allowed for costs to be passed on to clients at a record rate in December. Finally, firms were optimistic for output growth in 2022 amid plans to broaden product offerings, increase advertisements and expand operations to new locations”, the report stated.

Commenting on this, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “Throughout 2021, we have seen consistent improvement in business conditions as evidenced by the PMI index which averaged 53.5 from Jan to Dec 21 compared to 50.2 for the same period in 2020”.

He said the PMI reaching a two-year high on Dec 21 reflects the impact of relaxed public health restrictions. Indeed, strong demand and output levels have persisted over the last few months, even though growth has been somewhat constrained by significant price pressures impacting input and selling prices.

“Notably, firms have been able to pass through the increased cost without it dampening overall demand and output. The report indicated that manufacturers recorded the strongest expansion during the month”, Oni added.

He explains further that the manufacturing sector has been one of the main drivers of growth in recent times.

“Truly, the sector has recorded gradual growth through the year as evidenced by the Q2:2021 and Q3:2021 sector growth in real terms of 3.5% year on year and 4.3% year on year respectively.

“The sector’s Q3:2021 growth appeared to be the highest since 2014 reflecting the relatively improved FX supply to corporates during the period and the relaxed public health restrictions.

“While infrastructure challenges, FX illiquidity concerns and high inflation have weighed on the sector, the sector’s performance has shown resilience,” Oni said. #Nigeria’s Private Sector Expands to 2-Year High – PMI

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