Private Sector Expands to 5-Month High as Naira Worsens Purchase Costs
The end of the third quarter of 2022 saw growth gather momentum in the Nigerian private sector, according to Stanbic IBTC Purchasing Management Index –PMI released by S&P global today.
According to the report, sharper rises in output and new orders were recorded, while there were emerging signs of capacity pressures. Purchase costs were affected. PMI indicates that cost inflation remained elevated, in large part due to currency weakness, while business confidence waned.
The headline PMI rose to 53.7 in September, up from 52.3 in August and signalling a solid strengthening in the health of the private sector at the end of the third quarter, the report says.
It noted that the improvement in business conditions was the most marked since May. In line with the headline figure, the PMI reading indicates that both output and new orders increased at sharper rates during the month.
It noted that firms often linked higher new business to rising demand, with some reporting that customer referrals had supported growth. In sequence, output rose for the third month running, and at the fastest pace since April.
“Rising new orders, and some reports of difficulties securing the necessary funding, resulted in a renewed increase in backlogs of work during September, the first in 28 months.
“Companies also increased their staffing levels and purchasing activity, largely in response to greater new business volumes. In both cases, however, rates of expansion eased from the previous survey period”, according to the Index.
It is noted that higher purchasing activity fed through to a further accumulation of inventories. Purchase costs rose sharply, with anecdotal evidence often linking higher prices to currency depreciation. Meanwhile, staff costs increased at the fastest pace in three months.
Stanbic IBTC report stated that panellists reported that efforts to motivate staff and help them with higher living costs had been behind salary increases. READ: Naira Falls as Pre-Election Uncertainties Gather Momentum
“With overall input costs again rising at one of the sharpest rates since the survey began, Nigerian companies increased their selling prices accordingly”. The PMI stated that the rate of charge inflation slowed sharply and was the joint-weakest in 21 months. Suppliers’ delivery times continued to shorten, often as a result of strong competition among vendors.
It added that the latest shortening of lead times was marked, and the most pronounced in four months. Despite the improving growth picture in September, firms reported waning confidence in the year-ahead outlook.
Sentiment remained positive overall but was the lowest since August 2021 and among the weakest on record. Those firms that expressed optimism often mentioned business expansion plans.
Speaking about the index, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said: “The Nigerian private sector continues to signal an expansion as the headline PMI printed at 53.7 in September from 52.3 in August driven by faster growth in output”.
Oni said output growth during the period has been supported by higher demand levels, while elevated price pressures has remained a major downside risk to output growth in recent times.
“Indeed, the monetary authorities have now prioritized combating rising inflation given its impact on growth. Headline inflation for August rose to 20.52% year on year from 19.64% in July driven by a broad-based rise in price levels.
“The committee has implemented a cumulative 400 bps hike in the policy rate this year in a bid tame inflationary pressures. Sure, in previous years, the Central Bank of Nigeria has maintained spurring growth as a primary objective seen in the increased rate of intervention loans, low-interest rate on intervention loans, 65% loan-to-deposit ratio, among others.
“We still expect GDP growth at 3.2% year on year in 2022 driven by the non-oil sector. However, high inflation, FX illiquidity constraints and prevalent insecurities remain downside risk to growth in the short to medium term”, Oni said. #Private Sector Expands to 5-Month High as Naira Worsens Purchase Costs
