Business activities in Nigeria have dropped to a seven-month low of 50.1 points in June, from 52.1 recorded in May, due to moderation in domestic demand amid the intensification of price pressures. All these have led to slowdowns in growth of output and new orders, a new Purchasing Managers’ Index (PMI) report has revealed.
The latest monthly PMI by Stanbic IBTC Bank released yesterday, showed a significant decrease from the previous month with inflationary pressures picking up and purchase prices, staff costs and selling charges all increasing more quickly than in May. In turn, employment rose only fractionally.
The PMI index, which measures the performance of the private sector, is derived from a survey of 400 companies from agriculture, manufacturing, services, construction and retail sectors. It is a composite index based on five individual indexes with the following weights: new orders (30 per cent), output (25 per cent), employment (20 per cent), suppliers’ delivery times (15 per cent), and stock of items purchased (10 per cent), with the delivery times index inverted so that it moves in a comparable direction.
“Although new orders continued to rise in June, the rate of expansion was only marginal and the weakest in the current seven-month period of growth. There were some reports of underlying demand improving, but sharp price rises meant that customers faced challenges being able to commit to new projects,” the report said.
It added that companies increased selling prices rapidly again in June, with inflation quickening slightly from May.
The sharper rise in output prices was in tandem with a faster increase in input costs. Purchase price inflation was recorded amid currency weakness and higher raw material costs, particularly those related to animal feed.
Meanwhile, efforts to help workers with increased living and transportation costs led to a further solid rise in wages, it said. In line with the picture for new orders, output rose at a slower pace last month but expansion was slight and the weakest in four months. The agriculture and manufacturing sectors posted faster increases in business activity than services and wholesale and retail.
Muted demand conditions enabled companies to reduce their backlogs of work for the first time in four months. Some firms indicated that they had cleared all outstanding business. There were reports, however, that difficulties securing materials caused delays in the completion of projects, meaning that the overall reduction in backlogs was marginal.
With new order growth slowing and backlogs of work down, most companies kept their staffing levels unchanged in June. Business confidence remained among the lowest on record in June and where firms were optimistic in the outlook for output, this was linked to plans for business expansions, securing of new funding and efforts to export, it added.
Head of Equity Research West Africa, Stanbic IBTC Bank, Muyiwa Oni, said financial challenges at customers limited the ability of firms to fully benefit from any improvements in underlying demand just as inflation remained elevated in June, ticking higher for the second month running to the strongest since March.
“Nigeria’s private sector activity ended Q2 on a weak note as the domestic economy continues to be affected by elevated price pressures, high interest rates and lingering currency weakness.”
MEANWHILE, looking to address the business and operating environment for manufacturers holistically, the Manufacturers Association of Nigeria (MAN’s) annual Manufacturers Summit will kick off today, July 2, 2024 and end on Thursday, July 4, 2024 at State House Banquet Hall, Abuja.
According to MAN’s Director-General, Segun Ajayi-Kadir, the summit will prove pivotal for the manufacturing sector as the theme: “Rethinking Manufacturing,” will address the need for innovative strategies and approaches to enhance the efficiency, competitiveness and sustainability of the real sector.
To further their agenda, he said MAN is collaborating with the Presidency; Federal Ministry of Industry, Trade and Investment (FMITI); National Institute for Policy and Strategic Studies (NIPSS) and Ernst and Young (EY) to host the summit.
The DG said the summit will discuss overcoming the many constraints that limit their performance and foster a conducive business environment to drive the sector’s growth. “Discussions will focus on including promoting growth, upscaling productivity and improving competitiveness; enhancing energy security and infrastructure development; improving macroeconomic environment, ease of doing business, periscoping ESG; improving patronage of local products and local content development as well as leveraging regional and continental trade for export development.”
He added that it would also engage focus group discussions with high level government officials, CEO of manufacturing industries, industry experts, leaders of continental institutions like and thought leaders.