The latest Stanbic IBTC Bank Nigeria Purchasing Managers' Index (PMI) report reveals that the Nigerian private sector experienced a contraction in business activity during the third quarter of the year. This downward trend was primarily due to severe and strengthening price pressures, which significantly diminished demand.
The report highlighted the impact of rising prices on the sector, as both overall input costs and output charges increased to the largest extent since the survey began almost a decade ago. These rising costs were primarily attributed to increased transportation expenses resulting from the removal of the fuel subsidy and currency weakness. Additionally, higher transportation costs led to supplier delivery delays, further hindering business operations.
While some sectors managed to maintain expansion, the rates of growth in new orders and employment significantly slowed and were only marginal. This suggests that businesses faced challenges in securing new orders, primarily due to steep price rises. August saw only a marginal increase in new business, the softest rate of expansion in the current five-month sequence of growth. Similarly, employment growth also remained limited.
The private sector's overall health slightly weakened, as evidenced by the drop in the headline PMI for the third consecutive month. In August, the headline PMI dropped to 50.2, the lowest level in the current five-month sequence of improving business conditions. While the survey indicated a marginal strengthening of the sector's health, marked inflationary pressures persisted and continued to hinder businesses.
Muyiwa Oni, the Head of Equity Research West Africa at Stanbic IBTC Bank, commented on the report, saying, "Steep price rises presented a challenge for firms to secure new orders. August saw only a marginal increase in new business, with the rate of expansion the softest in the current five-month sequence of growth. Similarly, employment also rose only marginally."
Despite the challenges faced by the private sector, there were some bright spots. The report revealed that agriculture and manufacturing sectors continued to experience output growth. This provides hope for the Nigerian economy as these sectors play crucial roles in driving overall economic development.
Companies in the private sector expanded their purchasing activity, leading to an increase in stocks of inputs. However, high transportation costs caused difficulties in receiving inputs, resulting in only fractional improvements in suppliers' delivery times. Business sentiment showed a slight improvement from the previous survey period's record low, but it remained historically weak.
Some panellists were optimistic about the future, linking their predictions of output growth to business expansion plans and increased advertising activity. While the Nigerian private sector faces ongoing challenges, these strategies offer some hope for a more robust recovery and growth in the coming months and years.
Source of content: OOO News 2023-09-04 News
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