Nigeria’s Private Sector Sees Modest Improvement as PMI Rises
The business environment for Nigeria’s private sector showed signs of improvement in May, as the Purchasing Managers’ Index (PMI) rose to 52.1 points from 51.1 points in April. This marks the second-highest reading of the year, following January’s peak at 54.5 points.
According to the Stanbic IBTC Bank Nigeria PMI report released on Tuesday, inflationary pressures eased but remained significant, leading to sharper increases in both output and new orders. Data gathered from approximately 400 purchasing managers in private sector companies indicated a slight pick-up in growth for the sector.
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, commented on the findings: “The Stanbic IBTC headline PMI increased to 52.1 points in May from 51.1 in April—its highest level since January’s 54.5 points. This suggests that Nigeria’s private sector activity maintained a better footing in May, even though the rate of expansion remained slower than the series average due to high prices limiting demand.”
Oni highlighted that purchase costs and selling prices increased at their slowest rates in a year, supporting a sharper increase in both output and new orders compared to April. “The Nigerian economy grew moderately by 2.98 per cent year-on-year in Q1:24, down from 3.46 per cent in Q4:23. Structurally, the services sector continues to be the growth engine of the economy, contributing 83.2 per cent to real GDP growth, with industries and agriculture contributing 15.5 per cent and 1.3 per cent, respectively,” he added.
Interest rate-sensitive sectors experienced a slowdown, with the exception of the manufacturing sector, which saw modest growth at 1.49 per cent year-on-year, compared to 1.38 per cent in Q4:23, though still below the three-year average of 2.40 per cent.
“The April and May headline PMIs point to a slight improvement in private sector activity in Q2:24, although still underwhelming compared to Q2:23. We expect domestic demand to remain weak relative to historical averages, exacerbated by inflationary pressures, which may peak in May. High interest rates will continue to negatively impact the non-oil sector. However, due to expected favourable base-effect growth in the oil sector, the overall economy is projected to grow by 3.51 per cent year-on-year in real terms in Q2:24,” Oni noted.
The report indicated that new orders increased in May, continuing a six-month growth trend. Business activity also saw an uptick, reaching the highest level since January. Growth was recorded across all four monitored sectors, with manufacturing experiencing the sharpest rise. Improving customer demand amid easing inflationary pressures contributed to this growth.
Despite the positive trends in output and new orders, business confidence waned, reaching its lowest level since February. Nonetheless, over 43 per cent of respondents remained optimistic about the year-ahead outlook for output, citing plans for investment and business expansions, including new branch openings.
Employment levels remained unchanged, but employee expenses increased as employers sought to support workers with higher living costs. Companies expanded their purchasing activities in anticipation of positive future workloads, and suppliers’ delivery times have continued to shorten since March 2023, attributed to prompt payments and good arrangements with vendors.
“Despite stronger expansions in output and new orders in May, business confidence was the lowest since the survey nadir posted in February. However, more than 43 per cent of respondents remained optimistic in the year-ahead outlook for output, linked to plans for investment and business expansions,” the report concluded.
