Stagnation in Nigeria’s Private Sector Continues as Business Activity Remains Flat

Business activity in Nigeria’s private sector remained broadly stagnant in August, according to the latest Purchasing Managers’ Index (PMI) from Stanbic IBTC Bank, released on Monday. The headline PMI edged up to 49.9 in August from 49.2 in July, indicating a slight improvement but still falling just below the critical 50.0 threshold, which separates growth from contraction.

The PMI is a key economic indicator that provides insight into the prevailing direction of economic trends in the manufacturing and service sectors. A reading above 50.0 signals an improvement in business conditions compared to the previous month, while a reading below 50.0 indicates a deterioration.

According to the report, while new orders returned to growth, the rate of expansion was modest and insufficient to boost overall business activity, which saw a fractional decline for the second consecutive month. Employment continued to rise, as firms increased their staffing to address outstanding business, but this was offset by the ongoing challenges posed by sharply rising input costs.

“Input costs have continued to rise sharply, with the rate of inflation accelerating since July,” the report noted. “In response, firms have increased their selling prices at a faster pace. Although there are signs of encouragement with new orders returning to growth, demand remains subdued amid strong inflationary pressures.”

The data also showed that new business rose slightly, reversing the decline observed in July. However, the pace of expansion was much slower than the series average. New business increased in three of the four monitored sectors, with the services sector being the exception, where activity fell.

Muyiwa Oni, Head of Equity Research for West Africa at Stanbic IBTC Bank, commented on the findings: “Nigeria’s headline PMI increased slightly to 49.9 points in August from 49.2 in July, but it remained just below the 50.0 no-change mark, signalling a broadly stable picture for business conditions in the Nigerian private sector. The stagnation in overall operating conditions was in line with the trend in business activity, where Nigerian companies posted a fractional reduction during August, mirroring the situation in July. While a renewed expansion in sales led some companies to increase output, others reported that demand remained weak due to significant cost pressures.”

Oni further highlighted the sectoral performance, noting that business activity rose in the manufacturing and wholesale & retail sectors but declined in agriculture and services. “On purchase prices, respondents noted higher costs for materials, particularly animal feed and paper, while logistics and transportation also contributed to inflation due to higher fuel prices. Some respondents pointed to the weakness of the USD/NGN exchange rate as a contributing factor.”

The report also revealed that the rate of output price inflation hit a five-month high in August, with nearly half of all respondents reporting increased charges. This reflects the pass-through of higher costs to customers as firms struggle to manage rising input expenses.

Despite these challenges, employment in August increased, marking the fourth consecutive month of job creation. Although the rise in staffing levels was modest, it was the fastest increase since November of the previous year. The combination of rising employment and muted new order inflows allowed firms to reduce their backlogs of work at the joint-fastest pace since June 2022.

Looking ahead, the report noted that input costs continued to rise rapidly midway through the third quarter, driven by increases in the prices of materials and transportation, with cost pressures exacerbated by currency weakness. Staff costs also increased as firms adjusted pay in response to higher living costs.

Although business sentiment improved slightly from July’s record low, it remains among the least optimistic since the survey began, reflecting the ongoing economic challenges facing Nigeria’s private sector.