The Nigerian economy has faced headwinds in recent months, with concerns surrounding inflation and currency weakness. However, a glimmer of hope emerged in April 2024. According to the latest Purchasing Managers’ Index (PMI) report released by Stanbic IBTC Bank, business activity in the country edged up, reaching a three-month high.
This positive development is attributed, to a large extent, by the strengthening of the Nigerian Naira. Understanding the PMI report and its components is crucial to gauge the true health of the private sector, a key driver of economic growth.
Decoding the PMI Report
The PMI report, released monthly by Stanbic IBTC Bank, serves as a vital indicator of the performance of the Nigerian private sector. It is based on a survey of 400 companies across various sectors, including agriculture, manufacturing, services, construction, and retail.
The headline index, a composite figure derived from five key sub-indices, provides a snapshot of overall business conditions. A reading above 50 indicates expansion, while a value below 50 signifies contraction.
The five sub-indices that contribute to the headline figure are:
New Orders (30% weight): This reflects demand for goods and services
Output (25% weight): Measures production levels
Employment (20% weight): Indicates job creation or reduction
Suppliers’ Delivery Times (15% weight): Shows the efficiency of supply chains (inverted so a higher value indicates faster delivery)
Stock of Items Purchased (10% weight): Reflects inventory levels
By analyzing these sub-indices, we can gain a deeper understanding of the specific areas driving or hindering growth within the private sector.
Naira’s Strength
The April 2024 PMI report highlighted a “fifth consecutive monthly improvement in business conditions,” albeit a slight one. This uptick coincides with a strengthening of the Naira.
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“The conditions for firms continued to be heavily influenced by movements in the naira and the subsequent impact on prices,” the report noted. The appreciation of the Naira led to a significant slowdown in the rate of increase for purchase prices and output charges.
However, inflationary pressures remain a concern. While the report indicated that “the latest rise in selling prices was the softest in just under a year,” inflation continues to be elevated. This has limited growth in output and new orders, with some firms resorting to job cuts.
Sectoral Performance
The PMI report also delves into the performance of individual sectors.
Agriculture and Manufacturing: These sectors witnessed a sharp increase in output, indicating positive growth.
Wholesale & Retail: Similar to agriculture and manufacturing, wholesale and retail activity also saw an uptick.
Services: The services sector, however, experienced a decline in activity.
These mixed signals highlight the uneven nature of the recovery in the Nigerian private sector. While some sectors are experiencing growth, others continue to struggle.
If You Ask Me
The April 2024 PMI report offers a cautiously optimistic outlook for the Nigerian economy. The strengthening of the Naira has positively impacted business activity, leading to a slowdown in inflation. However, inflationary pressures remain elevated, limiting growth and impacting employment.
As Nigeria navigates these economic challenges, the PMI report will continue to be a crucial tool for policymakers and businesses alike. Monitoring the PMI and its sub-indices will provide valuable insights into the health of the private sector, allowing for informed decisions to support sustainable economic growth.
