The Nigerian private sector continued to struggle in August, according to the latest Stanbic IBTC Bank Purchasing Managers Index (PMI) released on Monday. While the headline PMI rose slightly from 49.2 in July to 49.9 in August, it remained below the 50.0 no-change mark, signaling a stagnation in overall operating conditions.
Business Activity Continues to Decline
The report revealed a fractional decline in business activity for the second consecutive month. Although some companies reported increased output due to a renewed expansion in sales, others noted weak demand amid rising cost pressures. The manufacturing and wholesale & retail sectors witnessed growth, while agriculture and services contracted.
Rising Input Costs
Companies continued to grapple with soaring input costs, with the rate of inflation accelerating since July. The increase in purchase prices was primarily driven by higher costs for materials, particularly animal feed and paper, as well as logistics and transportation expenses due to rising fuel prices. The weaker USD/NGN exchange rate also contributed to inflationary pressures.
Increased Selling Prices
In response to higher input costs, firms increased their selling prices at a faster pace. Just under half of all respondents indicated a rise in charges, reflecting the pass-through of higher costs to customers. This led to a quickening of output price inflation to a five-month high in August.
Employment Growth Continues
Despite the challenging economic conditions, employment levels continued to increase in August, extending the current sequence of job creation to four months. The latest rise in staffing levels was the fastest since last November, although modest.
Backlogs of Work Depleted
The combination of rising staffing levels and muted new order inflows allowed firms to deplete their backlogs of work at a faster pace. This was the joint-fastest rate since June 2022.
Negative Business Sentiment
Despite the slight improvement in the PMI, business sentiment remained among the least optimistic since the survey began. The rising cost of living, coupled with the challenges posed by the weak economy, contributed to the negative outlook.
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Expert Analysis
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, emphasized the challenges facing the Nigerian private sector. He noted that the stagnation in overall operating conditions was in line with the trend in business activity and highlighted the weak demand and rising cost pressures.
Oni also pointed out that the increase in employment levels was a positive sign, but the overall economic outlook remained uncertain. The continued rise in input costs and the pass-through of these costs to customers were significant concerns.
If You Ask Me
The August PMI data paints a mixed picture of the Nigerian private sector. While there were some positive signs, such as the continued growth in employment, the overall economic conditions remained challenging. Rising input costs, weak demand, and negative business sentiment continue to pose significant hurdles for businesses in Nigeria.
As the country navigates these economic challenges, policymakers and businesses will need to closely monitor the situation and implement strategies to foster growth and improve the overall business environment.