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Nigerian Private Sector Business Conditions Show Modest Uptick in May

The business environment for Nigeria’s private sector companies witnessed a modest improvement in May, according to the latest Stanbic IBTC Bank Nigeria PMI report released on Tuesday. The headline PMI climbed to 52.1 in May from 51.1 in April, marking the second-highest reading in 2024 after January’s 54.5.

Inflationary pressures remain high but are easing. While inflationary pressures eased during the month, they remained markedly elevated, the report noted. This led to sharper increases in output and new orders compared to April. The data was gathered from the responses of around 400 purchasing managers across Nigeria’s private sector.

Pickup in Growth Despite high price constraints May’s figures indicated a pickup in growth across the private sector. However, the rates of expansion continued to trail their respective long-run averages as high prices constrained customer demand.

Commenting on the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, said: “Nigeria’s private sector activity maintained better footing in May, though the rate of expansion remained slower than the series average as elevated prices continued to limit demand.”

Cost Pressures: Moderate, Supporting Output and Orders Oni added, “Nonetheless, purchase costs and selling price inflation moderated to their slowest rates in a year, thereby supporting a sharper increase in both output and new orders relative to April.”

The services sector remains an economic growth driver. Providing insights into the Nigerian economy’s performance, Oni stated: “The Nigerian economy grew a moderate 2.98% year-on-year in Q1 2024, down from 3.46% in Q4 2023. Structurally, the services sector remains the growth engine, contributing 83.2% to real GDP growth, with industries at 15.5% and agriculture at 1.3%.”

Manufacturing Growth Improves, Interest Rate Sensitive Sectors Slow While interest rate-sensitive sectors experienced a slowdown in growth, the manufacturing sector’s expansion improved modestly to 1.49% year-on-year in Q1 2024 from 1.38% in Q4 2023, albeit still lagging the 3-year average growth of 2.4%.

Outlook: Weak Domestic Demand, Oil Sector to Support Overall Growth Looking ahead, Oni expects domestic demand to remain weak relative to historical averages in Q2 2024, exacerbated by inflationary pressures likely peaking in May. Additionally, unprecedentedly high interest rates will continue to negatively impact the non-oil sector. However, an expected favourable base effect-induced growth in the oil sector should put the overall Nigerian economy on course for 3.51% year-on-year real growth in Q2 2024.

The report highlighted that new orders increased in May, extending the growth trend to six consecutive months. Business activity also rose to the largest extent since January, with growth recorded across all four monitored sectors, led by the sharpest rise in manufacturing. Anecdotal evidence pointed to improving customer demand amid signs of easing inflationary pressures.

Cost pressures remain. Despite Moderating Inflation While purchase costs continued to increase rapidly in May, largely due to currency weakness, the report stated that the rate of inflation eased to a one-year low. This was also the case for selling prices.

Employment and supplier performance In terms of employment, staffing levels remained unchanged. However, employee expenses increased at a faster pace midway through the second quarter as employers made efforts to support existing workers’ higher living costs.

Improved customer demand saw companies expand their purchasing activity in anticipation of positive future workloads. On a positive note, the report indicated that suppliers’ delivery times have continued to shorten since March 2023, linked to factors such as prompt payments and good vendor arrangements in a competitive environment.

Business Confidence Wanes Despite Stronger Growth Despite stronger expansions in output and new orders in May, business confidence waned and was the lowest since the survey nadir posted in February. However, more than 43% of respondents remained optimistic about the year-ahead output outlook, citing plans for investment, business expansions, and the opening of new branches.

The PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies across various sectors, including agriculture, mining, manufacturing, construction, wholesale, retail, and services.

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