The Nigerian private sector showed indications of recovery in April as the cash crisis eased, according to S&P Ratings Global in Stanbic IBTC’s purchasing manager index – PMI. Companies reported fresh growth in new business and output as availability to finance increased, according to the study.
However, companies remained cautious about hiring, and employment fell slightly. Prices showed a mixed picture at the start of the second quarter. According to the PMI data for the month, input costs climbed at a faster rate, while further attempts to acquire consumers prompted enterprises to raise selling prices at the slowest rate in three years.
For the first time in almost a year, the headline PMI rose over the 50.0 no-change threshold in three months during April, the report shows. The indicator rose from 42.3 in March to 53.8 in April, indicating a good overall improvement in business conditions in the private sector.
According to the latest poll respondents, the improvement in operational circumstances represented a softening of the liquidity crisis that has severely harmed the economy in recent months. Panelists observed a more regular business climate as client numbers increased due to increased access to cash. As a result, both output and new business increased dramatically in April, reversing two-month declines in both cases.
Agriculture, manufacturing, services, and wholesale and retail all saw an increase in activity. Despite a minor improvement from March, business morale remained sluggish in April.
Indeed, optimism was among the lowest recorded since the survey’s inception in January 2014. Because of the somewhat gloomy outlook, businesses were cautious in terms of recruiting, and employment was cut marginally for the third month in a row. Meanwhile, work backlogs have decreased slightly. Businesses did, however, boost their purchasing activities in response to increased new orders, with stocks also growing. An improvement in supplier delivery times aided efforts to procure inputs.
Purchase price and labor cost increases accelerated during the month. Companies attributed pricing increases to rising raw material prices and currency weakness. Meanwhile, higher wages frequently reflected efforts to assist employees with rising living costs. In contrast to the picture for input prices, the pace of output price inflation slowed for the fourth month in a row, reaching a three-year low. Some companies reported offering discounts to stimulate demand.
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, commented on the news, saying, “The Stanbic IBTC headline PMI jumped to 53.8 in April from 42.3 in March, showing an expansion in private sector business conditions for the first time in three months.” Significantly, the alleviation of the cash shortage situation in April resulted in increases in both output and consumer demand, according to Oni.
“While the easier access to cash caused business activities to expand across key sectors (Agriculture, manufacturing, services and wholesales and retail sectors), firms, however, maintained caution in increasing staff headcount.
“Sure, business sentiment is still relatively weak as recovery in business activities and the access to cash would likely be gradual and continue in near term. Nevertheless, price pressures continue to impact firms’ cost of production.
“The report shows input cost increasing at a sharp pace in Apr but in order to contain margins and increase customer demand, selling prices rose at a much slower pace”.
Indeed, inflation has continued to trend upwards since Jan, reaching 22% year on year in Mar from 21.9% in Feb, with broad base increases across both the food and non-food basket. Hence, the monetary policy committee in a bid to continue combating inflationary pressures will likely maintain the monetary policy tightening bias.
Oni said the committee at its March policy meeting increased the MPR by 50 basis points to 18%, making a cumulative 650 basis points policy rate hike since May 22.”
