Nigerian Private Sector Returns to Growth in April -PMI

There were signs of recovery in the Nigerian private sector in April as the cash crisis eased, S&P Ratings Global said in Stanbic IBTC’s purchasing manager index -PMI. According to the report, Firms reported renewed expansions in new business and output amid improved access to funds.

It said companies remained cautious with regard to hiring, however, and employment fell slightly. There were mixed trends in terms of prices at the start of the second quarter.

Input costs increased at a sharper rate, but further efforts to attract customers led firms to increase their selling prices at the softest pace for three years, according to the PMI report for the month.

The headline PMI moved back above the 50.0 no-change mark for the first time in three months during April, the report shows.

At 53.8, the index was up from 42.3 in March and pointed to a solid overall improvement in business conditions in the private sector.

According to respondents to the latest survey, the recovery in operating conditions reflected an easing of the cash crisis which has severely affected the economy in recent months.

In gathering date, panelists reported a more normal business environment as customer numbers improved in line with greater access to cash.

As a result, both output and new business expanded sharply in April, ending two-month sequences of decline in each case.

Rebounds in activity were seen across each of the agriculture, manufacturing, services and wholesale & retail sectors. Business sentiment remained subdued in April, despite a slight pick-up from March.

In fact, optimism was among the lowest seen since the survey began in January 2014. The relatively subdued outlook meant that companies remained cautious with regards to hiring, and reduced employment marginally for the third month in a row.

Meanwhile, backlogs of work fell slightly.

Companies did increase their purchasing activity, however, in response to higher new orders, with inventories also expanding. Efforts to secure inputs were helped by an improvement in suppliers’ delivery times.

Rates of increase in both purchase prices and staff costs quickened over the month. Firms linked purchase price rises to higher raw material costs and currency weakness. Meanwhile, higher wages often reflected efforts to help staff with increased living costs.

In contrast to the picture for input costs, the rate of output price inflation moderated, easing for the fourth month running to a three-year low. Some firms reported having offered discounts to try and stimulate demand.

Speaking to the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said “The Stanbic IBTC headline PMI rose to 53.8 in Apr from 42.3 in Mar, indicating an expansion in the private sector business conditions for the first time in 3 months.

Notably, the easing of the cash shortage challenge in April saw improvement in both output and consumer demand, Oni added.

“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.”