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Latest Stanbic IBTC PMI report for January 2021 has shown an expansion in the Nigerian private sector in the first month of the year with a solid rise in new orders underpinning growth.
However, the report states that substantial increases in input costs and selling prices contributed to a moderation in expansion of outputs and purchasing activity. As a result, firms looked to cut costs by reducing their workforce. Nevertheless, the degree of positive sentiment improved to the highest since April last year, with hopes of greater demand fueling optimism.
The headline figure derived from the survey is thePurchasing Managers’ Inde (PMI), readings above 50, signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
The headline PMI registered at 50.7 in January, down from 51.8 in December, but signaling an improvement in business conditions at the Nigerian private sector. The latest reading indicated the softest rate of expansion since July. New order inflows rose solidly in January, despite the pace of growth moderating from that in December. According to firms, new client wins and an improving demand environment led to the uptick. Output rose marginally, which extended the current period of growth to two months. Anecdotal evidence suggested that a rise in demand offset the negative impacts of higher prices.
Average cost burdens faced by private sector firms in Nigeria rose at a substantial pace. According to panel members, material shortages, unfavourable exchange rate movements and higher wages drove the latest uptick. Firms passed higher expenses onto clientswith the rate of charged inflation the sharpest since August and one of the fastest in the survey’s seven-year history.
As part of efforts to reduce cash outflows, firms cut workforce numbers at the start of the year. The rate of job shedding was solid and the second sharpest in the series. Despite this, firms were able to complete existing orderswith backlogs reducing for the eighth month running.
Higher activity led companies to increase their purchasing activity, albeit at a softer rate. Stocks of inputs also rose with panelists reporting efforts to build their inventories following material shortages. Meanwhile, quieter road conditions and competition amongst suppliers prompted shorter lead times.
Looking ahead, sentiments regarding output over the next 12 months remained in positive territory, and was the strongest since last April. Business expansion plans and hopes of greater demand underpinned optimism in January. That said, sentiment was weak compared to the historical average, as the longer-term economic impact of the coronavirus disease 2019 (COVID-19) pandemic hampered expectations.
