The latest FBN Quest manufacturing Purchasing Managers’ Index (PMI) for Nigeria shows the damage that Buhari’s economic policies are having on the economy.
A PMI is a simple exercise.
A selection of companies is asked their view each month on core variables in their business.
The respondent, who is characteristically the purchasing manager in a larger firm, has three choices of reply: better, unchanged or worse than the previous month.
According to the most used methodology, 50 marks a neutral reading and anything lower suggests that the manufacturing economy is contracting.
The report showed a slump in headline reading of the Purchasing Managers Index (PMI) to 46.5 in April 2016 from 54.4 percent in March.
Nigeria’s GDP growth in Q4 2015 slowed to 2.1% y/y from 2.8% the previous quarter
The manufacturing sector expanded by 0.4% y/y in Q4, compared with a 13% expansion in Q4 2015.
According to FBN Quest:
“This is a dire report for April. We have seen only five headline readings below the water since our launch three years ago but two of them have occurred this year. Since our index is unweighted, the headline does not reflect the negative reading for the three more “important” sub-indices (output, employment and new orders). The report is therefore consistent with the earlier GDP and manufacturing numbers for Q4 and the prospect of worse for Q1 2016.”
The reading crashed from 61 in March to 42. Significantly, the proportion of respondents reporting a decline in production climbed to 43% from 32% with all company sizes pointing in the same direction.
FBN Quest analysts say they assume that the operational challenges for the sector mounted in
April, and the availability of power, fuel and fx for imports all worsened.
End-users whose FX bids are not met have the choice of going to the parallel market at far higher cost or abandoning their order. Either way, inflationary pressures receive a boost.
As with all the sub-indices, this reading declined, from 49 to 42.5.
According to FBN Quest the fifth successive negative reading means that respondents are not hopeful of the near term future.
The labour force report from the NBS for Q4 2015 shows a pick-up in the unemployment rate from 9.9% in Q3 to 10.4%, and in the time-related underemployment rate from 17.4% to 18.7%.
New orders sub-index
The reading for new orders retreated in April to 45.5 from 53 the previous month.