Steep price pressures have taken a toll on the Nigerian private sector, resulting in the lowest business confidence in history, according to a report by Stanbic IBTC.
The Purchasing Managers’ Index™ (PMI®) data for July reveals a combination of factors impacting the sector, including soaring input costs, rising selling prices, and dampened demand.
The PMI, a key indicator of business conditions, remained above the 50.0 threshold for the fourth consecutive month, signalling an improvement in the Nigerian private sector.
However, the index reading of 51.7 for July marked a decline from 53.2 in June, indicating a modest strengthening of operating conditions, the least pronounced in the current expansionary sequence.
Both output and new orders experienced a slowdown in growth during July, reaching the weakest rates since the sector returned to expansion after the cash crisis earlier in the year.
Some firms reported securing new contracts amid rising customer numbers, but others struggled with the negative impact of surging prices on demand.
Rising input prices were a major concern for businesses, with overall input costs experiencing the most significant increase in over nine-and-a-half years of data collection.
The rate of inflation tied to input prices matched the fastest recorded since the series began in January 2014.
Contributing to this inflation were higher fuel costs following subsidy removal and currency weakness, leading to higher purchase prices.
Additionally, staff cost inflation hit a six-month high as companies raised wages to offset rising transport costs.
In response to escalating input costs, companies raised their output prices significantly, with over half of the firms increasing their charges during the month.
As a result, growth in new orders and business activity was hindered, impacting overall demand.
According to the report, the expectation is that inflation will likely end the year near 27% year-on-year levels.
This projection takes into account the second-round effects of increased prices in transportation and food, which are anticipated to contribute to the overall inflationary pressures.
- We still see inflation ending the year closer to 27% y/y levels, given the second-round effects of higher transport and food prices.”
Despite the challenging landscape, there was a silver lining in the report, as employment growth accelerated to its fastest rate since January, offering some relief to the workforce.
However, backlogs of work continued to rise as certain firms faced delays while verifying customers’ ability to pay for orders.
Business confidence lowest in 9.5 years
Business confidence continued its downward trend, hitting its lowest point in over nine-and-a-half years of data collection.
The combination of rising prices, sluggish demand, and uncertainties weighed heavily on companies’ outlook for the future.
- “Stanbic IBTC headline PMI posted at 51.7 in July down from 53.2 in June, indicating a modest improvement in private sector business conditions. The softer improvement in the health of the private sector was driven by softer growth in output and new orders in July.
- “Notably, rates of growth eased to the weakest for both output and new orders. Elevated price pressures largely limited the pace of growth in business sector activities in the Nigerian private sector during the month.
- “Overall input costs rose at a record high level while selling prices spiked rapidly in response. Consequently, business confidence hit a new low, being the lowest in just over 9-y of data collection.”
The report indicates that the Nigerian private sector faces formidable challenges in navigating the current economic landscape.
With business confidence at historic lows, policymakers and businesses alike will need to devise strategies to counteract the steep price pressures and foster an environment that supports sustainable growth.
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