Businesses in Nigeria faced the highest increase in input cost in a decade due to the weakness in the exchange rate for February.
This is according to the Stanbic IBTC Purchasing Managers Index (PMI) for February 2024.
According to the report, Nigeria’s business PMI dropped significantly from 54.5 recorded in January to 51.0 for the month with business conditions recording the weakest recovery since December 2023.
The report stated,
- “The headline PMI dropped markedly in February to 51.0 from 54.5 in January, remaining above the 50.0 no-change mark for the third month running but only just.”
- “Input costs surged higher in February, often as a result of exchange rate weakness, which drove up material costs, but also higher fuel prices.
- The latest rise in overall input costs was by far the sharpest since the survey began in January 2014, with around 78% of respondents signalling an increase over the month.”
Output inflation
Furthermore, the Stanbic PMI for the month noted that business owners transferred the rising input costs to customers resulting in output inflation. Another effect of the record increase in input cost was the reduction in new orders on the part of businesses.
However, new businesses increased in February as well as business rise in business activities with agriculture leading the way while manufacturing and FMCG saw a slump in business activities.
For the first time in 10 months, businesses recorded a drop in staffing levels, a reduction in purchasing activities and business confidence dropping to a record low for the month.
Growth projections for Q1, and 2024
Muyiwa Oni, head of Equity Research at Stanbic IBTC bank stated that the increase in input cost occasioned by significant currency depreciation and increase in transport cost may negatively affect growth in the first quarter of the year- projecting economic growth for 2024 at 2.9%.
He stated,
- “Furthermore, price pressures remain biased to the upside over H1:24 and tight monetary conditions could constrain business investments.
- Notably, interest-rate sensitive sectors like manufacturing, construction, real estate, and trade are likely to see a moderation in growth levels relative to the prior year.”
- “Accordingly, the non-oil sector’s growth is on track to moderate in 2024 compared to 2023. We project the Nigerian economy will grow by 2.9% in 2024.”
