The latest Purchasing Managers’ Index (PMI) indicates that business activity in Nigeria hit an eight-month low in July, as increased costs sharply reduced demand, resulting in decreased business operations and new orders.
Stanbic IBTC Bank’s July PMI report revealed a drop in the headline index to 49.2, down from 50.1 in June, marking the first time in eight months that the index fell below the neutral 50.0 mark.
The report highlighted that input costs and selling prices continued to escalate rapidly. However, some businesses attempted to boost sales by moderating the rate of output price inflation. Despite these efforts, business confidence plummeted to a record low.
The report noted that the sharp increase in prices negatively affected customer demand, with many clients hesitant or unable to initiate new projects.
“Three of the four broad sectors covered in the report experienced a decline in business activity in July, with manufacturing being the only sector to see an increase in production,” the report stated.
The report further mentioned that selling prices saw a significant increase at the start of the third quarter as companies passed on higher input costs to customers. This occurred despite the overall rate of inflation easing to its slowest pace since May 2023, with some businesses reducing prices to attract customers.
“Some companies lowered charges as part of efforts to attract customers,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank. He added that despite these challenges, businesses remained optimistic about increasing output over the next 12 months, driven by expansion plans, including efforts to start exporting and opening new branches.
Oni also suggested that headline inflation might have peaked in June, with a potential moderation in the second half of 2024 as the effects of PMS subsidy removal and currency depreciation begin to wane.
The report indicated that purchase prices and staff costs continued to rise in July. “Purchase price inflation accelerated to a four-month high, largely due to currency depreciation and higher raw material costs,” the report noted.
It also observed that employee expenses rose in July, consistent with June, as companies sought to support workers facing increased living costs, especially those related to transportation.
The renewed decline in business activity was accompanied by a decrease in business confidence, with companies reporting the lowest optimism levels since the survey began.
The PMI, which tracks private sector performance, is based on a survey of 400 companies across agriculture, manufacturing, services, construction, and retail sectors. It is a composite index derived from five individual indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%), and stock of items purchased (10%), with delivery times inverted to align with the direction of the other indices.
