Amidst a backdrop of severe and escalating price pressures, the Nigerian private sector witnessed a concerning contraction midway through the third quarter of this year, according to the latest report from the Stanbic IBTC Purchasing Managers’ Index™ (PMI®).
The survey, which has been a barometer of business activity for nearly a decade, indicated that both input costs and output charges experienced their most substantial increases since its inception. These price spikes were primarily driven by inflation triggered by the removal of the fuel subsidy and currency devaluation, coupled with mounting transportation expenses.
Transportation costs, in particular, caused significant disruptions in supplier deliveries, leading to delays that hindered business operations. Furthermore, the rates of expansion in new orders and employment dwindled, barely maintaining a marginal presence.
The headline PMI, a reliable gauge of business conditions, plummeted for the third consecutive month, falling from 51.7 in July to a meager 50.2 in August. This marked the lowest reading in the past five months, reflecting only a marginal improvement in the private sector’s health.
One of the primary impediments to businesses in August remained the relentless inflationary pressures. The costs of inputs surged to their highest levels since January 2014, with close to three-fifths of respondents reporting cost increases. Both purchase prices and staff costs accelerated, with staff costs reaching a record high.
Rising transportation expenses and currency devaluation emerged as the chief culprits behind the inflationary surge. In response, companies escalated their selling prices at an unprecedented rate, surpassing the previous peak seen in December 2021.
The steep inflationary trends made it challenging for firms to secure new orders, resulting in only marginal growth in new business activities. Simultaneously, employment levels saw minimal growth. This downturn marked the end of a four-month expansion period for business activity. The data pointed to a decline in wholesale & retail activity, while services experienced stagnation.
In contrast, agriculture and manufacturing sectors continued to witness output growth. Companies expanded their purchasing activities, albeit with difficulties in receiving inputs due to exorbitant transportation costs. As a result, supplier delivery times improved only slightly in August, following a period of marked improvements in previous months.
While business sentiment showed a slight improvement from the previous record low, it remained historically weak. Panelists who anticipated an increase in output over the next year often tied their optimism to business expansion plans and advertising activities.
The Nigerian private sector, therefore, faces a challenging environment characterized by inflationary pressures, rising costs, and a fragile business sentiment, raising concerns about the path to sustained recovery in the coming months.
