February PMI data indicated that cash shortages across the Nigerian economy had a severe impact on the private sector midway through the first quarter of the year. Substantial declines were seen in both output and new orders, while firms scaled back their purchasing activity and employment.
Companies were also impacted by shortages of fuel, which added to price pressures and led to supplier delivery delays.
The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI
). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
The headline PMI dropped below the 50.0 no-change mark in February, posting 44.7 from 53.5 in January. Business conditions deteriorated markedly, ending a 31-month sequence of expansion.
The decline in operating conditions was the sharpest since the survey began in January 2014, excluding the opening wave of the COVID-19 pandemic in the second quarter of 2020.
The most severe impacts of cash shortages were seen with regard to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending.
The decline in new orders was the first since June 2020, while the fall in output ended a seven-month sequence of growth. In both cases, the reductions were the most pronounced in the survey’s history, apart from during the opening wave of the COVID-19 pandemic.
With new orders and output falling, companies reduced their input buying and staffing levels accordingly. The declines were the first in 32 and 25 months respectively. The decrease in purchasing reflected not only a drop in customer demand but also difficulties for companies to find the funds to pay for items.
Alongside cash shortages, the private sector was also impacted by a scarcity of fuel in February. This had a notable impact on suppliers’ delivery times, which lengthened for the first time in close to six-and-a-half years and to the greatest extent since April 2016.
In turn, shortages led to a rise in fuel costs which were widely mentioned as having been behind a further marked increase in purchase prices. Higher raw material costs and currency weakness were also factors pushing up purchase prices. The inflation rate was the softest since June 2020, but marked nonetheless and stronger than the series average. Staff costs also rose again in February, but at a modest pace.
The passing on of higher input costs to customers resulted in a further sharp rise in output prices, albeit one that was the weakest in four months.
Hopes that economic conditions will improve, alongside business expansion and investment plans, led to confidence in the year-ahead outlook for business activity. The sentiment was at a five-month high but still relatively muted.
Output and demand
Cash shortages had a severe impact on business activity in the Nigerian private sector during February as customers were often unable to commit to purchases. Output decreased for the first time in eight months, and at a substantial pace that was the fastest since the opening wave of the COVID-19 pandemic in 2020. In fact, excluding that period, the fall in activity was the greatest since the survey began in January 2014.
Falling demand and a lack of customers due to shortages of cash resulted in a substantial decline in new business during February. As was the case with output, the fall was the sharpest in the survey’s history, excluding the opening wave of the COVID-19 pandemic. Prior to February, new orders had risen continuously for just over two-and-a-half years.
New export orders
Nigerian companies reported a fall in new export orders midway through the opening quarter of the year, thereby ending a seven-month sequence of growth. The rate of contraction was sharp and the fastest since April last year. Funding difficulties and a lack of demand in international markets were reportedly behind the fall.
Employment and capacity
February data pointed to a marginal monthly reduction in employment, the first decrease in just over two years. The fall reflected the challenges in the Nigerian economy but was only marginal as the vast majority of respondents (96%) kept their staffing levels unchanged.
Backlogs of work
Backlogs of work increased for the second month running during February, with the rate of accumulation quickening to the fastest in five months. Respondents indicated that power supply issues and fuel shortages contributed to the accumulation of outstanding business.
Purchasing and inventories
Quantity of purchases
In line with the picture outlined by a number of the indices from the latest survey, purchasing activity declined sharply midway through the first quarter of the year. The fall ended a 31-month sequence of growth and was one of the strongest on record. Lower input buying generally reflected a drop-off in demand, but in some cases, firms were unable to secure sufficient funds to purchase items.
Suppliers’ delivery times
Nigerian companies signalled a lengthening of suppliers’ delivery times in February, with fuel shortages widely mentioned as having caused delays. The lengthening of lead times was the first in close to five-and-a-half years and the third-sharpest since the survey began in January 2014.
Stocks of purchases
Lower customer demand, price increases, money shortages and delivery delays all combined to result in a decrease in stocks of purchases during February. The modest fall in inventories was the first since the opening wave of the COVID-19 pandemic in the first half of 2020.
Overall input prices continued to rise rapidly in February, with the rate of inflation ticking up from that seen in the previous survey period and remaining stronger than the series average. Each of the four broad sectors covered by the survey saw overall input costs increase, with the sharpest inflation at manufacturers.
The rate of purchase cost inflation eased for the second month running to a 32-month low in February but remained sharp and faster than the series average. There were widespread reports that fuel prices had increased amid shortages, while higher raw material costs were also mentioned. Currency weakness also contributed to inflationary pressures.
February data pointed to a twenty-sixth successive monthly increase in staff costs at Nigerian companies. Panellists generally linked wage rises to efforts to help workers with cost-of-living increases. That said, the rate of inflation softened to the weakest since July last year.
The pass-through of higher input costs to customers resulted in a further monthly increase in output prices in the Nigerian private sector. Charges were up sharply again in February, albeit to the most minor extent in four months. As was the case with input costs, manufacturing posted the fastest increase in charges of the four sectors covered by the survey.
The Stanbic IBTC Bank Nigeria PMI
is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.
The survey covers agriculture, mining, manufacturing, construction, wholesale, retail and services. Data were first collected in January 2014.
Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.
The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.
The headline figure is the Purchasing Managers’ Index™ (PMI). The PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%). For the PMI calculation, the Suppliers’ Delivery Times Index is inverted so that it moves in a comparable direction to the other indices.
Underlying survey data are not revised after publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.