Business conditions in Nigeria’s private sector strengthened in May, a report by Purchasing Manager’s Index has shown.
The report said new orders continued to rise sharply which prompted a quicker expansion in head counts. In turn, sentiment improved with companies also hoping that fruitful marketing campaigns would support output growth over the next 12 months.
Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, said: “The Stanbic IBTC PMI headline index touched lower to 53.9 in May from 55.8 in April, but it continued to indicate expansions in private sector activity.
“Growth was driven by increasing demand and output levels. Indeed, Nigeria’s Gross Domestic Product growth was 3.11 per cent year-on-year in first quarter of 22, down slightly from 3.98 per cent in fourth quarter of 2021″
“Notably, the manufacturing sector has posted its strongest growth since October 2021. Output has expanded for 16 consecutive months in the sector, averaging at 60.9 in 2021 compared to 62.3 so far this year.
“However, the manufacturing sector faces sharply rising diesel prices and insufficient forex supply”.
The PMI report said that sharp price pressures were once again evident, however, with overall input price inflation among the quickest in the survey’s more than eight-year history. Firms passed on higher expenses and sought to increase profit margins with output price inflation quickening in May.
The PMI readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
At 53.9 in May, down from 55.8 in April, the headline PMI signalled a twenty-third successive monthly improvement in business conditions in Nigeria’s private sector.
New orders rose sharply last month, albeit at a softer pace than the previous month. Firms raised their output levels, extending the current run of output growth to 18 months. All four of the monitored sub-sectors recorded marked expansions, led by the manufacturing sector. Services, wholesale & retail and agriculture followed behind, respectively.
It said firms continued to raise purchasing activity, with expansions now seen in each of the last 23 months. The overall rate of growth was sharp but eased to an eight-month low amid elevated costs. Nevertheless, companies were committed to raising their inventories as part of efforts to protect against future price hikes.
Despite the latest moderation in output growth, firms were optimistic that their output levels would expand over the next 12 months. In fact, the degree of optimism improved from April.
Firms reported that business expansions would support growth in output and as a result added to their head-counts. Staffing levels have risen in each of the last 16 months with the latest uptick the third-quickest in this sequence.
Larger workforces and higher prices for fuel, raw materials, transportation and other inputs led to another substantial increase in overall input prices in May. Moreover, firms raised staff wages at the third-strongest rate in the series history. Higher expenses were passed on to clients with selling price inflation quickening in May.
Lead times shortened to the greatest extent for five months. As a result, firms received inputs in a timely manner and were able to reduce their backlogs, as has been the case in each month over the last two years.