Nigeria’s business sector sees first expansion – CBN
For the first time in 13 consecutive months, Nigeria’s business sector has seen a much-needed expansion, according to the latest Purchasing Managers’ Index (PMI) report for August 2024. Released by the Central Bank of Nigeria (CBN) yesterday, the report reveals that the composite PMI for August stood at 50.2 index points, signaling a recovery in economic activities after more than a year of continuous contraction.
This expansion is a significant milestone, particularly given the ongoing economic challenges faced by the country. The PMI is a key economic indicator, offering insights into the overall business conditions in the manufacturing and non-manufacturing sectors. A PMI reading above 50 indicates growth, while a reading below 50 suggests contraction. The August PMI reading, though modest at 50.2, represents a positive turning point for Nigeria’s economy after a prolonged period of struggle.
A closer look at the sectoral breakdown in the CBN report shows that the Services sector was the standout performer. It recorded growth for the third consecutive month, reflecting a sustained recovery in various services-related industries. The Agriculture sector also registered expansion, marking the first month of growth after months of contraction. This is an encouraging sign for the agricultural industry, which is a critical sector in Nigeria’s economy, employing a significant portion of the population.
The report further noted that the Industry sector, while still in contraction, showed signs of improvement with a slower rate of decline compared to the previous month. This deceleration in contraction offers some optimism for industrial players, suggesting that the worst may be behind them as the sector works toward recovery.
Among the 36 sub-sectors reviewed across the Industry, Services, and Agriculture sectors, 17 sub-sectors reported growth. The Primary Metal sub-sector led the way, reporting the highest growth during the month of August, underscoring the resilience of certain manufacturing industries even amid broader economic challenges. On the flip side, 19 sub-sectors registered declines, with Forestry reporting the sharpest decline, highlighting areas of concern that still need attention.
The August report showed positive trends in key business metrics such as output, new orders, and raw material stock levels. The output index, which reflects the level of production across sectors, stood at 50.8 points, indicating growth for the second consecutive month. This suggests that businesses are ramping up production, likely in response to increasing demand and a more favorable operating environment.
Of the 36 sub-sectors reviewed, 19 sub-sectors reported growth in production, with Primary Metal leading the charge. However, 14 sub-sectors still experienced declines, with the non-metallic mineral products sub-sector reporting the most significant drop. Interestingly, certain sub-sectors, such as fabricated metal products, electricity, gas, steam, and air conditioning supply, as well as utilities, remained stationary, neither growing nor contracting, signaling stability in these areas.
The index for new orders, which gauges the volume of incoming business, stood at 50.5 points, indicating an increase in the number of orders placed with businesses. This expansion suggests that consumer and business confidence are gradually improving. Out of the 36 sub-sectors surveyed, 15 reported growth in new orders, with Primary Metal once again showing the highest increase in demand. The plastics and rubber products sub-sector, along with transportation equipment, remained stationary, while 19 sub-sectors reported declines in new orders.
The Service sector, which has been one of the more resilient areas of the economy, continued to show positive growth. The business activity index for the sector stood at 51.3 points, marking the third consecutive month of expansion. This indicates that businesses in the Service sector are seeing improved conditions, likely driven by increased consumer demand and the gradual reopening of economic activities.
Of the 14 sub-sectors surveyed within the Service industry, nine reported expansions. The Utilities sub-sector remained stationary, while four sub-sectors saw contractions. The sub-sector dealing with the repair, maintenance, and washing of motor vehicles recorded the highest growth, pointing to a rebound in consumer spending on services. In contrast, professional, scientific, and technical services saw the most significant decline, indicating that some specialized service providers are still grappling with challenging conditions.
Additionally, the level of new orders in the Service sector continued to rise, with an index reading of 51.4 points. Eight sub-sectors reported growth in incoming orders, while six reported declines. Among the sub-sectors reporting growth, the repair, maintenance, and washing of motor vehicles sub-sector experienced the highest increase in demand. Meanwhile, the real estate, rental, and leasing sub-sectors reported the sharpest decline in new orders, indicating that the property market may still be facing some challenges.
While there was good news in many areas, the employment index continued to present a challenge, with a reading of 48.7 points, indicating a decline in employment levels. This is an area of concern, as it suggests that businesses are still hesitant to increase hiring, perhaps due to lingering economic uncertainties or the need to recover lost ground before expanding their workforce.
On a more positive note, suppliers’ delivery time remained steady at 50.0 points, indicating no delays or disruptions in the supply chain. This stability in supply chain management is crucial for maintaining business operations and ensuring that companies can meet rising demand without facing bottlenecks.
The August PMI report from the Central Bank of Nigeria is a mixed bag of optimism and caution. The overall expansion in economic activities, as indicated by the 50.2 index points, is a welcome development after 13 consecutive months of contraction. However, the recovery remains fragile, with many sub-sectors still experiencing contractions or stagnation.
The Services sector continues to be a bright spot in the economy, with sustained growth and positive trends in business activity and new orders. The Agriculture sector’s return to growth is another encouraging sign, given its importance to Nigeria’s overall economic well-being and food security. The Industry sector, while still struggling, is showing signs of a slower contraction, suggesting that industrial players may be on the path to recovery.
However, challenges remain, particularly in employment. The decline in the employment index underscores the need for policies that can stimulate job creation, especially in sectors that have been slow to recover. Additionally, some sub-sectors, such as Forestry and non-metallic mineral products, are still facing significant declines, indicating that more targeted interventions may be needed to support these areas.
The latest PMI report represents a milestone for Nigeria’s business landscape, marking the first expansion in more than a year. While the road to full recovery remains long and uncertain, the positive trends in production, new orders, and the Services and Agriculture sectors provide hope for continued growth in the coming months.
As businesses navigate the challenges of a post-pandemic economy, the support of key institutions like the Central Bank will be crucial in maintaining this momentum. Policymakers will need to focus on stimulating job creation, improving access to finance for businesses, and addressing sector-specific challenges to ensure that this recovery is sustained and broad-based.
For now, Nigerian businesses can celebrate a long-awaited return to growth, with the August 2024 PMI report offering a glimmer of hope that the worst may be behind them.
