Private Sector Downturn Deepens As Headline PMI Declines To 42.3points

Private sector productivity in Nigeria has continued to experience downturn due to the country’s recent cash crunch as Stanbic IBTC Bank Purchasing Managers’ Index (PMI) dropped to 42.3 points in March, 2023.

The headline PMI posted 42.3 in March from 44.7 in February, moving further below the 50.0 no-change mark and signalling a sharper deterioration in business conditions in the Nigerian private sector. The decline was the most pronounced since the survey began in January 2014, apart from at the time of the outbreak of the COVID-19 pandemic in 2020.

The headline figure derived from the survey is the Purchasing Managers’ Index (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The bank said: “the cash crisis in Nigeria continued to have a severe impact on business conditions in the private sector during March. In fact, output and new orders fell more quickly than in February, while staffing levels and purchasing activity were scaled back again.

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“While input costs and output prices continued to rise sharply, rates of inflation softened. Output prices increased at the softest pace in almost three years. Meanwhile, suppliers’ delivery times shortened after having lengthened in February.

“As was the case in February, there were widespread reports from companies that customers were unable to commit to spending given cash shortages. This led to a substantial decline in new business, with the pace of contraction more pronounced than in the previous survey period.”

It explained that, the same picture was seen with regards to business activity, which decreased at a rate only exceeded in April and May 2020, saying, all four broad sectors posted reductions in activity at the end of the first quarter.

“Companies reduced staffing levels slightly for the second month running, in part reflecting lower workloads but also due to difficulties paying wages. Lower workforce numbers limited the pace of staff cost inflation, which eased to a marginal rate that was the slowest since January 2021,” it added.

Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, stated that, “Stanbic IBTC Bank headline PMI declined to 42.3 in March from 44.7 in February, the second consecutive contraction in private sector business conditions in over two years.

“The continuous decline relative to February reflects the negative impact of cash shortage across different segments of the economy over the past two months. Currency in circulation declined by 58 per cent in January 2023 to N1.39 trillion from N3.01 trillion in December 2022, while currency outside the banks declined by 72 per cent in January 2023 to N789 billion from N2.57 trillion in December 2022.”

He noted that, “nevertheless we expect an improvement in economic conditions given that the Central Bank of Nigeria has stepped back on the cashless policy and is steadily increasing the volume of cash in the economy following the directives from the courts.

“However, these readings indicate that reported GDP figures for Q1, 2023 will be weak and broadly behind our expectations of 2.4 per cent. We project the Nigerian economy growing at three per cent in 2023.”