Dike Onwuamaeze, could you shed some light on the latest trends in Nigeria’s private sector as detailed in the recent report from Stanbic IBTC Bank Nigeria?
According to the Purchasing Managers’ Index (PMI) for September 2024, the economic output of Nigeria’s private sector has experienced a slight decline. This downturn is largely attributed to heightened inflationary pressures that have resulted in significant increases in both input costs and selling prices—reaching levels we haven’t seen in six months. The PMI for September stood at 49.8, essentially unchanged from August’s figure of 49.9, signaling continued deterioration in business conditions for the third consecutive month.
What do you see as the primary factors driving this decline?
The report points out that businesses are facing challenging demand conditions, heavily affected by the current inflation landscape. In September, we noted intensified inflationary pressures, with input costs and output prices rising at their fastest rates in half a year. Despite these challenges, some firms were able to secure new business during the month, though the overall trend in business activity remained downward for three months running.
Can you discuss the factors contributing to the rising costs highlighted in the report?
Absolutely. The report indicates that purchase prices have surged due to several reasons, including currency devaluation and increased costs related to fuel, logistics, materials, and transportation. While some companies made efforts to ease the burden of rising living costs on their employees, wage inflation has dipped to an 18-month low. As a result, nearly 49 percent of businesses increased their selling prices in September to counterbalance the rising costs.
What implications does this have for Nigeria’s broader economy?
According to Mr. Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank, the PMI remaining below the 50-point threshold indicates a continued but slight worsening of the business climate, primarily driven by challenging demand in the face of high inflation. However, it’s worth noting that despite the overall decline, certain sectors, particularly agriculture and manufacturing, did see increased output, while wholesale, retail, and services reported declines.
Are there any signs of optimism amidst the current environment?
While companies appear hesitant to maintain inventories—reducing stock levels to the greatest extent since May 2020—there are signs that the oil sector might play a role in stabilizing overall growth. With crude oil production being higher than it was at the same time last year, the oil sector might offset some of the weaker performance within the non-oil sector, potentially pushing real GDP growth to around 3.10 percent year-on-year in Q3:24 based on current projections.
How are inflation trends developing, as noted in the report?
The report indicates that input costs continued to surge dramatically in September, marking the highest inflation rate since March and the third steepest increase on record. Nearly 67 percent of respondents reported rising purchase costs, closely tied to currency fluctuations and increased expenses for fuel and logistics. This wave of cost increases has resulted in significant hikes in selling prices, with nearly half of the surveyed businesses raising their prices while only 1.0 percent opted to cut theirs.
What do you anticipate for the coming months in light of these ongoing challenges?
Given the current landscape marked by high inflation, elevated interest rates, and currency volatility, we could be looking at a slow growth trajectory for the non-oil sector. However, the resilience of the oil sector might provide some cushioning, suggesting that while challenges persist, certain sectors could still positively contribute to the overall performance of the economy in the near future.
