Monday, June 5, 2017/ 5:30 PM /Vetiva Research
Nigeria’s economic environment improved in May, according to the Central Bank of Nigeria’s Purchasing Managers’ Index (PMI) with both manufacturing (52.5) and non-manufacturing (52.7) sectors expanding in the past month – a first since December 2015.
In explaining this improvement, we point to recent developments – easier access to foreign exchange (FX) as a result of multiple windows created by the CBN, a recuperating oil & gas sector, and slowly increasing confidence in near-term economic prospects.
Notably, PMI data shows no indication of a pickup in exports whilst pricing pressures persist in the economy (April Inflation: 17.3%). This highlights the softness of the economic improvement and underpins Nigeria’s underlying macroeconomic challenges.
Economic improvement observed across both indices
Manufacturing PMI is the highest since February 2015, supported by the strongest expansion in Production Level on record (58.7).
New Orders (50.5), Raw Materials (50.8), and Employment Levels (50.7) marginally improved in the month. Although Supplier Delivery Times (49.9) contracted for a consecutive month, we highlight that this is correlated with greater economic activity given the logistical challenges with transportation and storage in Nigeria.
Across sub-sectors, primary metals (64.5) improved for the first time in seventeen months whilst petroleum & coal products (62.1) improved for the first time in five months. Beyond those, textiles and food products continued to expand steadily.
Production levels were much improved this past month with only one sub-sector (Transportation equipment) contracting in the period. Increased manufacturing activity could have been driven by easier access to FX and inputs, as well as expectations of higher future sales.
On the latter, the stock of finished manufactured goods (51.8) expanded for the first time in twenty-eight months.
The expansion in the non-manufacturing sector of the economy is a big plus as it is the first time this has happened since the end of 2015. Moreover, Non-Manufacturing PMI is a wider gauge of economic activity since the manufacturing sector is only 9% of Nigeria’s economy.
Not for over two years have all four sub-indices expanded in non-manufacturing, with Business Activity (56.2) and New Orders (53.2) leading the way, driven by strong growth in agriculture, utilities, and transport & warehousing sectors.
Key feature: Labour market showing some signs of life?
Employment Levels in both sectors (50.7 & 50.2) expanded for the first time since early-2015, underlining the rut Nigeria’s labour market has been in. Nigeria’s latest available unemployment rate is 13.9% in Q3’16 though this number is likely to have risen as the recession deepened.
These PMI figures are the first sign of improvement in the labour market, and we emphasize the need for Nigeria’s vaunted economic recovery to be accompanied by job creation to ensure inclusive and sustainable growth.
Economic recovery continuing at healthy pace
Unsurprisingly, Nigeria’s economy is showing marginal improvement, no doubt supported by recovering oil parameters and a more liquid FX market.
These will likely be aided by increased efforts to improve the ease of doing business in the country spearheaded by the Acting President. Recent executive orders to increase government efficiency and legislative directives to expand credit to MSMEs should support economic recovery.
However, persistent inflation pressure (May forecast: 15.8%) remain a worry and will continue to pressure business margins and consumer wallets.
Nevertheless, reinforced by recent PMI numbers, we expect an economic rebound (2.1% y/y) in Q2’17.
9. Manufacturing PMI Stands at 48.2% in January 2017 from 52.0% in December 2016 – CBN