Nigeria Economy | |
Nigeria Economy | |
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Monday, February 01, 2021 / 09:53AM / by
FBNQuest Research/ Header Image Credit: Ditto Trade
Our
manufacturing Purchasing Managers' Index (PMI), the first in Nigeria, declined
sharply from 55.0 to 44.5 in January. Our partner, NOI Polls, collects the
data. An index is produced in advanced economies such as by the Institute for
Supply Management (ISM) in the US, larger EMs such as Brazil, China and Russia,
and a good number of other frontier markets. It is based upon manufacturers'[ responses to set questions on core variables in their businesses. In our case,
it is not seasonally adjusted.
Our
highest reading to date has been 68.7 in December 2017 and our lowest 43.3
during lockdown in May 2020. In our unweighted model (that of the ISM),
respondents are asked whether output, employment, new orders, suppliers' delivery times and stocks of purchases have increased over the previous month,
are flat or have declined. A reading over 50 (ex 100) indicates manufacturing
expansion.
PMIs, unlike the national accounts,
are forward-looking indicators. They can move financial markets, at least in
advanced economies and the large EMs.
Covid-19 has created some marked
swings. Our own index rose by 10.3 points in June as the economy emerged from
the selective lockdown.
Without seasonal adjustment, we always
see a decline in the January reading as the country changes its spending
patterns after the holiday period. This is our third decline in double-digits
for January since we launched in 2013 and the third largest. It appears that
these declines have become larger in recent years of economic stagnation (and
recession). Our tentative explanation is that many Nigerians have celebrated
the Christmas holiday with their usual energy and that the retrenchment in
January has become necessarily deeper.
This is borne out by one of the
answers to our trigger questions. Respondents indicated that a sharp decline in
output reflected a slower start to production in January in view of weak demand
conditions.
Other answers observed that raw
materials had become scarce and more expensive. Fx has not been freely
available since Q1 '20 (pre-Covid, essentially) and importers have to consider
the parallel market for their needs.
These questions arise when a
respondent has given the same answer on a sub-index for two successive months
and then changes it for the third.
Another trend across the readings in
January is that, while medium-sized and small companies reported deterioration
for all sub-indices, large operations noted minimal change from the previous
month. It may be that these firms have a more steady customer base and did not
suffer a prominent fall-off in new orders (and therefore output) in January.
They are more confident of repeat orders.
The reading for employment was again
below water, at 49. Since GDP per head has not been positive since Q3 '15,
business has naturally been reluctant to hire additional labour. According to
the National Bureau for Statistics, the unemployment rate in Q2 '20 was 27.1%
and the underemployment rate a further 28.6%.
The most common response in our
surveys is 'no change'. The proportion has declined in line with the trend for
medium-sized and small operations already noted. Yet it still accounted for
more than 40% of responses for all five sub-indices. In employment, it again
exceeded 90%.
On a 12-month moving average basis,
the headline index eased from 51.4 to 50.7.
There has been no common pattern in
headline readings in February. Our hunch is that we will see a modest
improvement off a particularly low January.
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