PMI Reading No 98: Lower But in Positive Territory


Tuesday, June 01, 2021, 11:01 AM / by FBNQuest Research / Header Image Credit:  FBNQuest

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Our manufacturing Purchasing Managers' Index (PMI) retreated from 53.0 to 51.0 in May. It was the first of its kind in Nigeria. 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 India, and a good number of emerging/frontier markets. It is based upon manufacturers' responses to set questions on core variables in their businesses. Our highest reading to date has been 68.7 in December 2017 and our lowest 43.3 during selective 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 fallen. A headline reading over 50 (ex 100) indicates expansion for the sector.


PMIs, unlike the national accounts, are forward-looking indicators. Q2 '20, which was broadly the quarter of lockdown in Nigeria, proved the low point of the year of Covid-19 for both series. 


The latest national accounts (for Q1 2021) shows GDP grew by 0.5% y/y, compared with growth of 0.1% recorded in the previous quarter. Manufacturing grew by 3.4% y/y in Q1. Its largest segment (food, beverages and tobacco) expanded by 7.1% y/y.


The decrease in the headline PMI posted in May was mirrored across three of the five sub-indices.  Based on our survey, economic challenges still persist, and this has a direct impact on consumer behavior. Consumer demand remains fragile. Similar to the trend that was observed pre-pandemic. Furthermore, the current inflationary conditions in Nigeria adversely affect the profitability of the manufacturing sector.


Our surveys include trigger questions, which are put to respondents when they have given the same answer on a sub-index for two successive months and then change it for the third.  Themes in this report include a lack of capital/funds to purchase raw materials for production as well as limited access to raw materials.   


The most common answer in our surveys is 'no change'. This accounted for more than 50% of responses for all five sub-indices. In two cases (employment and suppliers' delivery times) its share exceeded 80%.


The reading for the employment sub-index decreased marginally from 51 to 50.5 in May. Manufacturers continue to adopt the wait-and-see approach with regards to taking on additional labour (particularly for full-time roles). The proportion of no change responses accounted for 93% of the total.


The manufacturing sector is currently the fourth largest sector, it accounted for 9.9% of total GDP in Q1 '21. However, the potential of the sector is yet to be fully tapped. Several government interventions are required to  assist with steady expansion of this sector. Based on the latest MPC communique, under the NGN1.0trn manufacturing intervention stimulus a total of NGN856bn has been disbursed to 233 projects across various segments in light manufacturing among other industries.


Meanwhile, according to the National Bureau of Statistics (NBS), loans extended by deposit money banks (DMBs) totalled NGN20.37trn in Q4 2020, compared with NGN19.87trn the previous quarter. The second-largest recipient of loans in Q4 was the manufacturing sector, which accounted for 16% of the total.


On a 12-month moving average basis, the headline index picked up from 51.7 to 52.3 in May.

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