April 2015; Comfortably above water


Monday, May 04, 2015 9:12 AM / FBN Capital Research


Main conclusions:

  •      April headline a reasonable 54.0

  •   Four sub-indices in positive territory, one neutral

  •      Highest for workforce

  •    Lowest for delivery times

We release today the latest reading (no 25) of our manufacturing Purchasing Managers’ Index (PMI) for Nigeria, which takes the temperature of the sector. Our PMI, which was the first in Nigeria, joins a number of existing surveys of business and consumer confidence and expectations. It is developing into a core forward indicator for analysts, policymakers and financial market players.   


A PMI is a simple exercise. A selection of companies is asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three choices of reply: better, unchanged or worse than the previous month.


According to the most used methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. Readings are released at the very beginning of the new month.


In our case, the five variables are output, employment, new orders, delivery times from suppliers and stocks of purchases. They have equal weightings in our index, and respondents are asked to make allowances for seasonal factors. Our reports cover a representative sample of the sector with large, medium-sized and small firms.


Any broad conclusions about the economy generally on the basis of our reports need to be tentative because we are operating in a near void: there are few data series on sectoral trends. 


The national accounts for Q4 2014 show that growth in the manufacturing sector slowed to 13.5% y/y from 16.0% recorded in the previous quarter. The sector represented 9.1% of constant price GDP in Q4, and its largest segment is food, beverages and tobacco, which accounted for 4.3% of total GDP.


The macro headwinds took their toll, notably the oil price slide and the currency devaluations of November and February, but the still robust growth is testament to solid consumption demand.


The modest decline in the headline PMI from 55.2 in March to 54.0 may give the impression of stability. The employment sub-index rose while all others experienced falls (see below). At least for the large companies, we suspect that the delayed electoral process was a factor.

Additionally, we see the continuing currency weakness as an explanation for all company sizes as business is hit both by its increased import costs, only some of which it passes onto its customers, and by the related softening of demand.

The sector as a whole is underdeveloped and overly concentrated on consumer goods. Experience from East Asia and elsewhere points to the benefits for employment and overall GDP growth from its rapid expansion.      




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