PMI Reading No 97: A Welcome Uptick

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Tuesday, May 04, 2021 / 10:20 AM / by FBNQuest Research/ Header Image Credit: Ditto Trade

 

Our manufacturing Purchasing Managers' Index (PMI) recovered from 51.4 to 53.0 in April. It was the first of its kind in Nigeria. Readings for four of the five sub-indices improved in the month. 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.

 

On a 12-month moving average basis, the headline index picked up from 51.1 to 51.7 in April.

 

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. We saw a modest recovery in Q4: GDP growth of 0.1% y/y and an average manufacturing PMI well above water at 53.6.

 

Neither the national accounts nor our PMI is seasonally adjusted. This is one reason why we do not share the confidence of the authorities that the positive growth achieved in Q4 will be maintained in the report from the statistics bureau for Q1.

 

Cement has proved highly resilient in life with COVID-19. Accounting for 9.8% of constant price manufacturing output, its growth of 3.9% last year was the highest of all segments other than the 4.0% posted by a small player (motor vehicles and assembly).

 

The results reported by listed producers in Q1'21 reinforce our point: Dangote Cement announced sales growth of 22% q/q, and Lafarge Africa 41%. In advanced economies with furlough schemes and other government support in place, we would probably point to home improvements by consumers obliged to work from home. In this case, we suggest that the driver was FGN orders for its infrastructure programme.

 

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 small improvement in household finances and the benefit of an easing of COVID-related restrictions.   

 

The most common answer in our surveys is 'no change', accounting for over 50% of responses for all five sub-indices. In employment and suppliers' delivery times, its share exceeded 80%.

 

The FGN has set a target of a 20% manufacturing share of GDP by 2023. This is ambitious, the latest figure being 12.8% in 2020 at current prices. The aspiration is drawn, we assume, from East Asian success stories. In this model commercial agriculture provides the raw materials for a wide range of manufacturing goods, which would explain why the federal industry ministry plans to finalise strategies for oil palm, and clothing and textiles later this year.

 

The readings for China in April are 51.1 (official) and 51.9 (Caixin/independent), the best for four months. We should be a little wary of making country comparisons. Given that China was the only leading economy to have expanded last year and achieved double-digit growth in Q1'21, we might reasonably have expected a series of higher headline readings. Our explanation is that respondents in China tend to be more cautious than their counterparts elsewhere.


 Proshare Nigeria Pvt. Ltd.


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