Nigeria’s private sector experienced a decline in business activities in February due to cash shortages, according to the Purchasing Managers’ Index (PMI) data released by Stanbic IBTC Plc.
The PMI, which measures business activity in the private sector, fell to 44.7 in February from 53.5 in January, signaling a severe impact on the private sector midway through the first quarter of the year.
According to Stanbic, February PMI data indicated that cash shortages across the Nigerian economy had a severe impact on the private sector midway through the first quarter of the year. Substantial declines were seen in both output and new orders, while firms scaled back their purchasing activity and employment
What the PMI is saying
The decline in business conditions was the sharpest since the survey began in January 2014, except for the opening wave of the COVID-19 pandemic in the second quarter of 2020.
- “The headline PMI dropped below the 50.0 no-change mark in February, posting 44.7 from 53.5 in January. Business conditions deteriorated markedly, ending a 31-month sequence of expansion. The decline in operating conditions was the sharpest since the survey began in January 2014, excluding the opening wave of the COVID-19 pandemic in the second quarter of 2020.”
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented:
- “Stanbic IBTC Bank headline PMI declined to 44.7 in Feb from 53.5 in Jan. This indicates the first contraction in private sector business conditions in over two years. The steep decline is attributed to the cash shortage challenges experienced across the country during the month.”
- “This consequently resulted in a contraction in both outputs and consumer orders, which made firms scale back on purchasing and hiring activities. Furthermore, persistent fuel shortages from the beginning of the year saw petrol pump prices increase, which both increased production cost for firms and led to supplier delivery delays.”
A PMI below 50 points is often a red flag for a possible GDP contraction.
Private Sector Impacted
The most severe impacts of cash shortages were on output and new orders, which both fell substantially as customers were unable to secure the funds to commit to spending. This led to a decrease in purchasing activity and employment, with companies reducing their input buying and staffing levels accordingly.
The private sector was also impacted by a scarcity of fuel, which added to price pressures and led to supplier delivery delays. Higher raw material costs and currency weakness were also factors pushing up purchase prices.
Despite the decline in business activities, hopes that economic conditions will improve, alongside business expansion and investment plans, led to confidence in the year-ahead outlook for business activity. The sentiment was at a five-month high, but still relatively muted.