In October, Nigerian business sentiments experienced a significant decline, reaching a historical low as reported by the Purchasing Managers Index (PMI) compiled by Stanbic IBTC Bank in collaboration with S&P Global. This downturn coincides with the onset of the final quarter of the year and can primarily be attributed to intensifying inflationary pressures. The PMI dropped to 46.9 from September’s 49.8, marking the most substantial deterioration in business conditions since March 2023. This decline is notable as it is the lowest reading since the survey commenced in January 2014, indicating a challenging economic environment for various sectors such as agriculture, mining, manufacturing, construction, wholesale, retail, and services.
The report highlights that severe inflation has exacerbated the downturn in Nigeria’s private sector, leading to significant increases in overall input costs, which have risen at one of the sharpest rates recorded to date. Consequently, selling prices have also surged, negatively impacting new orders and overall business activities. The acute rise in costs has forced businesses to recalibrate their operations, resulting in a notable contraction in demand. However, despite the adverse conditions and the drop in workloads, firms have shown a slight increase in staffing levels, suggesting a level of resilience in workforce management during this economic downturn.
Commenting on the survey outcomes, Muyiwa Oni, the Head of Equity Research West Africa at Stanbic IBTC Bank, characterized the deteriorating situation in Nigeria’s private sector, emphasizing that the notable driver of this distress is the heightened inflationary environment fueled by currency depreciation and increasing prices for fuel and transportation. Alongside this, three out of the four monitored sectors experienced output declines, with only agriculture reporting growth. This situation reflects a broader trend influenced by unabated price pressures that are dampening consumer demand and stifling business investment in the non-oil sectors of the economy.
Amidst this turbulence, the report notes that Nigerian companies have continued to make incremental staffing decisions, reflecting a balancing act of maintaining employment levels while also confronting rising costs. Although some businesses have reduced staff amid financial strains, others have opted for temporary hires to meet short-term operational demands. Thus, while the overall economic situation is challenging, the consistent job creation observed over the past six months suggests a cautious optimism or an attempt to retain talent in anticipation of potential recovery.
Furthermore, the analysis indicates a sharp increase in overall input prices during the review period, marking the third-fastest rise in the survey’s history. This surge in costs is largely attributed to currency fluctuations alongside escalating fuel and transportation expenses. In response to the mounting costs of living, companies are compelled to increase wages, achieving the highest rate of pay growth recorded in seven months. However, amidst these rising input costs, companies are also compelled to elevate their selling prices, resulting in rapid inflation of charges that has led to a marked decline in customer demand.
In summary, the October PMI results showcase a significant downturn in business sentiment in Nigeria, influenced primarily by severe inflationary pressures and a challenging economic environment. The lowest recorded sentiment points to the urgency for policy interventions to stabilize the economic landscape and restore confidence among business operators. The trends suggest that unless measures are implemented to address the underlying causes of inflation, such as currency stability and cost management, the private sector in Nigeria may continue to face headwinds, impacting employment and overall economic growth in the foreseeable future. The interplay between rising costs, decreased demand, and modest yet persistent job creation forms a complex narrative of resilience amidst adversity in the Nigerian economy.
